On Monday night, Aetna announced that it will stop offering health coverage through the Affordable Care Act’s marketplaces in most of the states where it currently does so, making it the latest major insurer to pull back from the exchanges after losing significant amounts of money on them. The company currently markets Obamacare plans in 15 states; next year, it will sell them in just four. As a result, Americans in many parts of the country will have fewer options when shopping for health insurance in 2017, and there is at least one market, Pinal County in Arizona, where as of now no insurers—as in zero—are planning to provide coverage through the exchanges*.
Aetna is the country’s third largest insurer and currently enrolls about 1.1 million customers in its Obamacare plans. The company is expecting to lose more than $300 million on that portion of its business this year. And its troubles mirror those of its fellow large insurers that have had difficulty making a go of it on the exchanges. In July, Humana said it would cut back from 19 to 11 states after losing around $1 billion over the past two years on its ACA business. UnitedHealth Group, the country’s largest insurance carrier, has decided that beginning next year it will operate in “three or fewer exchange markets,” down from 34, after losing a few hundred million itself.
So what does this trend mean for the health of health care reform? I think there are two basic ways you can spin it. The upbeat story would be that this is a victory for consumer choice, which is how Sara Collins of the Commonwealth Fund framed things in an interview with CNBC. The big insurers, like Aetna, are known for selling pricey coverage to employers (an Aetna plan is one of the options for Slate employees) or to Medicare beneficiaries, and so they weren’t necessarily equipped to compete for consumers on the exchanges, who’ve turned out to be very, very cost-conscious. In contrast, some of the smaller companies like Centene that have been making a mint on the Obamacare exchanges had a background serving Medicaid enrollees, which gave them a leg up catering to low-income customers. “It is not surprising given the high level of price competition that there will be winners and losers in the reformed individual insurance market,” Collins said. “Aetna’s announcement this week is consistent with this.”
The more dour story, which Carolyn Johnson at the Washington Post lays out nicely, is that Obamacare enrollees are simply just much older and sicker than big insurers like Aetna expected, and that’s made it impossible to earn a profit off them. Companies hoped that after an initial wave of high-cost customers signed up in Obamacare’s early days, more young and healthy Americans would trickle into the market. That doesn’t seem to be happening yet. Last week, for instance, the Department of Health and Human Services released a report finding that medical costs for exchange customers didn’t budge between 2014 and 2015. The agency painted that as a good thing, but for companies like Aetna that were counting on an influx of spry, twentysomething SoulCycle addicts to balance out all their 50-year-old customers in need of hip replacements, no news was bad news.
In reality, these two stories can exist at once. Obamacare’s risk pool—the ratio of sick to healthy customers on the exchanges—is probably worse than a lot of these companies like. At the same time, behemoths like Aetna are probably getting outcompeted for young patients at the low end of the market by companies offering cheaper, less expansive coverage. Fundamentally, though, Aetna, Humana, and UnitedHealth’s decisions to bail simply aren’t a positive sign for the current state of Obamacare, which was designed to expand coverage largely by subsidizing private insurance. In order for that to work, private insurers need to make a profit. And in an ideal world, the Affordable Care Act’s marketplaces would be large and diverse enough to support the major insurers that offer fuller plans, as well as the smaller companies specializing at rock-bottom prices. Unfortunately, that’s just doesn’t seem to be the case yet.
Update, August 17: This story has taken a somewhat interesting political twist. In the wee hours of Wednesday morning, HuffingtonPost broke the news that Aetna wrote a letter to the Justice Department in July threatening to pull out of the exchanges if the government sued to block its proposed merger with Humana. “[I]nstead of expanding to 20 states next year, we would reduce our presence to no more than 10 states,” CEO Mark Bertoli warned. Of course, the DOJ went and sued to stop the merger anyway.
Even before this scoop, Sen. Elizabeth Warren had suggested that Aetna’s decision to bail on the marketplaces might have been motivated by its merger battle, writing in a Facebook post that, “The health of the American people should not be used as a bargaining chip to force the government to bend to one giant company’s will.” As Bertoli’s letter shows, Warren wasn’t entirely off base. But in the end, I don’t think it makes sense to characterize Aetna’s decision as a case of corporate blackmail. The bottom line is that the company has been losing money on the exchanges—it can’t lie about that in public. Merging might have made remaining in the marketplaces more tenable. Or, maybe the company was just promising to expand to new markets in order to win merger approval—companies make all sorts of flimsy projections about the wonderful things that will happen post tie-up in order to win regulatory approval. It’s hard to tell. But if Aetna were making a killing on Obamacare plans right now, or thought it was about to be, I don’t think it’d cutting and running right now.
*Correction, Aug. 16, 2016: This article originally misidentified the county in Arizona where there are presently no insurers planning to participate in the health care exchanges next year as Pinellas County. It is Pinal County.
