There has been a theory, circulating in Washington’s health policy circles for the past few weeks, that major insurer Aetna was scaling back its Obamacare marketplace plans because the Obama administration blocked its proposed merger with Humana.
Up until now, this was only a theory — one inferred from the timing of the blocked merger (in July) and Aetna souring on Obamacare (in August).
Now there’s proof.
Documents obtained by the Huffington Post show that Aetna expressly conditioned its marketplace participation on the merger’s approval. The company threatened to “immediately … reduce our 2017 exchange footprint” should the Obama administration challenge the deal.
“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,” Aetna chief executive Mark Bertolini wrote in a July 5 letter to the Department of Justice.
This matters a lot for the health care law because Aetna was a pretty significant player in the marketplaces, covering roughly 900,000 people as of this spring. Now it will leave 11 of the 15 states it had previously sold in — forcing nearly a million people to find new plans, and reducing options for Obamacare shoppers in 2017.
The new letter does not prove that Aetna was retaliating against the Obama administration, attempting to harm Obamacare’s future because of the merger obstacles. Aetna has said it was purely financial; that it couldn’t sustain the losses on the marketplace any longer if it didn’t get the economic boost it expected the merger to deliver.
But what it does show is something that Aetna has repeatedly denied: that there was a connection between the merger and its marketplace sales.
Obama blocked Aetna’s merger because it worried about too little competition
Right now there are five large insurance plans in the United States: Aetna, Humana, UnitedHealth, Cigna, and Anthem.
Over the past year, two merger proposals have come up from that group: one between Aetna and Humana, and another between Cigna and Anthem.
In mid-July, the Department of Justice announced it would seek to block the mergers because of worries that insurance markets would become too consolidated. “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,” Attorney General Loretta Lynch said at the time.
Bertolini’s letter — which you can read here — was sent two weeks before the DOJ announced that it would intervene to stop the Aetna-Humana merger. Aetna has consistently denied that the merger and marketplace decisions had anything to do with each other.
When one financial analyst asked Bertolini about it on the company’s last earnings call, he responded that the merger was a “separate conversation from our evaluation of how we think about the exchanges going forward.”
But the July 5 letter paints an entirely different picture, one where Bertolini says that participating in the marketplaces would be too difficult and costly for the company if it also were in litigation over its merger proposal. This is the key passage:
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.
Does this mean Aetna was requesting a quid pro quo? Not exactly.
There will almost certainly be different interpretations of why Aetna tied together its marketplace participation and its merger approval.
In this letter, Bertolini says it’s all about finances: that the company was losing money on the marketplaces and needed a financial boost from the marketplaces in order to continue to sustain those losses. And it certainly is true that Aetna has lost more than $400 million on the marketplaces since they launched in 2014.
“A challenge by the DOJ to that acquisition and/or the DOJ successfully blocking the transaction would have a negative financial impact on Aetna … leaving Aetna with no choice but to take actions to steward its financial health,” Bertolini wrote.
But Obamacare supporters have argued that this isn’t about finances — that it’s all about payback. Sen. Elizabeth Warren (D-MA) made the case strongest in a recent Facebook post.
“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,” she wrote.
In any case, it shows that there was more going on in Aetna’s decision to scale back on Obamacare than initially made public. But it also suggests that Aetna quitting many marketplaces may not be a precursor of other dropouts, and that its decision wasn’t just about financial losses that it incurred.