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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: 0) by Anonymous Coward on Monday August 22 2016, @01:44AM
Oooh, is that a fun fact? I love me some fun facts! I can play this game too!
Just because "health insurance is profitable" does not in any way imply that any individual health insurance plan, or set of plans, or market, is inherently profitable.
Did you get that? It's a subtle point, but it's quite possible for the health insurance industry to be a profitable one on average, while certain products in that market are not profitable.
That's what happened here: Aetna provided policies according to the dictates of Obamacare, and within the limits dictated, within certain markets, they could not find a way to make them profitable. Given that this continued over the course of years, not just a morning's smoke session, it's a pretty fair bet they tried. And failed. The numbers behind the failure are now public.
OK, so much for the basic fun facts. Now let's have another fun fact! Mergers result in changes in the market position. This may sound like Walmart-style squeezing of everyone else, but there's something special about the insurance industry: the creation of a larger, and more diverse risk pool. So, here's another fun fact: there's every reasonable reason to believe that, if they had had their merger, they might have been able to cut a profit on those policies and continue offering them! Oooh, that was fun!
Oh, and let's have another fun fact (since I'm having more fun than a barrel of inebriated monkeys) and observe that health insurance has existed as a product since before a government willed it into existence. Obamacare policies exist because of government fiat, but health insurance as an industry does not.
This is so much fun it might not even be legal, but who's gonna stop me? You? Didn't think so.
Because another fun fact (isn't this crazy?) is that this is precisely the sort of thing that was predicted: companies would have a hard time cutting a profit, and just stop offering policies, while the ones who did remain in would end up with monopoly power, and massive, chunky premiums (assuming that the government let them). And whaddyaknow? (fun fact alert!) the premiums have been rising. Nationwide, they have risen substantially, and in fact since inflation is dancing a tango with 0% that means health care costs have continued to beat inflation, year-on-year, despite all the earnest promises that Obamacare would totally control costs. Oh boy, another fun fact: the number of provisions in it that had a credible attack on cost rises? Nil. Again, as seen on TV, whenever they talk about that. Oh, wait, TV rarely talks about that because it's boring and makes the government pout. Oh well!
It gets yet funner (is that a word? It sounds like a fun word, so it totally should be!) when you remember that the health care market has both supply and demand ends, and that the supply end is continually growing as new products come to market (new drugs, prosthetics, procedures, you name it!) and yet also under pressure (lack of new MDs, rapid retirement of old MDs who are tired of the new BS, hospitals and clinics being closed, merged and redeployed under the new rules, you name it) in terms of ability to provide for that supply.
Wait, let me put on my moustache tattoo and fedora. "I believe that your pocket analysis, despite being heartfelt, is simplistic and elides certain critical factors."
What fun!