Interview: Cigna Corp.---Hanway, H. Edward---Chief Executive Officer
we’re going to focus in on another cost issue, a problem that concerns most businesses in this country―the rising cost of healthcare. today, the world healthcare conference in washington, executives from cigna, verizon and pitney bowes sat on a panel to discuss the rising costs. joining us now to address the issue is ed hanway, c.e.o. of cigna. what are the major concerns you’re hearing from america’s businesses about how to balance the need to pay for these rising healthcare costs between what they pay and their employees pay?
>> well, i think i’m hearing a couple of things. one, the total cost is clearly an issue and it concerns employers from a global competitiveness standpoint. so clearly they’re concerned with costs. they’re also very concerned with quality and the health of their work force. and i think there’s a dawning recognition that the one way to rein in costs is to improve health and to do that by more effectively engaging consumers in the management of their health and taking responsibility not just for the financing of their health insurance, but also for their actual health status.
>> you’re a proponent of consumer-driven health plans. give us a history of how they actually work and what you’ve found as far as the effectiveness of that in reducing costs.
>> our approach to consumer-driven healthcare is not just supportive healthcare savings accounts or healthcare reimbursement accounts. we really believe you need to take a very broad view of engaging consumers more actively in the management of their health and we do that in three ways. we personalize the benefit structures and programs for them as individuals to recognize their different status in life. secondly, we engage them very actively with health coaching and health advocacy to help them make the right choices and we support that all with effective, actionable information. whether you have a health savings account involved or whether it’s a more traditional product, getting the consumer more engaged in decision-making and giving them the tools to help them make appropriate decisions is what we think is the key to improving health.
>> tell us how it translates into a business plan? how do you offer policies going forward to reflect that at lower costs?
>> i think we do a couple of things. many employers, for example, that deal with us are looking not necessarily to spend less, but to spend it in different ways and to let the consumer, through their buying habits, change the cost trends associated with this. so the way we do it is providing very robust information tools, for example, to help the consumer understand their benefits first, and secondly, how the decisions they make will impact their own costs as well as their employers’ costs so we provide support tools around quality and cost metrics for providers and hospitals. we provide very robust information around pharmacy costs and how they differ by facility, by drug, and what the implications are for behavior changes consumers can make before they purchase those drugs or need to.
>> you’re in the process of trying to rebell your customer base a bit―rebuild your customer base. how is that helping you in that effort internally?
>> it’s helping us significantly. we believe that it’s not inconceivable that close to 25% of the insured population will be in some form of consumer-directed plan within the next five years and the growth rate that we are seeing in our consumer directed programs is actually close to 200% this year. so as a practical matter, our membership is growing very significantly in these consumer-oriented plans and products and we’re getting good recognition in the marketplace, now, as being a leader in providing capabilities required.
>> tell us what you’re saying with the prescription drug plan under medicare.
>> the prescription drug plan we’re offering under the part d program is one we think is quite sustainable. we think it has a good relationship of benefits and costs for seniors that choose it. and we’re quite pleased with the positioning we have in the marketplace. we won’t be the biggest medicare part d provider but we think we will be one that is recognized as providing very strong value for a reasonable premium and that that will grow over time and be sustainable.
>> when we look where you’ve come since your fourth-quarter earnings report, tell us where you are on the cost cutting side of your business.
>> we’ve been explicit about the cost cutting that we’ve been doing and we like to term it as the productivity improvement we’re going to see. we’ve made significant investments in new technology over several years, we’re reaping the benefits of those investments today. we are becoming much more efficient in terms of how we play claims as well as how we administer the products we’re offering and we will expect to continue to see that productivity evolve over the next several years. we have close to 99%, now, of our membership on these new platforms and so the productivity we’re seeing from them is quite significant.
>> ed hanway, c.e.o. of cigna, we appreciate your time.
>> thanks for having me.
