Aetna Latest Insurer Pulling Back on Obamacare Plans

Aetna Inc. (Hartford CT) said it will reduce by more than 500 U.S. counties its participation in public exchanges under the Affordable Care Act in the face of hundreds of millions of dollars in losses.

@Aetna, facing hundreds of millions in loses, reduces participation in #Obamacare exchanges. Click To Tweet

In 2017, Aetna said it will be in just 242 counties, down from 778, according to Forbes. Aetna will remain on-exchange in just four states: Delaware, Iowa, Nebraska and Virginia compared to 15 states where it operates this year.

Monday night’s announcement came after Aetna said earlier this month that it would evaluate all of its individual plans in 15 states. Humana Inc. (Louisville KY) has already said it is pulling off most ACA exchanges for next year.

And rival UnitedHealth Group Inc. (Minnetonka MN) also is scaling back to three states, leaving Anthem Inc. (Indianapolis IN) and Blue Cross and Blue Shield plans as the main Obamacare providers across the country.

“Following a thorough business review and in light of a second-quarter pretax loss of $200 million and total pre-tax losses of more than $430 million since January 2014 in our individual products, we have decided to reduce our individual public exchange presence in 2017, which will limit our financial exposure moving forward,” Aetna chairman Mark Bertolini said in a statement.

Aetna said it will continue to market “off exchange” individual products in “the vast majority of counties” where it offers “on exchange” products currently, according to Forbes.

Aetna said it would be informing individual customers of its various plan choices this fall during open enrollment when they can choose new benefits for 2017. Despite the decision, Bertolini said he was encouraged by last week’s announcement by the Obama administration that it was taking steps to shore-up “risk pools.”

Insurers have complained loudly that an insufficient number of healthy and young people are buying policies to cover the mounting costs of sick Americans that are buying policies on the exchange.

Therefore, the risk pools are unstable and triggering major losses, insurers say. Still, the Obama administration said Monday night it remains confident in the future success of the public exchanges despite Aetna’s move.

“Aetna’s decision to alter its marketplace participation does not change the fundamental fact that the Health Insurance Marketplace will continue to bring quality coverage to millions of Americans next year and every year after that,” HIM chief Kevin Counihan said.

“It’s no surprise that companies are adapting at different rates to a market where they compete for business on cost and quality rather than by denying coverage to people with preexisting conditions,” Counihan noted. “But the ACA Marketplace is serving more than 11 million people and has helped America reach the lowest uninsured rate on record.”

Prior to the Justice Department’s decision last month to challenge Aetna’s acquisition of Humana, Bertolini was offering up suggestions on how to improve the risk pools.

“We are encouraged by a recent announcement that the U.S. Department of Health and Human Services will explore new options to modify the risk adjustment program, and remain hopeful that we can work with policymakers from both parties on a sustainable public exchange model that meets the needs of the uninsured,” Bertolini said.

“We are committed to a healthcare marketplace that gives every American the opportunity to access affordable, high-quality care,” Bertolini added. “We will continue to evaluate our participation in individual public exchanges while gaining additional insight from the counties where we will maintain our presence, and may expand our footprint in the future should there be meaningful exchange-related policy improvements.”

Steve’s Take: The decision by Aetna to drastically reduce its presence in the health insurance exchanges created by the ACA is a decidedly sharp blow to the healthcare law and more bad news for consumers shopping for coverage this fall.

Aetna insures about 838,000 people through the exchanges. The flight by big insurers means consumers will almost certainly have fewer choices for 2017 coverage.

Theoretically, competing carriers on each exchange offer consumers lots of choices while keeping premiums affordable. In many urban and densely populated markets, that’s what’s happening for the most part. But rural and less populated counties will be hard hit by the big insurer exits.

At least one county in Arizona is at risk of being left with no insurer, according to an analysis by the Kaiser Family Foundation (Menlo Park CA). And in five or so states, there will be only one insurer on the exchange. Insurers say they are losing too much money to stand pat.

Aetna reported it has lost $430 million on its exchange business since 2014. Other leading insurers have also reported big losses.

