Aetna’s Obamacare Surprise

Screen Shot 2016-08-21 at 10.41.37 AMDid Aetna just pull a nasty, Trump-like move and up the ante on the Obamacare debate in advance of the election and exchange open enrollment for 2017?

The allegation is that the company withdrew from 11 state insurance exchange marketplaces for 2017 after the Justice Department failed to heed Aetna’s warning that it would do so if Justice didn’t approve its $37 billion purchase of Humana.  The Justice Department announced last month that it was challenging that deal and Anthem’s proposed merger with Cigna, saying both deals threaten to sharply reduce competition in the health insurance marketplace.

A July 2016 letter from Aetna to Justice, unearthed by Huffington Post, contains the threat.   But in announcing its exchange pullback this past week, Aetna made no mention of the letter and insisted its action was prompted by existing and expected future financial losses in the exchanges.

Even if there was no quid pro quo with respect to the Humana purchase, was Aetna’s move justified by the losses, and forecast of future losses?

You could argue that’s their business and their decision.  But in April, according to news reports, Aetna’s CEO, Mark Bertolini, said the company was committed to staying in the exchanges and making them work.   Indeed, he told analysts that it would have cost the company around $1 billion to acquire the million or so new customers it had signed up on the Obamacare exchanges.

Moreover, the company booked $200 million in ACA-related pretax losses in the second quarter of 2016—not insignificant but far from an existential threat to the company.

In addition, there’s every indication at this point that state regulators are going to approve fairly substantial premium increases for 2017.

Said Bertolini this week: “As a strong supporter of public exchanges as a means to meet the needs of the uninsured, we regret having to make this decision.”

News reports implied heavily that what Bertolini and Aetna started to really worry about was the possible $1 billion breakup fee they’ll have to pay Humana if the purchase deal is blocked.  And thus, there’s the future implication in Aetna’s move that it is losing faith it will prevail in its merger battle with the government.

Aetna’s withdrawal from the exchanges is just the latest.  UnitedHealth said it’ll depart all but a few of exchanges in 2017 and Humana is dropping out of many exchanges, too.

So, here’s question 1:  Do these large, powerful, and rich insurers have a social responsibility to hang in the exchanges for at least a few more years to help address what was an awful 40 year social problem (too many uninsured) and market failure that was largely of their making?

Question 2:  Are the mergers among four of the largest health insurers a good or bad idea?  Is the Justice Dept. right or wrong to try and block them?

Question 3:  Is Obamacare imploding, with proposed premiums soaring and stable insurers dropping out?  Or is this just an expected period of turmoil in a new and highly competitive marketplace in which consumers have turned out to be very price sensitive (about 40% of returning exchange enrollees switched plans last year and the vast majority went to cheaper coverage) and in which there will be winners and losers?  (The co-ops were clearly big losers.)

Question 4:  Is the adverse selection issue in the exchanges—too many old, sick people and too few young healthy ones—a potentially long-term problem that’s unlikely to change without major remedy.  Or is that a short-term problem likely to correct itself over time, especially as the tax penalties get larger?  Could 2017 be the turning point year when young people start to flood into the exchanges, due to the higher tax penalties, marketing, and social forces?

Question 5:  What can and should be done to control premium increases in the exchanges?  Should benefit designs be more flexible?  Do the subsidies need to be increased to make coverage more affordable, or is that caving into insurers and providers failure to control costs?

Let the dialogue begin?

Steven Findlay is an independent journalist and editor who covers medicine and healthcare policy and technology.

14 replies »

  1. Hmm, looks like it’s going to be “America’s Big Obamacare Surprise”, and it won’t be pretty.

  2. Addendum: A Vox analysis finds that nearly 700 counties may have just one exchange insurer in 2017. Just one insurer has so far said they’d offer plans in 687 counties. That’s nearly four times the 182 counties that only had one carrier this year. In addition, two thirds of all counties had at least three insurers competing for customers this year. In 2017, that’s poised to fall to 44.3 percent.
    The Obama administration cautions that rates haven’t been finalized and that it’s too early to draw firm conclusions about market competition. Link: http://bit.ly/2c63TDl

  3. “I CEO’d a non profit, but we competed in the for profit world and there was scant difference in the end between us other than our commitment that when we made strategic decisions we’d also consider the public interest”

    By your Bio that would have been BCBS. In NC there is no evidence BCBS operated(s) in the public interest given their huge executive bonuses coupled with ever increasing premiums and the recent claims processing mess.

    My own stint at BCBS was great until I needed a small claim paid. I then found myself in the corporate grinder of delays, multiple lost documents and non-existent customer service. I only got what I was due when I had got the Insurance Commission involved – BC then paid the original claim as submitted. One BC employee told me BCBS does this all the time – I assume the purpose is to wear most people down who then do not pursue the claim.

