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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.

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PerrySteven FindlayCivisisuspjnelsonBarry Carol Recent comment authors
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Steven Findlay
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Steven Findlay

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

Perry
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Perry

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

pjnelson
Member
pjnelson

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… Read more »

Steven Findlay
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Steven Findlay

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… Read more »

pjnelson
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pjnelson

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… Read more »

Barry Carol
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Barry Carol

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… Read more »

pjnelson
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pjnelson

I think that a thoroughly considered proposal for this already exists.
See http://www.ahip.org

Paul Nelson, M.D.

Peter
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Peter

“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!

Paul @ Pivot ConsultingLLC
Member

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.

Allan
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Allan

“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,… Read more »

jamesepurcell
Member

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… Read more »

Brian Ahier
Member

James is right of course.

Civisisus
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Civisisus

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… Read more »

Peter
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Peter

“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… Read more »