Insurers Show Their True Colors

August 4th, 2016 by Phil Mattera

healthcare-profitsOne of the key building blocks of the Affordable Care Act was the notion that insurance companies would compete with one another to offer good deals to the uninsured once that population was required to purchase coverage. That captive market is not working out as well as hoped.

Just the other day, Aetna became the last of the five major national carriers to project a loss on ACA business for 2016 while announcing the cancellation of a planned expansion of its participation in the ACA state exchanges and a reevaluation of its current involvement. This came in the wake of recent news that UnitedHealth and Humana would also be cutting back on their exchange offerings.

These carriers attributed their moves to higher than expected medical costs among exchange participants. For all the talk about a reformed health insurance industry, the companies still operate according to a perverse dynamic. They make money when more people don’t seek healthcare services. The insurers can’t get away with many of the tricks they used in the past to deny coverage, but they can still walk away from certain market segments such as ACA plans when profits are not as high as they would like.

The steps by Aetna and the others will intensify what is already a dwindling amount of competition in some of the state exchanges. Several are in a situation in which only one insurer is expected to offer marketplace plans. The result is a kind of single payer situation, though not in the good sense.

All of this is happening while the major insurers have been trying to diminish competition in another way — by trying to merge with one another. Aetna has been seeking to acquire Humana, and Anthem wants to join forces with Cigna. The two proposed deals, totaling about $85 billion, would reduce the number of major players to three.

Last month, the Justice Department and multiple states filed challenges to the two proposed mergers. It is unclear to what extent Aetna’s announcement about a pullback in the exchanges is meant to put pressure on the Obama Administration to back off from its opposition to the Humana deal.

What is clear is that Aetna has a long history of using hard-ball tactics dating back to its purchase of the notorious HMO U.S. Healthcare two decades ago. Aetna tried to apply some of the worst features of managed care — including bare-bones policies — to its health insurance business and ended up with a wave of litigation and regulatory violations. An attempt by plaintiff lawyers to bring a massive tobacco-industry-type case against the industry failed, but Aetna did have to pay $470 million to settle a class-action suit brought by physicians over inadequate payments.

Aetna’s track record was one of the main pieces of evidence showing the folly of the decision by the Obama Administration and Congressional Democrats to shun single payer (or even the public option) and embrace the big insurers. That Faustian choice is coming back to haunt the Dems, who are now trying to resurrect the public option. It may be too late.

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