  4. Albert Einstein said: “We cannot solve problems by using the same kind of thinking we used when we created them.”
    Ralph Waldo Emerson said: “Do not go where the path may lead, go instead where there is no path and leave a trail.”
    Thomas Jefferson said: “I am certainly not an advocate for frequent and untried changes in laws and constitutions. I think moderate imperfections had better be borne with; because, when once known, we accommodate ourselves to them and find practical means of correcting their ill effects. But, I know also, that laws and institutions must go hand and hand with progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths disclosed, and manner and opinions change with the changes of circumstances, institutions must advance also, keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy, as a civilized society to remain ever under the regimen of their barbarous ancestors.”
    And finally, Eric Hoffer said: “In a time of drastic change, it is the learners who inherit the future. The earned usually find themselves equiped to live in a world that no longer exists.”

  5. Thanks to all for comments. Many good points, even amid the predicted fulminating by a few. But it’s a free country; we even have a presidential candidate now who’s allowed to say whatever stupid thing he wants. His only comeuppance will be losing the election and probably incurring the long-term wrath of the Republican party. His business interests will probably thrive.
    And so will Aetna’s, not that I’m equating Bertolini with Trump.
    I think the adverse selection (I guess we could call it “election” – as in who elects to enroll in the exchanges) problem is very serious right now but there’s at least a 50/50 chance it will start to improve in 2017 and beyond. To assure and accelerate that, changes to the law (ACA) are needed. Some ideas for that are suggested in the comments below .
    Congress (with possibly a Dem Senate) and a Hillary administration will hopefully get their act together and make those changes.
    The health insurers meantime should be thinking long and hard about their role.
    I think the insurers should sit down with the new administration in Feb 2017 to discuss fixes and chart a course for the future. Not collusion. But no industry should operate outside the zone of human needs and the public good. That was part of the problem with the U.S. health insurance industry (for-profit and NFP) for decades. It’s not the model in most EU countries. Selling health insurance and health care access is not like selling cars, TVs, cell phones or microwaves. It must become more akin to a regulated utility, albeit still private, competitive, innovative. Medicare for all is not in the foreseeable cards.
    As for the mergers, they should be blocked.

  6. James is NOT not right, in about 5 different directions – among them that he doesn’t know the difference between a blog and a post TO a blog. His own post, found earlier at THCB, is as simultaneously defensive and bereft of useful clarification of the state of ACA as one can expect of any industry flak.

    But Jim was in the business, so he “knows”. Well, I am in the business, and I “know” too.

    “Actuarial soundness” belongs in the same conceptual category as “military intelligence”.

    Actuaries can tell you everything you want to know – about what happened yesterday, or earlier. They’re not especially helpful, most of them, when it comes to forecasting what happens next – mostly because to actuaries, all claims, of any kind, ,for any purpose, are “losses”.

    It’s the classic knee jerk response of “industry pros” to retreat behind the fig leaf of “sensible insurance principles” to explain why [fill in your favorite policyholder-or-society-damaging insurance industry behavior] is OBVIOUSLY needed, and has been reprehensibly abandoned in some regulatory or other non-insurance-industry response.

    Any “insurance pro” – heck, maybe even a junior actuary! – will tell you that events triggering steep health jnsurance bills are about as far from “ideally insurable” as you can get in the realm of “sensible insurance principles”. But does Jim, or practically any other “industry pro”, ever remind you of this? Of course not – it interferes with the story line of their apologia.

    Aetna has ZERO “responsibility to hang in there” – but Aetna’s BOARD should be calling Bertolini on the carpet for his “divergent” positions on the direction Aetna ought to take. Bertolini’s squalid, two-bit gangsterism on the organization’s exchange participation is “not good for the brand”, as the marketing whizzes – supposedly Bertolini’s forte, no? – like to say.

    And Aetna operates as a business by the good graces of the charter we, the people – at the state if not federal level – grant them, so aw hell yeah, we can use them as a punching bag if we feel like it. The damage that the ludicrous notion businesses can’t be held accountable somehow for not behaving in our “community of commerce” causes to our assessment of appropriate remedies is incalculable, and so such ludicrous misapprehensions ought to be regularly and vigorously rejected.

  7. Let’s see. Oh yes! 5% of citizens use 50% of our nation’s resources used for healthcare. The next 45% of citizens use 45% of these resources. And, the last 50% of citizens use 5% of the national healthcare cost or about $90 per month each. You are right. Its a Power Law Distribution Curve. We have a thoroughly considered actuarial strategy for the high users but none for low users, especially as a means to establish the patterns of healthcare required to reduce their future need for hospital days.
    As the best measure of our nation’s healthcare accessibility, please remember that we would need to reduce our nation’s maternal mortality ratio by 80% to rank among the ten best, developed nations of the world. Bottom line: there will be absolutely no improvement in our nation’s cost of healthcare without a shift in the payment process for Primary Healthcare. It should be “capitalized” as a prepaid medical expense. This change should be paired with a community by community plan to improve the accessibility and quality of Primary Healthcare, locally initiated (no need for another centralized institution).
    There is NO time to spare since the medicare eligible population bulge is on our door-step. Another round of hospital expansion projects would push the cost of healthcare to either produce painful rationing or our nation’s international bankruptcy. Either we figure our how to reduce the need for hospital days…or else! HINT: The Cooperative Extension Service (a la Smith-Lever Act of 1914), county by county has promoted an agriculture industry that is the most efficient in the world.

