Aetna’s Marketplace Retreat: Tit for Tat with the DOJ or Just a Business Decision

Coverage of devastating flooding in Louisiana, the Olympics in Rio and the daily Trump-Clinton political jousting were last week’s news but a healthcare item grabbed front page headlines as well:

“Aetna to Pull Back from Public Health Exchanges” New York Times

“Aetna slashes Affordable Care Act exchange participation to four states” Los Angeles Times

“Aetna to Drop Some Affordable Care Act Markets” Wall Street Journal

“Aetna changes add consumer pain as health care costs to rise in 2017” USA Today

“Insurers continue to abandon ACA exchanges, limiting choice” US News and World Report

And the story figured prominently in network and online coverage as journalists called it a “blow” to the Affordable Care Act, speculating it was retaliation by the insurer against last month’s decision by the Department of Justice to challenge its proposed acquisition of Humana in a $37 billion deal.

 Context is key. Facts are important. So here’s both:

Aetna’s decision to pull the plug on its marketplace participation in 11 of the 15 states where it plays was a business decision: it was lost $430 million in its exchange-based individual policies since January 2014 including $200 million this year. Why? It attributes its losses to adverse selection (fewer “young and healthy” signed up, so medical costs were higher) and flaws in the marketplace structure (loopholes allowing special enrollment periods for sick people needing care, under funding of risk assured by the government, et al). These coupled with underpriced premiums compounded its losses, prompting it to join United, Humana, and others who’d experienced losses and reduced their marketplace participation. Some, like Centene, Molina, Blue Cross of Florida and Kaiser have fared well in their exchange business efforts, leaving Wall Street analysts to assess the root cause for Aetna’s losses. That’s the storyline business and trade journalists will likely follow in coming weeks: why some plans have done OK in their marketplace programs and others haven’t.

Aetna’s decision was also about posturing relative to its mega-deal with Humana. The Justice Department specifically asked the company to opine to its marketplace participation plans pursuant to the pending deal. In reply, CEO Mark Bertolini’s July 5 response left no doubt about its plans: "Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses. Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint." Is there an element of tit for tat in Aetna’s decision to curtail the majority of its marketplace effort? No doubt.

Aetna will survive regardless of whether it participates in the marketplaces or completes its acquisition of Humana. It reported $15.95 billion in operating revenue and $783.3 million operating earnings in its second quarter—both above 2Q 2015 performance (revenues 5% higher, profits 8% higher). The fact is Aetna is a huge company whose shareholders have benefited from its success through the years. To the financial community, it postures itself as “one of the nation’s leading diversified health care benefits companies, serving an estimated 46.3 million people “and is prominent among insurers entering joint venture arrangements with reputable provider organizations like Texas Health Resources, Duke Health Inova Health System and others. Indeed, it will pay a break-up fee of $1 billion if it’s deal with Humana doesn’t close, but recover quickly by eliminating its exchange losses and strengthening its position in other markets and lines of business.  And as Medicare leads the charge to pay providers based on value instead of volume, Aetna and other insurers are poised to play key roles. The company’s strong; its marketplace business was weak. It will adjust and move on.

But the rest of the story is equally important.

For the majority of Aetna’s 838,000 marketplace enrollees in the 11 states it’s exiting, it means they’ll have to find a new plan and pay higher premiums starting in January.

For the hospitals and physicians who serve these individuals, care will continue though reimbursement will be uncertain.

For the 11.1 million who are enrolled through the marketplaces this year, it means anxious weeks ahead with the certain expectation of higher premiums (estimated 9% on average per Kaiser Family Foundation) and limited plan options from which they’ll choose.

For political pundits and candidates running for office in Campaign 2016, it elevates rhetoric for and against the Affordable Care Act.

Media reaction to Aetna’s decision was not surprising: it’s obvious changes in the marketplace risk calculus are needed to stabilize insurer participation and enable lower premiums. And Aetna’s business decision did have an element of punch-counterpunch in light of the DOJ’s posture toward its acquisition of Humana.

But for the rank and file of our society, especially Generations X, Y and Z (born after 1965) who fear the healthcare system’s cost is spiraling out of control, it prompts reason to think about alternatives to the confusing pluralistic insurance system we have in the U.S. The public sees value in private insurance coverage but it’s a part of the American dream that might be slipping away.

In some circles, Aetna’s decision to curtail significantly its marketplace efforts is being called un-American and unpatriotic. That sentiment is off-target: the company is doing what its board thinks best to be profitable. End of story. That’s the American free enterprise system.

The larger question is this: should health insurance be a public utility model wherein private plans are regulated and given authority to serve a given community, or integrated in a hospital’s service so that costs and care are managed by integrated systems of health, or limited to catastrophic plans so coverage is for big ticket events only or should the government simply be the insurer for everyone except those who pay additional for private coverage similar to the public-private systems embedded in primary and secondary education.

No doubt, this Aetna story will continue as regulators decide the fate of the Anthem-Cigna and Aetna-Humana deals, and as premium increases for marketplaces are announced. But looming behind these headlines is an important discussion we need to have: what’s the future of health insurance in this country? It’s a discussion we’re destined to have.