>> while we’ve been chatting, there have been earnings reports out. i.b.m., motorola, amgen. bob bowden is starting it out.
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Listen Interview: spencer clarke---sheldon, michael---chief market strat
Interview: National Economic Council---Hubbard, Allan---Director
>> the dow with its best performance in about a year. at the big board, almost four stocks advance for every one that declined. also, white house economic adviser allan hubbard was watching today’s market close at the nyse. we will be talking live with him shortly. first, let’s get you those settling numbers as the market closes. the markets finishing near the highs of the day. the dow surging 193 points, s&p up better than 22 and nasdaq up 44. we just want to go inside the bloomberg and take a closer look at the chart of the s&p 500, which really mirrors the nasdaq and dow. straight up at open, a lot of buying throughout the day and right here, this is when the fed meeting minutes were released at 2:00 p.m. eastern and the market took another leg higher and continued to rally, approaching its highs for the session at the close, just a couple of points from that. we want to examine what this rally means not just for the market on this day, but what it means for stocks going forward. for that, i’m joined by michael sheldon, chief market strategist at spencer clarke. welcome.
>> thank you.
>> very busy day in the markets . when we see this rally, one thing analysts and technicians look at is the volume. was there the volume behind today’s gains to get people enthusiastic about tomorrow?
>> we look at breadth and volume. the breadth today was very impressive. if you look at the sectors participating and the number of stocks in the s&p 500 or nyse -- i didn’t see the final volume numbers but volume is important. i would say if we get volume above 1.8 billion or so, above two billion is very impressive, but above 1.8 billion, combined with breadth, is likely to lead to followthrough buying definitely tomorrow.
>> it was an interesting day, too, in that the rally took off. let’s take a breath and make sense out of it because a lot of things didn’t seem to make sense today. oil, a new high, above $71, commodities showing strength. the fed minutes were a big focus in the rest of the afternoon but why, before that, did we see the market sustain momentum like it did?
>> if you step back, there are a few factors responsible for today’s rally. first is how we started the day, before the market opened, with strong earnings reports. companies like merrill lynch, manpower, timken, a variety of companies produced solid reports, creating a more positive environment. at 8:30, we had economic releases. housing starts and the p.p.i. came out. both of those led to a modest rally in the bond market and 10-year yields at that point fell below 5%. by noon, we had a 100-point rally in the markets . as you pointed out, at 2:00, the fed minutes came out and while the fed will never say exactly what they’re about to do, it did indicate they’re close to the end of their tightening cycle. they remained concerned about inflation but that seemed to be less of a factor at this point and later in the day, the market volume picked up. i didn’t see the final numbers but one last factor, we might have seen short-covering because the markets were at their lowest level in several weeks. all in all, those are the reasons behind the rally.
>> do you think it can continue tomorrow?
>> one of the things we’re watching closely is bond yields, which performed well today. and we’re watching oil prices. oil prices reached―sorry, $70.80 back in august of 2005. if we get above that level, at least technically, you could see oil prices rise another $5 to $20. that would be troublesome for the markets and that’s something we’re watching.
>> do the fed minutes today sort of mitigate those concerns about inflation?
>> i think you have to look at why the fed may end their tightening cycle. if you go back, data going back to 1950, historically, when the fed stops tightening, the market hasn’t necessarily done that well so we’re looking for a slowdown in the economy led by the consumer through the middle summer months so looking for a little pullback and later in the year, more of an advance in the market . over the near term, we think the market is probably range-bound.
>> the s&p 500 at this point is up 4.75% so far year to date. realistically, where can the s&p go for the rest of the year in light of the fact that we might have a bit of a pullback in the months ahead.
>> instead of actually coming up with a price target, we look at the overall environment for the market . again, over the near term, we think the markets are likely rangebound. historically, during the midyear cycle of the presidential cycle, the markets do pull back. we think oil prices and interest rates are a risk so we see the market pulling back somewhat in the summer months and as an investor, i think you want to move from small caps into large caps, maybe get more defensive through the year. we’re not there yet so right now you want to focus on areas of growth.
