Aetna's Retreat From Obamacare Is More Than It Seems

320AUG 16, 2016 12:59 PM EDT
By Megan McArdle

Aetna is pulling out of 11 of the 15 states it serves on the Obamacare exchanges. Longtime readers of this column will be unsurprised at the reason: It's losing substantial amounts of money on its exchange policies.

That’s not necessarily the only reason, of course. Companies in heavily regulated industries -- and health care is now probably our most heavily regulated sector outside of nuclear power plants -- spend a lot of time engaging in n-dimensional chess games with the various government entities that have jurisdiction over their operations. Public statements and market moves may be exactly what they look like. Or they may be part of a complicated strategy involving some third, fourth or eighth factor that does not, at first glance, appear to be much related.

In this case, it has been delicately suggested that the company may have in mind its proposed merger with Humana (and that related announcements by Anthem are designed to aid Anthem's Cigna merger). The government is currently suing to block both mergers; the companies would, obviously, like them to go through. The deals would consolidate an industry that currently has five major insurers down to three, giving them considerably more pricing power with both customers and providers. Because the individual market is a relatively small piece of their business, those mergers are probably worth a lot more to them than whatever goodwill the companies earn by losing money on the exchanges.

The losses are not to be ignored. Insurance regulators and the Securities and Exchange Commission do not give the firms much room to claim that they’re losing money if they're actually making it hand over fist. Even if that weren’t the case, the failure of so many co-ops, which don’t have other lines of business, suggests that these markets are not, on the whole, a good place for insurers to make money. But it’s at least plausible that if the government weren’t blocking their mergers, these companies might be willing to go along with those losses for a few years in order to generate some regulatory goodwill for their broader business.

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https://www.bloomberg.com/view/articles/2016-08-16/aetna-s-retreat-from-obamacare-is-more-than-it-seems