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from the dancing-elephants-are-hard-on-the-ants dept.
Submitted via IRC for crutchy with a story from Ars Technica.
Following on the heels of UnitedHealth group and Humana, insurance giant Aetna plans to "dramatically slash its participation in the public insurance marketplace" — "claims losses alone spurred decision, but there are clear links to merger."
[...] In 2017, Aetna will only offer insurance policies in 242 counties scattered across four states—that’s a nearly 70-percent decrease from its 2016 offerings in 778 counties across 15 states.
[...] In April, Mark Bertolini, the chairman and chief executive of Aetna, told investors that the insurance giant anticipated losses and could weather them, even calling participation in the marketplaces during the rocky first years “a good investment.” And in a July 5 letter (PDF) to the Department of Justice, obtained by the Huffington Post by a Freedom of Information Act request, Bertolini explicitly threatened that Aetna would back out of the marketplace if the department tried to block its planned $37 billion merger with Humana.
[Continues...]
From the July 5 letter:
[...] We have been operating on the public exchanges since the beginning of 2014 at a substantial loss. And although we have been working to improve our operations over the last 2 ½ years, we are challenged to get to break even this year and it will be some time before we recoup our investment (including a return on invested capital in the exchange business). As we add new territories, given the additional startup costs of each new territory, we will incur additional losses. Our ability to withstand these losses is dependent on our achieving anticipated synergies in the Humana acquisition.
[...] We have consistently indicated to our investors that the public exchanges and the ACA small group business remain risks to our achieving our financial projections since these markets face significant hurdles as outlined above. Should the deal be blocked the challenges will be exacerbated as we are facing significant unrecoverable costs including carrying costs of the debt required to finance the deal [...] and significant unrecoverable transaction and integration costs. We currently plan to cover the above costs, as well as invest in capabilities, improve benefits, pass savings through to members and customers and expand our business using [...] synergies we expect to obtain through the transaction. If we are unable to close the transaction we will need to recover those costs plus a breakup fee and [...] litigation expenses if the DOJ sues to enjoin the transaction.
[...] 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 break- up 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. We also would not be in a position to provide assistance to failing cooperative exchanges as we did in Iowa recently.
The Ars Technica article continues:
Sixteen days after the letter was penned, the DOJ moved to block the merger. In announcing the department’s decision to file suit, Attorney General Loretta Lynch said it “would leave much of the multitrillion health insurance industry in the hands of just three mammoth companies, restricting competition in key markets.”
In interviews this week, Bertolini has brushed off the tie between marketplace participation and the merger deal, reiterating that the cuts were all based on finances. “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 told The New York Times . He noted that the company faced “a second-quarter pretax loss of $200 million and total pretax losses of more than $430 million since January 2014 in our individual products.”
But Obama allies weren't buying the explanation. In a Facebook post, Senator Elizabeth Warren (D-Mass.), noted that Aetna has the right to fight the DOJ on the merger. But, she said, “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.”
[To start the discussion: What if, in those exchanges where no insurer chose to provide coverage, people would be permitted to enroll in Medicare? -Ed.]
(Score: 2, Informative) by Anonymous Coward on Sunday August 21 2016, @04:09PM
Feature creep. Prior to the late 70's/early 80's, what we now think of as health insurance was sold as "catastrophic insurance". It was often named "hospitalization insurance". It's purpose was to help protect you against the small, but non-zero, risk that you might have something go wrong that was very expensive. And the insurers acted as the risk spreading pool. The 10% that incurred the huge bills had their expenses spread across the 100% who paid in but never got hit with the huge bills. So most people paid in more than they ever got back.
And, back then, all other routine healthcare was pay-as-you-go. And a Dr.'s visit didn't cost $175. More like $20 (which would be $73.82 in 2016 dollars according to http://data.bls.gov/cgi-bin/cpicalc.pl [bls.gov]).
Then, somewhere along the way, someone (insurers, govt. bureaucrats, who knows) started noticing that folks didn't go to their Dr's routinely for the periodic checkups that might catch a problem while it was a $1,000 fix long before it became a $1,000,000 fix. And so began a gradual push for "insurance" to cover more and more of the periodic routine checks. The reasoning was that if individuals could be better encouraged to go for the routine checks, and the problems caught before they became expensive issues, that the insurance world could save itself money (read as insurers could increase their profit). The initial logic was sound, catching issues early and fixing them before they become expensive items later is a good way to increase profit in a system based around risk.
Unfortunately, none of the companies going down this route of increasing their profit by lowering their risk by encouraging routine checks foresaw the unintended consequence of fully insulating the medical system user from the costs of their care. By paying for more and more of the routine stuff, the folks using it lost track of the cost, and generally began to not care (i.e., price competition was reduced) about the costs (because insurance was paying). Plus, this price hiding factor also resulted in far too many idiots believing that insurance is a way to "pay for all my healthcare" at the rate of ten cents on the dollar.
The reason so many idiots think insurance is a magic way to pay ten cents on the dollar for their health care is because that's all they see happening. They visit their doctor, they pay $20 as a co-pay, they think it only cost $20. At least with the old system, they directly saw the costs and were directly incentivized to try to keep those costs down. With the new "pay for everything" method, they saw none of the real costs, and began to not care because "someone else's money" was paying for the costs. Which brings us full circle to now and the obomacare idiots who think obomacare is a way to 'reduce costs' of healthcare. Insurance never reduces costs it always increases costs (because the insurer has to add a profit premium on top). What insurance does, and what it has always done, is reduce risk to everyone by spreading the risk of an unlikely event happening among the few across a large enough pool of members that the net risk is less for everyone. Converting health insurance from a "protect against huge bill" hedge into a "pay for everything you ever have done" is what is quickly killing the system all the way around.