Aetna In Danger Of Losing Large U.S Military Contract

Kenneth R. Gosselin

Nov. 6, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Aetna (NYSE:AET) Inc. is in danger of losing a U.S. military contract that would have been its largest, after the Government Accountability Office upheld an appeal from the health insurer that now has the contract.

Chuck Young, a GAO spokesman, said Thursday the GAO's recommendation that Aetna not replace Health Net Inc. (NYSE:HNT) as the provider for the Department of Defense's contract for the north region of TRICARE isn't binding.

Young said government agencies don't have to follow GAO recommendations.

"But they usually do," Young said.

The loss of the contract would be a blow to Hartford-based Aetna, which stands to gain an estimated $1.1 billion of net revenue over five years and 2.8 million more members under the contract. TRICARE is a health insurance program for active-duty and retired military personnel and their families.

Health Net, a rival bidder for the contract, appealed the selection of Aetna in July, triggering a GAO review. On Wednesday, the GAO said it had sided with Health Net -- sending that recommendation to the Defense Department.

Young said he couldn't comment further because a public version of the decision -- without proprietary information about the companies -- had not yet been prepared. It wasn't clear when that version would be released.

If the Defense Department accepts the GAO's recommendation, the military could seek new bids for the contract. The current contract expires March 31.

Aetna said it would cooperate with the Defense Department as it considers the GAO's recommendations.

"Aetna Government Health Plans is extremely proud of the strong proposal we've submitted to the Department of Defense," said Susan M. Peters, president of Aetna Government Health Plans.

Health Net declined to comment Thursday because it isn't clear what the Defense Department's next step will be. The insurer has not commented on its arguments in the appeal.

The TRICARE north region includes Connecticut, the rest of New England, New York, New Jersey, some other Atlantic Coast states and a few in the Midwest.

When Health Net won the current north region contract in 2003, losing bidders Aetna and Sierra Health Services appealed but lost. Health Net has served the Defense Department since 1988 under TRICARE and its predecessor programs.

Aetna had been expected to hire many new employees -- potentially hundreds -- to handle the contract, though most of the jobs would have been outside Connecticut, in states where there are large military facilities.

Newstex ID: KRTB-0083-39484218