- Kevin Lamarque/Reuters
On Monday night, news broke that one of the five largest insurers in the US, Aetna, was leaving 70% of the counties in which it offers insurance through the Affordable Care Act’s public healthcare exchanges.
The move was seen as a huge blow to the future of the act, making Aetna the third large insurer, after United Healthcare and Humana, to significantly reduce its Obamacare business.
Aetna cited the large losses that the company has incurred from the exchange business – $200 million in the second quarter alone – when explaining its decision to roll back its business.
These statements, however, appeared to be a dramatic turnaround from the company’s first-quarter earnings call in April, when CEO Mark Bertolini said the firm planned to stay in the exchanges and that the company was “in a very good place to make this a sustainable program.”
Now, however, it appears a large reason for the shift in tone was the Department of Justice’s lawsuit to block Aetna’s merger with rival Humana.
A July letter, acquired by Huffington Post reporters Jonathan Cohn and Jeffrey Young, outlined Aetna’s thinking on the public exchanges if the deal with Humana were blocked. The letter from Bertolini to the DOJ outlined the effect of a possible merger on its Affordable Care Act business.
For one thing, Bertolini notes that the cost savings from the Humana deal would allow the companies to further expand coverage into parts of the US.
“As we add new territories, given the additional startup costs of each new territory, we will incur additional losses,” the letter said. “Our ability to withstand these losses is dependent on our achieving anticipated synergies in the Humana acquisition.”
Additionally, the letter seemed to foretell the move on Monday. Here’s the key passage (emphasis added):
“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.
“We currently plan, as part of our strategy following the acquisition, to expand from 15 states in 2016 to 20 states in 2017. However, if we are in the midst of litigation over the Humana transaction, given the risks described above, we will not be able to expand to the five additional states.
“In addition, we would also withdraw from at least five additional states where generating a market return would take too long for us to justify, given the costs associated with a potential breakup of the transaction. In other words, instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.”
In other words, the cost of fighting the DOJ would make Aetna unable to sustain the losses incurred from the public exchanges.
According to a letter from the DOJ provided by Aetna, the DOJ asked the company what the effect would be on the firm’s Affordable Care Act business if the merger were not completed. Thus, Aetna responded with its letter.
A spokesperson for Aetna said the decision to roll back the coverage was not because of the DOJ’s lawsuit, but rather realizing the full details of the losses. The statement from the spokesperson reads, in part:
“In the time since we submitted our written response to DOJ and provided a courtesy copy to [the Department of Health and Human Services], we gained full visibility into our second quarter individual public exchange results, 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.
“If the Humana transaction is eventually blocked, which we don’t believe it will be, the underlying logic of our written response to DOJ would still apply with regard to the public exchanges where we will participate in 2017.”
In the original letter from Aetna to the DOJ, Bertolini said that if the company lost the lawsuit and the deal were eventually scuttled, Aetna would drop its remaining Affordable Care Act business and leave the public exchanges entirely.
The DOJ declined to comment.
The DOJ blocked the merger between Aetna and Humana, along with the merger of fellow big-five insurers Anthem and Cigna, on the grounds that consolidating the industry would lead to lower competition and higher costs for consumers.
“They would leave much of the multitrillion health insurance industry in the hands of just three mammoth companies, restricting competition in key markets,” Attorney General Loretta Lynch said when announcing the lawsuit to block the mergers.
Typically the number of independent options available to consumers is correlated with lower costs.
“If the big five were to become the big three, not only would the bank accounts of the American people suffer, but the American people themselves,” Lynch said.
The companies countered that the merger would not affect consumers and would allow the combined firms to be more cost-efficient and sustainable.