>> so the risks are still there although we didn’t see them today. we thank you very much for explaining the rally to us, michael sheldon, chief market strategist at spencer clarke. now to the new york stock exchange, deborah kostroun has a wrap-up of the day.
>> thanks a lot, rhonda. yes, action is what we did see. volume, as your guest was talking about, volume heavy at 1.84 billion shares, 1.65 billion of that up volume, so decidedly positive day, it started that way and getting even higher after the release of the fed minutes. we also have to remember, 150 different companies releasing earnings, so we did get quite a bit of earnings in today’s session helping things out. all 30 members of the dow jones industrial average were higher led by hewlett-packard, caterpillar, honeywell and alcoa. some of the records from today’s session, we are getting to levels we saw at the beginning of march. so you saw the small caps, midcaps, russell 2000, amex broker/dealer index, all hitting records once again because we’ve been drifting away from lofty levels but are back to them although the rise was the largest in almost a year. other records, energy, integrated oil, cyclicals and the goldman sachs commodity index, all rising to records today. if you look at the 24 industry groups, the biggest gainers, almost all 24 industry groups were higher on the day. the s&p healthcare index was kind of teetering here at the close. gainers in today’s session, as the fed is talking about an end to the interest rate cycle, as you would imagine, real estate stocks among some of the best performers. you had real estate, material and also semiconductors. not only real estate, but material stocks really led by earnings from freeport-mcmoran. mind-boggling earnings from freeport-mcmoran, first-quarter profit surging over 80% on high prices for gold and copper. integrated oil and coal stocks among best performers today. and financial companies, not only the banks doing well but you had earnings from financial companies like merrill lynch and state street reporting profit topping analysts’ estimates. you saw state street at a 52-week high, jeffries posting record profit, also hitting a 52-week high, as well. rhonda, back to you.
>> thanks so much. we want to join our stocks editor, bob bowden. we’ve had many earnings reports after the bell. bob is looking through those for us.
>> wanted to start with amgen. the company reporting on the earnings front, 91 cents a share against an 89-cent analyst estimate and net income up 17% as doctors prescribed more of the aranesp cancer drug. the problem is revenue coming in below the analysts’ estimates. i’ve charted the intraday chart throughout most of the day but shows the volatility after hours once the earnings report was announced, the fact they missed the revenue number. the stock closed regular trading at $70.97, now at $70 hadn’t 0 -- $70.01, so down 96 cents, both up and down since that news came out. also in terms of earnings, motorola out. we will update you on those numbers am motorola’s operating earnings coming in at 29 cents a share, meeting the 29-cent analysts’ estimates. revenue exceeding expectations, cl 10.04 reported. the forecast at 30 to 32 cents a share of earnings predicted by motorola. 31 cents is where the analysts are. first-quarter mobile device revenue up 45% for motorola. rhonda, back to you.
>> thank you so much for that. allan hubbard, director of president bush’s economic council picked the right day to visit the new york stock exchange. he’s standing by after watching the market ‘s strongest close in months. welcome.
>> delighted to be with you and we’re so happy about how well the exchange did today.
>> quite a day, as we pointed out. what does this market rally and the enthusiasm you saw in stocks today tell us about the economy?
>> i’m no analyst when it comes to the market but i am when it comes to the economy and we have a very strong, sustainable growth rate with our economy. we’ve created over five million jobs in the last three years, over two million in the last year. our unemployment rate is down to 4.7%. wages have started growing much more rapidly, at about .2% per month since november. and the president and all of us on his economic team feel very positive about the economy.
>> it’s interesting, when we look at some of those numbers that you portray as a positive, the one headline that a lot of consumers and investors look at is what’s happening with oil prices and of course they feel that worry, they feel it at the gas pumps and they worry about what’s happening with the housing market . we did see a slowdown in housing today. those kind of issues, how potentially detrimental could that be to the economy, given that consumer spending accounts for 2/3 of economic growth?
