The case for Aetna’s sale of Coventry’s workers comp business

I’ve heard from several folks contending that Aetna will sell Coventry’s workers comp business, all making essentially the same points.
1. Aetna already has exited comp twice – once when they sold their workers comp insurance business to the Travelers, and then when they shut down AWCA, their comp PPO and PBM.
– True. However what this has to do with future plans is unknown.
2. Aetna bought Coventry for reasons other than work comp.
– True – that doesn’t mean they don’t like the $250 million in free cash flow from the comp business.
3. The CFO at Aetna doesn’t want anything to do with comp.
– Not having knowledge of the CFO’s perspective I can’t address this. I’d hazard a guess that the cash flow is kinda nice.
4. Comp revenues at <$800 million annually are small potatoes.
– But cash flow of $250 million is anything but.
5. Comp is a potential distraction.
– As are dental, life, disability, PPOs…
6. Aetna needs the cash from a sale to pay down Coventry’s debt.
– I don’t see it. With debt service costs at an historical low (and likely to decrease with Aetna’s lower interest rates, and Aetna needing cash to pay for preparations for health reform, selling an asset and using the cash to pay down debt doesn’t make sense.
Finally, as I said yesterday, despite my carefully reasoned arguments to the contrary, Aetna may want to sell the work comp business. To do that, they would have to uncouple the workers’ comp provider contracts in such a way that the buyer would get perpetual access to those providers at current discount rates.
That’s just not going to happen. No provider is going to agree to that.
And without the network, the value of the business goes way, way down.
I’d be remiss if I didn’t make the following statement (thanks to a heads up from a confidential source). Despite losing the ACE/ESIS business early this year, Coventry WC’s top line only decreased $2.2 million for the first half of 2012, driven by increased sales to new and existing customers.

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