Aetna CEO Threatened Obamacare Pullout If Feds Opposed Humana Merger

The big health care news this week came from Aetna, which announced on Monday it was dramatically scaling backparticipation in the Affordable Care Act thereby reducing insurer competition and forcing customers scattered across 11 states to find different sources of coverage next year.

Aetna officials said the pullout was necessary because of Obamacares problems specifically, deep losses the insurer was incurring in the laws health insurance exchanges.

But the move also was directly related to a Department of Justice decision to block the insurers potentially lucrative merger with Humana, according to a letterfrom Aetnas CEO obtained by The Huffington Post.

Paired with some looming rate increases for next years health plans, the abrupt departure of Aetna has triggered new worries that Obamacare a subsidized public-private system of health insurance plans competing for beneficiaries is in serious trouble and may even be unsustainable.

Thats despite millions who have obtained coverage through these marketplaces, contributing to a historically low uninsured rate. Its also despite optimism about Obamacare from at least some insurers and experts optimism that Aetnas own leaders had expressed just a few months ago.

Publicly, Aetna representatives this week framed their about-face as a reaction to losses the company was taking on Obamacare customers, and in particular figures from the second quarter of 2016 that the company had just analyzed, showing them to be sicker and costlier than predicted.

When reporters on Monday asked whether Aetna was also reacting to the administrations attempt to thwart its merger with Humana, company officials brushed off the questions, according to accounts in the Hartford Courant, Politicoand USA Today.

It is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked. Aetna CEO Mark Bertolini to the Department of Justice, July 5

But just last month, in a letter to the Department of Justice, Aetna CEO Mark Bertolini said the two issues were closely linked. In fact, he made a clear threat: If President Barack Obamas administration refused to allow the merger to proceed, he wrote, Aetna would be in a worse financial position and would have to withdraw from most of its Obamacare markets, and quite likely all of them.

Bertolini penned the letter, which The Huffington Post obtained through a Freedom of Information Act request, on July 5 16 days before the Justice Department announced it would fight the Humana deal. The department had asked Aetna how, if at all, a decision on the proposed merger would affect Aetnas willingness to offer insurance through the exchanges.

Bertolini responded bluntly. Aetna supported the laws goal to expand coverage and planned to increase its exchange offerings next year, in the hopes that the exchanges would stabilize as enrollment grew, he wrote.

But if the Justice Department were to block the merger, Bertolini warned, Aetna could no longer sustain the losses from its exchange business, forcing it to sharply change direction:

[I]f 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 …. [I]nstead of expanding to 20 states next year, we would reduce our presence to no more than 10 states . [I]t is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked. By contrast, if the deal proceeds without the diverted time and energy associated with litigation, we would explore how to devote a portion of the additional synergies … to supporting even more public exchange coverage over the next few years.

To Obamacare critics, Aetnas retreat is proof the law is failing. To supporters, it shows the company was using its participation in Obamas signature domestic policy initiative as a bargaining chip in order to secure approval of a controversial business deal.

Advocates on both sides can cite at least some evidence to support their views. While some insurers are making money on Obamacare, most of the large, publicly traded national insurers now offering coverage on the exchanges are losing money, basically for the same reasons that Aetna cites. Aetnas shift in strategy followed similar maneuvers by UnitedHealth Group,Humana and some smaller insurers.

If the exchanges do not attract more participants who are in relatively good health, then companies will likely have to keep raising rates to the point where some people who have to pay for insurance directly, especially those who receive little or no federal subsidies, would decide its too expensive.

Notably, however, Anthem and Cigna, two other health insurance giants whose pending merger the Justice Department also opposes, have not said they plan to alter course on the exchanges next year, despite financial struggles.

Anthem is a major player in this market segment, and Cigna intends to offer plans in more states that it currently does. Of course, investors may pressure those companies to reconsider in response to the moves by Aetna, Humana and UnitedHealth Group.

Furthermore, Aetnas posture on the exchanges changed pretty radically after the Justice Department announced that it was suing to block the Humana merger.

As recently as April, Bertolini told investors that Aetna could sustain losses on the exchanges for the time being, because participation still represented a relatively cheap way to acquire new customers particularly since the program was bound to have kinks in the early years.

Bertolini defended Aetnas exchange business at the time:

We see this as a good investment, hoping that we have an administration and a Congress that will allow us to change the product like we change Medicare every year, and we change Medicaid every year. But we havent been able to touch this product because of the politics.

Since that earnings call, Aetna officials have warned that their assessment of the financial returns from the exchange business was dimming, even as the firms other lines of business such as employer-provided health benefits, Medicare and Medicaid continued to thrive. On Monday, they pointed to that new information as a reason for pulling back on the exchanges.

T.J. Crawford, an Aetna spokesman, reiterated that argument in an email to The Huffington Post Tuesday.

We gained full visibility into our second quarter individual public exchange results, Crawford wrote, which similar to other participants on the public exchanges showed a significant deterioration. That deterioration, and not the DOJ challenge to our Humana transaction, is ultimately what drove us to announce the narrowing of our public exchange presence for the 2017 plan year.

Aetnas shift in strategy, whatever the reasons, underscores the difficulties facing this new market for people who dont get health insurance through their employers or from a government program like Medicare and Medicaid.

The departures of health insurers from some states, along with the collapse of most of the nonprofit co-op plans created under the Affordable Care Act, also means many consumers will see fewer choices when sign-ups begin in November for 2017 coverage.

At the same time, other insurers, including regional Blue Cross and Blue Shield plans in states like Florida, Michigan and New Jersey, along with companies like Molina Healthcare and Centene that previously specialized in covering Medicaid beneficiaries, are either profitable already or say they plan to continue their investment in this market.

The Huffington Post

As Bertolini indicated in April, strengthening these marketplaces and making coverage more secure for the low- and middle-income people who rely on it likely will require changes in the law. Given the relentless political toxicity afflicting anything Obamacare-related, legislative solutions arent likely in the near term.

Democratic presidential nominee Hillary Clinton has proposed a number of fixes for the health insurance market, including the creation of a government-run public option plan that would be available everywhere, and allowing pre-retirees to buy Medicare coverage. Clinton also has called for offering more generous subsidies to cover families with high health care costs.

Donald Trump, the GOP White House nominee, follows the party line on the Affordable Care Act, which is that it should be repealed and replaced with some other set of reforms that he has barely defined. House Speaker Paul Ryan (R-Wis.) released a broad outline of a GOP health plan, but it doesnt seek the same goals as Obamacare especially when it comes to the uninsured and people with pre-existing conditions.

Indeed, the aim of Trump and Ryan in repealing Obamacare would result in roughly 20 million people losing their coverage, which would cause disruption on a far greater scale that Aetnas decision.

Ryan Grim contributed reporting.

Read more: http://www.huffingtonpost.com/entry/aetna-obamacare-pullout-humana-merger_us_57b3d747e4b04ff883996a13?ncid=inblnkushpmg00000009

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