I agree with Walecia Konrad in her smart piece for CBS’s MoneyWatch.com who points out that exchanges attract mostly low-income people who likely have health issues and can only afford the lowest premiums.

According to a government analysis, about half of all exchange customers chose the cheapest plans, she noted:

“In rural areas where you may have only a handful of people in the exchange and all of them need lots of health care, you’ve got a disproportionate risk,” said Cynthia Cox, associate director of health reform and private insurance at the Kaiser Foundation.

At the same time, Aetna chief Bertolini and other insurance industry leaders whine that the government is not doing enough to help insurers adjust for this added risk. (Bertolini’s did say Monday in his carefully worded script that he is “encouraged” by the government announcement that it is looking at ways to modify the risk adjustment program.)

But why can’t big insurers like Aetna and UnitedHealth make Obamacare pay off? One important but little reported factor is that many young and healthy people–especially those that do not qualify for the government subsidies–continue to forgo coverage, despite the tax penalties imposed by the ACA for people who do not have health insurance.

It is this group of healthy individuals that insurers and exchange designers were hoping would offset the cost of sick patients. Currently about 11 million people are covered by the exchanges, about half of the number originally expected to sign on.

The 2016 tax year is the first year people who do not have health insurance have to pay the full amount in penalties. The government is hoping that when uninsured consumers face the full penalty, they will change their minds and sign up.

But that won’t happen anytime soon, said Cox. “Most people won’t know how much they owe until they do their taxes,” she explained. “We probably won’t see the effect the penalty has until 2018.”

It’s hard for me to sympathize with these dominant (and I mean mammoth) for-profit insurers, wringing their hands about how hard it is to turn a profit on the ACA exchanges. Accustomed to offering expansive provider networks and a range of coverage for employer-sponsored group plans, big insurers designed similar high-cost plans for the exchanges.

These broader networks are likely to attract patients with health issues who may be willing to pay more in premiums to stay with their doctors and other providers. I say, if you can’t take the profit/loss heat of the new insurance landscape on the ACA exchanges, maybe get out of the kitchen entirely. There are plenty of companies licking their chops for the business you spurn, who’ve figured out how to turn a profit on it.

Who are these insurance players that aren’t whining about the ACA marketplace? Start with the Blue Cross Blue Shield Association–a federation of 36 separate U.S. health insurance organizations and companies (including Anthem), providing health insurance to more than 106 million Americans at last count.

A little history you might find interesting is that prior to 1986, organizations administering BCBS plans were tax-exempt under section 501(c)(4) of the Internal Revenue Code as social welfare plans. That’s right, they have their roots in the nonprofit world and cut their teeth on the sicker, poorer customers where to survive, they had to figure how to turn a “profit” on that business.

In 1994, BCBS changed to allow its licensees to be for-profit corporations but today, they simply have a business heritage whereby they are better equipped genetically to make money on the ACA exchanges. The same ones that the Aetnas and Uniteds are abandoning.

Who else has made money on the exchanges? Try “second-tier” players like Centene Corp. (Clayton MO) and Molina Healthcare Inc. (Long Beach CA), which usually offer narrow provider networks and have experience with low-income patients.

“The companies that are doing well may see Aetna’s departure as an opportunity,” said Sabrina Corlette, a research professor with the Georgetown Health Policy Institute. She believes Aetna’s move is part of a natural adjustment process. “The exchanges are still quite new,” she said, adding that there is still a lot to learn about the best ways to do business in them.

No kidding.

Here are some of the headlines, announcing Aetna’s pull-out decision:

“Breaking News: Obamacare Collapses as Aetna Pulls Out.”

“Aetna Pulls Out of Collapsing Obamacare.”

“Breaking: Stunning News Confirms Obamacare is Collapsing….”

And my personal co-favorites, “Obamacare Collapsing into Financial Ruin as Aetna….” and,

“Breaking News: Obamacare is Destroyed!” (I didn’t add the exclamation point; honest.)

I believe rumors of the “collapse” of Obamacare due to Aetna’s announcement may be a bit premature. But let’s see what happens in November: Trump in? Probably collapse/repeal. Hillary? Not a chance.