    Paul Nelson, M.D.

  8. Here’s my take.

    First, I don’t think the insurers have a social responsibility to hang in there for a few more years. The losses are far more than the carriers expected due mainly to adverse selection and gaming the system especially with respect to the special enrollment periods. The ACA provided for some protection for insurers during the first three years of the program from risk adjustment, reinsurance and risk corridors. The latter two are scheduled to expire at the end of this year which will exacerbate the problem. I’m told that the off-exchange plans for which buyers do not receive subsidies are also in an adverse selection death spiral. Those serve an estimated 8.5 million people.

    Second, I think the proposed mergers between Anthem and Cigna and Aetna and Humana are both good ideas. In retailing, we see plenty of competition between Wal-Mart and Target, Home Depot and Lowe’s, Walgreens and CVS, a small number of supermarkets in each geographic region, etc. In the meantime, more and more hospitals are getting into the health insurance business with narrow network (their own system) products. Moreover, the MLR rules limit how much profit the insurers can earn from selling health insurance.

    Third, if by Obamacare, you mean the exchanges, then yes, they are imploding due to the adverse selection death spiral.

    Fourth, I think adverse selection is a long term problem that isn’t likely to go away without major changes in the program.

    Finally, with respect to possible fixes, I suggest the following: (1) increase the maximum age rating band from 3 to 1 to 5 to 1, (2) eliminate the income ceiling for subsidy eligibility, (3) make maternity benefits, mental illness benefits, alcohol and substance abuse benefits, and chiropractic care optional choices for prospective customers, (4) increase the penalty to something closer to the cost of the lowest cost plan in the marketplace for a young person and (5) tighten the rules related to the special enrollment periods.

    Alternatively, scrap the whole thing, go back to medical underwriting, and provide adequately funded high risk pools that actually work for the people who need them by providing them with decent coverage at a premium they can afford. That would be an expensive proposition which is why we never saw it from 1977 until the passage of the ACA when 35 states plus DC offered high risk pools and the other 15 states did not offer them. The bottom line is that there are no easy or cheap answers here that will work for the people who need health insurance the most which is the unhealthy and already sick. Going back to underwriting will, of course, benefit the healthy at least as long as they remain healthy and as long as their chosen insurer stays in business and continues to offer insurance in the customers’ home markets.

  9. “question 1: Do these large, powerful, and rich insurers have a social responsibility…”

    Insurers have never operated with a conscience, let alone a social one.

    Medicare for all!

  10. Hey, it is all crony capitalism….a shakedown/extortion/pay to play racket. When you pay/support them, and then they turn on you….all bets are off. Maybe they should have written bigger checks to the Clinton Foundation.

  11. “Did Aetna just pull a nasty, Trump-like move and up the ante on the Obamacare ”

    Did Aetna do what is in Aetna’s best interest? Or, do some prefer Aetna to be like Solyndra dependent upon the good graces of Obama? Alternatively, did Aetna act like Obama in a destructive fashion hoping that someone else will blink on the road to mutual destruction? When Obama has industry by the you-know-whats, what does he do? Bribe, force, prosecute all activities supported by the strongest army in the world. Why are you suddenly complaining? Did you complain when Obama threatened insurers, hospitals, doctors or even patients? I don’t think so. Perhaps you like dictators, of course, as long as they agree with you.

  12. Where to begin. First Steve, thanks for the thoughtful blog. It set up the discussion points well. To describe health insurers as “rich” is almost a non sequitur. They are businesses, and we have to get used to that. I CEO’d a non profit, but we competed in the for profit world and there was scant difference in the end between us other than our commitment that when we made strategic decisions we’d also consider the public interest, as nebulous as that may be.

    Adverse selection is a huge issue on the exchanges. That much is clear. It can be gamed and is. We need strong underwriting guidelines to keep an essentially financial transaction sound. The exchanges are not sound actuarially. There it is.

    The mergers: I dunno. That’s a hard one. I think reducing our insurers down to a precious few portends problems, so I’m skeptical about the mergers. Mergers in healthcare have not, for the most part, advanced the game well. The Blues (and yeah I’m prejudiced) are the exception.

    Do large insurers have a social responsibility to hang in there? Yes, emphatically so.

    And yet, they do not have the social responsibility to be punching bags.

    Hope this was helpful.