>> the president and all of us are very concerned about high oil prices, especially when it comes to lower income people, to small businesses. obviously, lower-income folks have not budgeted for the higher oil prices, the higher gasoline prices. it’s very distressing to the president, very distressing also for small businesses. it might mean they will delay hiring a new person or delay investment in a new piece of equipment. the president made it clear in the state-of-the-union, is working hard to break the addiction of the american people to oil. it took us a long time to get into this situation and will take a long time to get out. this president is committed to doing that, developing alternative sources of energy to replace gasoline, replace crude oil, so we won’t be so dependent on unreliable suppliers around the world.
>> changes being made, we saw rob portman getting nominated today to run the key position of the office of management and budget and one thing president bush said was that he would like to see the budget deficit be reduced in a couple of years, 2009. what will it take to do that?
>> putting rob portman in that position will make this happen. rob portman will do an outstanding job. i’ve worked with him over the past year as he’s been u.s. trade representative. i actually think he fits even better in the o.m.b. position. he’s committed to reducing the budget deficit, committed to cuttinged deficit in half by 2009, which the president is committed to. rob portman knows congress, he knows the budget, he’s going to be aggressive in finding new ways to reduce the deficit and it’s going to be a lot of fun working with him and the american taxpayer will very much appreciate his looking out for their wellbeing.
>> would that be potentially by cutting spending, then? will we see so much economic growth that there will be an increase in tax revenues to help that problem?
>> i think you’re going to see a combination of the two. economic growth is very strong, the result of which will be strong tax revenues. but rob will be looking at opportunities to cut the budget further. as you know, the president, with the 2006 budget, the budget we’re in right now, recommended to congress and congress accepted a reduction in non-defense, non-security discretionary spending. his proposal for 2007 is another reduction in non-defense, non-security discretionary spending. the president also wants to address entitlements, which is the big elephant in the room. that’s the big challenge we have when it comes to fiscal discipline. last year he tried to tackle social security but the democrats refused to come to the table. he now says let’s create a bipartisan commission with the democrats to address not only social security but medicare and medicaid, as well.
>> so there’s a lot of potential work to be done and the one issue we did not talk about yet is defense. we would expect defense spending to increase. i’m wondering if the projections for defense spending will increase perhaps more than forecast in light of concerns about iran.
>> well, the one thing you can know for sure is this president will do whatever is necessary to protect the american people from foreign adversaries and he will spend what is necessary but spend not more than what is necessary. he’s committed. his number one responsibility is national security, that’s his number one focus and he’s doing an outstanding job of protecting the american people from our foreign adversaries.
>> switching gears a little bit, you said a couple of days ago on the trade deficit, it will probably continue in the $60-plus billion range for the near term. we have a very important meeting this week with the leader of china. what sort of progress can we expect to be made on that particular issue with chinese imports and exports?
>> the president is very committed to establishing a fair trading relationship with china. he believes in open markets but he believes in a level playing field. he wants to make certain that our goods have the same access to china markets that chinese goods have in our markets . we’ve been working aggressively on our trade relationship with china for a number of years. secretary of commerce guiterez and u.s. trade representative portman last week met with the finance minister, wu yi, from china, to talk about changes that need to be made in china to open up our markets to our goods, to protect our intellectual property rights and to open up their markets to beef and i’m happy to report that they made significant progress in all three areas. i’m sure the president will be talking to president hu about the china currency and the importance of that currency responding more to market forces and being more flexible in its exchange rate with the u.s. dollar. but what’s most important is that we level the playing field because the president is absolutely confident that the american worker can out-compete against any worker in the world.
>> we have to end it there. al hubbard, thanks very much for your time. we appreciate your thoughts. allan hubbard, director of bush’s national economic council.
