Drop Outs in Exchanges, Health Insurance Merger Block Hit Market

The health insurance market seems to be heading toward more and more consolidation as the major payers Humana and Aetna along with Cigna and Anthem seem to be bent on merging, which would essentially reduce competition and create consolidation within the market. However, the Department of Justice is giving these payers a run for their money since it has spearheaded a lawsuit against the two health insurance mergers on account of its anti-competitive stance and potential harm to consumer interests.

Due to the fact that the Department of Justice is blocking the health insurance mergers, one payer - Aetna - has decided to pull out of the majority of its operations within the Affordable Care Act’s insurance exchanges citing financial losses and an inability to compete in this public marketplace without the financial security of the acquisition.

In July, the health payer Humana also announced that it would leave a number of state exchanges in 2017, according to Politico. Humana will offer individual plans in only 156 counties in 11 states, which would be a significant decline from the 19 states it is currently operating in. A spokesman for Humana had stated that the payer is pulling out of exchanges in which it has a “limited presence.”

This announcement also came on the heels of the Department of Justice declaring that it will be pursuing a court case against the Aetna-Humana health insurance merger. However, even before the Department of Justice decided to pursue this lawsuit, Humana had stated in May that it would likely remove its presence in a number of public health insurance exchanges in 2017.

Now that more payers are moving outside of the exchanges, the tensions are pointing at some of the faults within the Affordable Care Act, which may have brought difficulties that stand in the way of keeping revenue stable among top insurers. These obstacles include the exclusion of the pre-existing condition clause, the requirement for keeping young adults on their parents’ insurance plans, and the inability to charge older adults more than three times the cost of younger generations.

There is currently a more high-risk pool for payers to handle as well as many more people purchasing health coverage, which means more funds are being put toward medical care than ever before and challenging the finances of payers. This may be why some insurers have attempted to pursue health insurance mergers and consolidation.

“The big insurers are getting bigger, demanding more as they raise premiums to new highs in a market subsidized by the government and taxpayers. They want more profits as they cut back coverage as much as they can. They are on a death march, though many don't want to believe it, including most Democrats, and the Republican ‘plan’ to repeal and replace the ACA (if they get a chance after the elections), will just make matters worse,” John Geyman, Professor Emeritus of Family Medicine at the University of Washington School of Medicine, told HealthPayerIntelligence.com in an email.

“The DOJ’s concerns about less competition if these mergers go ahead are directly related to Aetna and other big insurers withdrawing from ACA exchanges, as the insurers lobby for quick approval of the mergers before the next enrollment period is too far along,” concluded Geyman.

It seems that the actions of these major payers may lead to more problems for the healthcare industry. Major for-profit insurers may not be the best source for working with the government to expand healthcare access for American citizens, wrote Geyman for The Huffington Post.

Financial assistance from the federal government has also held a potential for payers to continue investing their resources in staying within the public health insurance exchanges, but the government’s conclusion of the Affordable Care Act’s Cost Sharing Reduction program may have further pushed payers from continuing their participation in the public marketplace.

Geyman wrote that the payers have often held the upper hand in negotiating with the federal government on the details within the Affordable Care Act. Some critics have even suggested that Aetna was attempting to keep the Department of Justice from filing a lawsuit against its health insurance merger by threatening it will pull out of the exchanges, according to a letter sent by Aetna CEO Mark Bertolini.

“The industry claims financial distress even when its shareholders have seen its stocks recording the highest gains of any sector in the S&P 500, and its CEOs taking in huge sums. As one example, Stephen Hemsley, CEO of UnitedHealth Group, had $66 million in salary, stock options and other forms of compensation in 2014, lower than his total pay of $102 million five years earlier,” Geyman wrote.

The future for the Affordable Care Act seems to be held to the control exercise by the health insurance industry and the next presidential cabinet. In order to keep healthcare coverage at the same rates that the ACA has built, more revisions and reforms may need to be implemented in the near future.

Image Credit: Norwich University

Dig Deeper:

How the Affordable Care Act Changed the Face of Health Insurance

Health Insurance Mergers May Harm Consumer Interests