Microsoft’s relationship with Aetna, one of the nation’s largest private insurers, seems warming up. On Oct 21, 2008, the two companies announced a new collaboration that will allow six million Aetna members, or 16% of Aetna’s total insured lives, to transfer their personal health information from Aetna’s own PHR to Microsoft’s HealthVault. The long-term goal is to allow all members to do so.

Aetna’s PHR capability is built on its acquired assets from ActiveHealth Management back in 2005. ActiveHealth’s CareEngine system compiles member data from a variety of sources such as medical and pharmacy claims, lab results and information provided directly from the member, and create a personal health record for patients. Based on my own experience, Aetna’s PHR still lacks automated tools and applications that will make the medical information more meaningful for members. That’s what Microsoft’s HealthVault might come to help with. HealthVault is designed to be not only a record book but also an epicenter of new applications that can turn medical data into knowledge and action plans for consumers.

What will Aetna gain from the collaboration? Jumping to my mind first is the cost associated with continuous development of PHR system and tools that Aetna will save. Microsoft will absorb such costs and perhaps can do a much better job in application development than Aetna can by itself.

The second benefit is perhaps to increase the usage of PHRs among its members so as to benefit Aetna in reducing future claim costs. Since Aetna’s introduction of its PHR in late 2006, about six million members started to use it. It is an impressive adoption number, but perhaps not good enough. More importantly, I do not believe patient’s interaction level with Aetna’s PHR is meaningful enough to influence their behaviors at this point—one reason being the lack of useful tools that will enable patients to reap the benefits of owning a PHR. By allowing patients to access HealthVault’s applications, Aetna hopes that usage will improve.

Furthermore, using a third-party PHR could alleviate some consumers’ concern over insurer’s ownership of personal health data. They fear that if they add medical information other than from the claim records (like family history, smoking habits, etc.), insurers could use it against them (e.g. raise insurance premium sometime down the road). HealthVault’s security and privacy protection might alleviate such concerns, and encourage usage accordingly.

Finally, Aetna could leverage HealthVault to win more businesses with employers. Once PHR use proves to lower medical expenditure, Aetna can use it as a marketing tool to recruit more corporate clients.

What will Microsoft benefit from the deal? Obviously, the whole third-party PHR vendor space faces the issue of “when built, who will come?” Recruiting users can be expensive and scale is the key to PHR’s success. By courting Aetna, HealthVault has access to a big pool of potential users. I won’t be surprised if more such deals are announced in the next six months.