The Fragile State of Your Health Insurance

Price hikes loom, mergers are on hold, another major insurer withdraws

Obamacare is crumbling.

Aetna, one of the nation’s largest health insurance companies, announced earlier this week it is dramatically reducing its participation in the public exchange markets that fuel the Affordable Care Act (ACA). Aetna currently serves 46.3 million people in the country.

“Ironically, the Affordable Care Act and its associated rules make it very difficult for anything other than massive carriers to survive,” said one insurance industry expert.

In a statement explaining the decision, Aetna CEO Mark Bertolini cited the total pretax losses of $430 million since January 2014.

“Fifty-five percent of our individual on-exchange membership is new in 2016,” he said, “and in the second quarter we saw individuals in need of high-cost care represent an even larger share of our on-exchange population.” Meaning, basically, that Aetna no longer had a large enough sample population of healthy people to offset the costs of providing health care for such a vast number of sick enrollees.

“As a strong supporter of public exchanges as a means to meet the needs of the uninsured, we regret having to make this decision,” Bertolini said.

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The news comes on the heels of the Justice Department’s move to block the $37 billion merger between Aetna and Humana. The Justice Department is similarly suing to block Anthem’s $54 billion merger with Cigna.

“These mergers may increase the profits of Aetna and Anthem. But they would do so at the expense of consumers, employers, and health professionals across the country, inflicting costs that cannot be measured in dollars alone,” said U.S. Attorney General Loretta E. Lynch in a press release.

Mergers such as these may be necessary, however, for insurance companies to counteract the cost of the new ACA coverage. And so far, recent mergers have had little negative impact on customers. They’ve allowed companies to expand their coverage to more people.

Licensed to sell health insurance in 13 states, Jeff Adams, CEO of Adams Insurance Services, works as an independent insurance broker in Raymore, Missouri. He says he watches the mergers carefully so that he can help his customers find the best plans — and the recent merger between Coventry Health Care and Aetna was “smooth, almost seamless.”

“I believe the Affordable Care Act is doomed to fail, regardless of any tinkering the government might do to correct risk adjustments,” said one insurance broker.

“Shortly after the merger, we saw expansion into new counties in Kansas by Aetna, which provided more Medicare Advantage opportunities to more people in rural counties. This was a tremendous help and benefit to those folks,” he told LifeZette.

But the government has been on an antitrust roll. The Justice Department blocked mergers between pharmaceutical companies such as Pfizer and Allergan — and even beer-making companies such as Anheuser-Busch InBev and SABMiller. The health insurance mergers are just one in a long list of antitrust suits.

It’s true that if the mergers went forward, competition would be effectively eliminated in certain counties, which could drive up the prices for those consumers. But prices are skyrocketing anyway. Aetna and Humana issued a statement that they would “vigorously defend” their merger.

The mergers are just a reasonable reaction to government regulation, according to David Reid, CEO of EaseCentral. Reid has more than 30 years of experience in the employee benefits and group insurance industry. “The government challenge comes as no surprise, but some may question the motive,” he said. “Ironically, the Affordable Care Act and its associated rules make it very difficult for anything other than massive carriers to survive.”

He continued: “The reduction in competition is a direct result of government regulation that has made it nearly impossible for anything other than mega carriers to manage risk with mandated underwriting and rating requirements.”

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Some have speculated that Aetna’s move to pull out of Obamacare is payback for the antitrust suit, but the company’s move also mirrors a trend set by other big companies, such as UnitedHealthCare — incidentally the nation’s largest insurance company. UnitedHealth expects to lose $1 billion on Obamacare in 2015 and 2016, and is leaving most exchanges in 2017. Humana and Blue Cross Blue Shield are also reducing their coverage in numerous counties.

Adams said the trend signals the risk is just too great for companies to participate in the public exchanges.

“I believe that the Affordable Care Act is doomed to fail,” Adams said, “regardless of any tinkering the government might do to correct risk adjustments.” He added, “As a business owner, the costs of insuring my people have gotten out of control. In one instance, what was once $130 a month for good coverage is now $400 a month for catastrophic coverage.”

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He also says the prices for the 50 to 64 age bracket are increasing exponentially, and seniors may be expected to pay anything from $400 to $1,200 a month for various plans. “The entire premise of the model is faulty and needs to completely overhauled and simplified,” he noted.

Aetna isn’t abandoning all the public exchange markets. They’re maintaining a presence in Delaware, Iowa, Nebraska, and Virginia. Bertolini says his company will continue to monitor these areas so that it can expand its participation in the future, pending “meaningful exchange-related policy improvements” from the Department of Health and Human Services.

But until those improvements are made — Aetna and other insurance giants will continue to regard the public exchange markets with a wary eye.

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