On the face of it, health insurance giant Aetna’s announcement Monday that it was pulling out of 11 of the 15 states where it currently does business through Obamacare was a straight up decision to cut its sizeable losses.
Mark Bertolini, Aetna’s CEO, issued a statement that while he deeply regretted to pull out of many of the Affordable Care Act’s insurance exchanges, the company had lost about $200 million in the second quarter of 2016 on its ACA plans and expected to lose more than $300 million overall this year. In light of those and previous losses, he said, Aetna had no choice but to “reduce our individual public exchange presence in 2017.
But some health care experts said they suspected there might have been a lot more to Aetna’s industry-jolting maneuver than a simple bottom line calculation. Those suspicions were reinforced late Tuesday with the surfacing of a July 5 letter from Bertolini to the Justice Department indicating that Aetna would have no choice but to pull out of Obamacare if government lawyers blocked a proposed merger between Aetna and Humana Inc.
The letter, first reported by Huffington Post, was an example of corporate hardball. Bertolini made it clear that unless the Justice Department dropped its challenge to the merger, “we would reduce our presence to no more than 10 states” instead of expanding from 15 to 20 states in 2017 as originally planned.
“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,” Bertolini wrote. “Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint.”
After recounting Aetna’s extensive financial problems since first entering the Obamacare market in January 2014, Bertolini declared, “Finally, based on our analysis to date, we believe 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.”
Related: With Aetna Pulling Out, Can Anything Save Obamacare?
By contrast, he added, if the merger deal proceeded without costly and time-consuming 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.”
Obamacare is just one small piece of Aetna’s overall business, which last year alone generated $60 billion in revenue. The company is seeking to purchase the Kentucky-based Humana for $37 billion in an effort, it said, to “strengthen its ability to lead efforts to transform health care delivery to a more consumer-focused marketplace.”
In early July, reports first surfaced that the Justice Department was preparing lawsuits to block the Aetna-Humana deal and another bid by rival Anthem to take over Cigna. Bloomberg reported that Justice Department officials responsible for safeguarding competition were concerned about the adverse impact on consumers of consolidating four of the nation’s five biggest health insurance companies.
The insurance companies and the Obama administration have been uneasy allies for years as the 2010 Affordable Care Act was finally implemented in October 2013, providing coverage to millions of Americans who lacked insurance from an employer or other sources. Industry leaders demanded and received many concessions from the White House and Democratic congressional leaders, including the so-called “individual mandate” that would force uninsured Americans to purchase coverage in the government operated and subsidized insurance markets or face a penalty.
The Bertolini letter was sent a little more than two weeks before the Justice Department announced on July 21 that it would oppose the Aetna-Humana deal. The Justice Department had sought out Aetna’s views on how a denial of the merger might affect Aetna’s continued willingness to offer individual insurance policies on the Obamacare exchanges.
Bertolini’s letter -- essentially demanding that the Justice Department curtail its anti-trust proclivities and allow Aetna’s acquisition of Human to move ahead or suffer the consequences of its defection from Obamacare -- may have gone beyond the traditional give and take of industry and the government. For some, it smacked of corporate blackmail.
Ironically, only four months ago, Bertolini was very positive about Obamacare and said his company saw it as a good investment in light of the 1.2 million new customers it acquired through the health insurance program. As late as Monday, when he announced the pull-back that has called into question Obamacare’s long-term financial stability, Aetna officials downplayed the importance of the controversy over the Humana deal in reaching their decision.
Sen. Elizabeth Warren, a Massachusetts liberal and long-time consumer advocated, posted on Facebook, “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.”
A spokesperson for Aetna told the Huffington Post that Bertolini’s upbeat assessment of Obamacare was followed by second quarter figures showing a “significant deterioration” in Aetna’s financial picture – which prompted the decision to starkly reduce its Obamacare footprint beginning in January 2017. TJ Crawford stressed in an emailed statement to reporters, "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.”
Joseph Antos, a health care expert with the American Enterprise Institute, sided with the company today in arguing that it was not an attempt at blackmail. “First, they were responding to a question from the Justice Department, so they had to give an answer,” Antos said in an interview. “But also, blackmail doesn’t work on the Justice Department. So that’s not it.”
“The question Bertolini faced was, how long can you go and how much money can you lose on this business,” he added. “The judgement was that they want to take at least a year’s break from losing that kind of money on the exchanges in the hopes changes are made so that the risk pool attracts more, younger, healthier people and then becomes a more viable insurance market.”