Aetna’s Exit From Obamacare Exchanges is Related to DOJ Antitrust Litigation

We’re heading for a showdown.

Off the campaign trail, the big story over the last couple of days has been the fact that Aetna is opting out of participation in 11 of the 15 health insurance exchanges in which they have previously participated. Of course for Republicans, this is being blasted as yet another example of why Obamacare has always been doomed.

The reason Aetna gave for this change is that they were losing money on the exchanges. But Jonathan Cohn and Jeffrey Young win the award for “scoop-of-the-day” by demonstrating that is not all there is to this story. Apparently as recently as April, Mark Bertolini (Aetna’s CEO) said this about the exchanges: “We see this as a good investment…”  What changed?

…the move also was directly related to a Department of Justice decision to block the insurer’s potentially lucrative merger with Humana, according to a letter from Aetna’s CEO obtained by The Huffington Post…

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…

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 Obama’s administration refused to allow the merger to proceed, he wrote, Aetna would be in worse financial position and would have to withdraw from most of its Obamacare markets, and quite likely all of them.

Here is a direct quote from Bertolini’s letter to the DOJ on July 5 ― 16 days before the Justice Department announced that it would sue to stop the merger.

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.

In other words, back in early July, Aetna was prepared to absorb the losses and even expand their participation in the exchanges…on the condition that DOJ didn’t try to stop the merger.

Most of us would be sympathetic to a private company that is incurring financial losses. But why would Aetna have previously been willing to sustain them? To answer that question it is important to note – as Ezra Klein did in response to this news – that “Right now, there are five large insurance plans in the United States: Aetna, Humana, UnitedHealth, Cigna, and Anthem.” That is precisely why DOJ decided to fight the mergers that would have resulted in taking that number from 5 to 3.

The U.S. Department of Justice and attorneys general from multiple states and the District of Columbia sued today to block Anthem’s proposed acquisition of Cigna and Aetna’s proposed acquisition of Humana, alleging that the transactions would increase concentration and harm competition across the country, reducing from five to three the number of large, national health insurers in the nation…

“Competitive insurance markets are essential to providing Americans the affordable and high-quality healthcare they deserve,” said Attorney General Loretta E. Lynch. “These mergers would restrict competition for health insurance products sold in markets across the country and would give tremendous power over the nation’s health insurance industry to just three large companies. Our actions seek to preserve competition that keeps premiums down and drives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans.”

As Thomas Greaney wrote, the “tremendous power” that AG Lynch says these mergers would have given these insurance companies goes beyond their ability to maneuver premiums.

A further concern relates to the influence that a highly concentrated insurance industry may wield in Congress, state legislatures, and regulatory agencies. With a large and growing portion of beneficiaries in Medicare and Medicaid served by private insurance companies, the laws and administrative regulations that govern plan bidding, appeals, and administration of health plans are increasingly important.

The ability to influence these rules are as significant to the bottom line as any aspect of insurers’ business operations.

In other words, Aetna was aiming for a “too big to fail” scenario with health insurance companies. The DOJ basically said, “No.”

As Paul Glastris recently pointed out, the Washington Monthly has been on the front lines of spurring examination of the economic threats posed by this kind of consolidation.

As our readers know, economic consolidation is a subject the Washington Monthly has long been obsessed with…In our current cover story, Barry Lynn…and Phil Longman argue that antitrust was the true legacy of the original American Populists and a vital, under-appreciated reason for the mass prosperity of mid-20th Century America. But this legacy, and the new Gilded Age economy that has resulted from its abandonment, is not a narrative most Americans have been told (one reason why even the “populist” candidates running for president have shied away from it).

That antitrust legacy is exactly what is playing out right now between health insurance giants like Aetna and DOJ. There is only one presidential candidate that is paying attention. Here is an op-ed by Hillary Clinton from back in October 2015.

Despite all the progress we’ve made coming back from the financial crisis, we still have a lot of work to do. Consider:

Some pharmaceutical companies recently have raised the price of medications that have been in use for decades by up to 5,000% overnight—gouging patients on drugs that should be getting cheaper over time, not more expensive. The three largest health insurance companies now control 80% of the market in 37 states

Economists, including President Obama’s Council of Economic Advisers, have put their finger on what’s going on: large corporations are concentrating control over markets…Rather than offering better products for lower prices, they are using their power to raise prices, limit choices for consumers, lower wages for workers, and hold back competition from startups and small businesses.

It’s no wonder Americans feel the deck is stacked for those at the top. It’s good for our economy when companies prosper by innovating, creating new products, and investing in their workers. But in too many instances, that’s not what’s happening. Just as declining union membership means workers have less bargaining power to improve wages and benefits, increasing concentration in a given market means customers can no longer vote with their feet and take their business elsewhere…

As president, I will take on this fight.

In case you are worried about the viability of the exchanges in all of this, Tierney Sneed points out exactly what Clinton was talking about when she referred to companies that prosper by innovating and creating new products.

Not every carrier is struggling on the exchanges, and consumers’ willingness to shop around for deals has benefited insurers that offer plans that are on the cheaper end.

“There are insurance companies that are doing well and those are companies that have experience serving a low-income population,” Cox said.

Nancy LeTourneau

Nancy LeTourneau is a contributing writer for the Washington Monthly.