Online Extra: On Health Care after Nov. 2

Aetna CEO John Rowe says Bush's next move will be to cut back public programs as the deficit will seriously stress medical spending

Geriatrician John W. "Jack" Rowe came to the CEO job of Aetna (AET ) a few months before George W. Bush began his first term. Since then, Rowe has taken tough steps to restore the Hartford (Conn.) insurer to financial health, make peace with angry doctors, and lead the industry in everything from genetic-testing guidelines to consumer-driven health care.

BusinessWeek Associate Editor Diane Brady spoke with Rowe on Nov. 3 to get his take on the issues affecting President Bush in his second term. Following are edited excerpts of their conversation:

Q: What's your reaction to the results?


I'm really groggy. I stayed up waiting for the tally from Guam, you know. I was up until 1:30 a.m.

Q: What do you think will be Bush's next move?


After the first of the year, I think we'll see a movement to cut back public programs. The budget deficit is going to seriously stress health-care spending. The Medicare Modernization Act (MMA) has some goodies in it for everybody. That's how it got passed. It was really the third giveback from the Balanced Budget Act of 1997, when everybody really took a bath.

Medicare payments to doctors, hospitals, and health plans are going to really be scrutinized for rollback opportunities. There will be Medicaid cutbacks, and there will be very little discretional health-care money available.

Q: Do you think that's appropriate, in light of the deficit's size?


I think it's realistic. We feel pretty good about the Medicare payments to health plans because 98% of the extra money we got went out the door in either higher payments to doctors or lower premiums to beneficiaries. Those payments will probably be retained as they don't really benefit health plans, other than to strengthen the attractiveness of the product.

Q: So continuity [of Administrations] helps.


It's going to make the MMA implementation much better because the same team will be there. There's a lot of work to be done to get the PPO [preferred provider organization] programs up and running, as well as the pharmacy program up and running.

I think the President will probably permit a bill this year that will make a number of technical corrections to MMA. This often happens with a big omnibus bill. They discover a bunch of things that were unintended consequences, but I don't think it will do any damage to the fundamentals of Medicare reform.

Q: Do you see opportunities for other areas of health-care reform?


The only bill that I think is likely to be passed is a drug-reimportation bill. I think they may let it happen under controlled circumstances. There's a fair amount of support on both sides of the aisle.

Regarding the drug companies' concern about safety, I recall what one governor said: Show me the dead Canadians. Bush will push for malpractice reform, which wouldn't have been pushed under a Kerry-Edwards Administration, but it's unlikely to get passed unless they compromise on the issue of caps.

Q: Kerry consistently pointed out that lawsuits play a minor role in escalating costs. Do you really think tort reform is a big deal?


It's a very significant issue. While the total number of suits may not be that great, the defensive medicine that the threat of suits induces -- in the extra tests and things like that -- really adds up. When they look at the cost, they're not looking at the real costs.

And it's wrong. It's just a bad system. I think the patients' bill of rights issue won't be raised. Our view is that we're all for patients' rights. We've already adopted a lot of those provisions. But this is really a trial lawyers' bill of rights.

Q: So what will Bush do?


In addition to malpractice reform, I think he'll push for tax breaks for HSAs [health savings accounts] and tax credits for individuals, so people who are borderline uninsured might find insurance affordable. The question will be: Where's the money? There will be limited Medicaid expansion. He will push association health plans, which allows individuals to be brought together in a pool that's supported by the state.

Our concern is that public programs may crowd out private programs. Small employers may not want to spend all this money on health insurance when their people can go to association plans. Our view is that they should let companies like Aetna underwrite this -- figure out the risk, write a premium, and insure them. Otherwise, I think we may get significant action on class-action reform, too.

Q: Given Kerry's expansive health plan and milder position on tort reform, do you think the industry breathed a sigh of relief that he didn't get in?


The investors may be happy, but those of us in the industry realized that the composition of the House and Senate was such that there was not going to be any sweeping dramatic health-care change. There was nowhere for them to go.

Q: You've spent a career working with older Americans as a geriatrician. What do you think should be done with Social Security at this point?


I don't think there's going to be changes there. There's too much balance in the House and Senate. Since he can't save money on those entitlements, he can cut back on all the money that was given in the Medicare Modernization Act. Nobody is going to be surprised if Congress takes some of that back.

The deficit will limit the Administration's ability to get tax breaks for HSAs and tax credits for individuals.... I just see that the degree of freedom the Administration has is going to be dramatically restricted by the deficit. Everything that's not defense is restricted by the deficit. It's going to be a very difficult environment for the next couple of years.

Q: Do you see a light at the end of the tunnel, regarding Iraq?


Eighty-eight percent of people in Iraq say they're going to vote. It's not in the best interest of the insurgents to have democracy, but if they can get the vote done and get democracy in place, then things will be looking better.

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