Just a few months ago, Aetna was an insurer you could count on to be especially bullish on Obamacare.
Chief executive Mark Bertolini told Aetna shareholders in April that the law was "a good investment." In May, he announced plans to expand to five additional states.
But Aetna made a sharp about-face on Obamacare this month. Last week, the insurer scrapped that expansion plan, citing millions in losses on the marketplaces. And on Monday, Aetna announced it would quit 11 states it currently sells in, remaining in just four markets.
Aetna did not quit Obamacare quietly. Bertolini used his announcement to throw jabs at Obamacare as an especially bad investment, noting that "more than 40 [health plans] have similarly chosen to stop selling."
Aetna follows United and about a dozen other insurers who have, in recent months, decided to quit Obamacare or significantly scale back participation. These decisions will leave customers with fewer choices than ever before.
What happened? How and why did Aetna make such a sharp turn from Obamacare as a good investment to an absolutely miserable one?
Right now there are two sides to the story — one told by Aetna and the other told by health law supporters. Aetna says the move was pure business: It was losing money, and so it made the obvious decisions. The health law’s supporters say the move was pure politics: The Obama administration blocked a merger Aetna wanted, and so Aetna is retaliating by abandoning the health exchanges.
The two stories predict very different things about the future of Obamacare, and how many more health insurers will follow Aetna’s retreat.
Aetna was losing hundreds of millions of dollars on the marketplaces
Aetna has been exceptionally clear about how much money it lost on the marketplaces — $430 million total since the insurer began selling on the health law’s marketplaces.
"Turning a profit has long been a struggle for the big national insurers," the Kaiser Family Foundation’s Larry Levitt says. "Aetna was always one of the more optimistic carriers. But now they seem much more pessimistic."
Aetna says it lost money in the Obamacare marketplaces because the people who signed up were sicker than expected. And while most insurers did expect sicker patients to sign up early — those who needed care the most would likely be Obamacare’s most enthusiastic customers — Aetna’s struggles haven’t improved. The insurer says its membership population actually got sicker in 2016.
Meanwhile, the insurer has also had a ton of turnover. Fifty-five percent of Aetna’s customers in 2016 were brand new. This isn’t a huge surprise: Obamacare’s express goal was to encourage Americans to shop for and compare health insurance plans. But that constant shuffle of patients can make it exceptionally hard for insurance plans to set premiums that will cover their patients’ medical bills.
Aetna’s story is pretty similar to what other insurance plans have experienced on the marketplace. The Blue Cross Blue Shield Association has complained for months now that the people who signed up for marketplace coverage were much sicker than those who get coverage at work.
"What really surprised us was that we had thought the costs in this new market would be similar to the group market," Alissa Fox, Blue Cross's senior vice president for policy, told me earlier this year. "What we've found is that costs are much higher than the group market."
In this narrative, Aetna gave the marketplaces a good try. It sold for three years. It lost money and, this month, decided it was time to stem those losses.
But this is not the only version of the story out there.
Critics: Aetna is retaliating because the Obama administration blocked its merger
There is one part of Aetna’s story that doesn’t totally line up: how quickly the insurance plan went from ardent Obamacare supporter to opponent.
The theory that comes up pretty much anytime I talk to a health policy expert who generally supports the law is this: Aetna is retaliating against the Obama administration for blocking its proposed merger with Humana.
The Department of Justice announced in July that it would file lawsuits against the proposed merger of the two large insurers.
The timing of the Obama administration action followed by Aetna’s marketplace decisions has certainly raised eyebrows.
I haven't previously thought that Aetna souring on the ACA was tied to the antitrust case. The timing is curious though.— Larry Levitt (@larry_levitt) August 16, 2016
Bank analysts have asked Bertolini if the two decisions are related. Sen. Elizabeth Warren (D-MA) has been the most vocal champion of this theory. In a recent Facebook post, she accused Aetna of using its marketplace participation as "bargaining chips to force the government to bend to one giant company’s will."
Aetna has denied that the merger and marketplace have anything to do with one another. And, to be clear, the experience that Aetna describes of financial losses and sick consumers is similar to what happened to other insurers who have backed away from the law. At the same time, the quick reversal on the law has raised questions about whether there are other factors at play in Aetna’s decision.
Is Aetna quitting Obamacare the tip of the iceberg?
Understanding Aetna’s decision-making process is important for understanding what decisions other insurers might do in the coming months and years.
Aetna’s decision definitely means the Obamacare marketplaces will have significantly less competition in 2017. The insurer was a decently sized player in the individual market, covering 911,000 marketplace enrollees as of April 2016.
The insurer will pull out of some really big states like Texas, Pennsylvania, and Arizona. Its exit may be especially tough on Arizona and South Carolina. At least one Arizona county is at risk of not having a single carrier who will sell there — a situation that Obamacare is unprepared to handle.
Aetna’s exit will make some markets less competitive. But the bigger question is whether other plans will begin to look at the marketplaces differently. They’ve now watched United and Aetna — two of the country's largest insurance plans — decide that the marketplaces were not a good opportunity. And that could give other insurers a reason to pause and reevaluate their options.
To be sure, there are some insurance plans that are succeeding in the Obamacare marketplaces. These are insurers who have experience helping states insure low-income Medicaid patients — not those who have sold contracts to large companies. These insurers had already set up narrow insurance networks that are especially adapted to the needs of lower-income consumers.
But there are also a decent number of losers in the marketplaces. And it’s fair to say that at this point, Obamacare is going through a major test of its viability. It relies on private insurers to willingly participate, and it is not clear they want to keep participating — or at least it is not clear that enough of them want to keep participating to create the nationwide coverage and competition Obamacare envisions.