Last April, Mark Bertolini — board chair and chief executive of Aetna, the managed health care company and insurer — bragged to Forbes about lucratively participating in the Affordable Care Act (ACA) exchanges:
“If we were to go out and buy those members, it would cost us somewhere around US$1.2 billion to acquire them. If we were to build out 15 markets, it would cost us somewhere between US$600 million to US$750 million to enter those markets and build out the capabilities necessary to grow that membership.
…
“We see this as a good investment, hoping that we have an administration and a Congress that will allow us to change the product like we change Medicare every year and we change Medicaid every year. But we haven’t been able to touch this product because of the politics. But if we get to that point, we are in a very good place to make this a sustainable program.”
Except instead of a brag, that was really a whine; Bertolini was making a pitch for “multiple pools with specific products for each pool.” It was clear that Bertolini was hellbent on getting back to the good old days of being allowed to cherry pick only the healthiest of insurance customers. He had to know that was never going to happen. And he had to know Aetna’s “good investment” probably wasn’t.
But if we’ve collectively learned anything from Donald Trump’s US presidential candidacy, it has to be that anyone can say anything at any time and the corporate stenographers will dutifully report it with a straight face.
Pants on fire
Earlier this week, Aetna announced it was abandoning most of the state ACA exchanges in which it participates. Aetna’s “good investment” was now, suddenly and definitively, not. The company denied escalating speculation that its exchange pull-out was retribution for the US Department of Justice (DOJ) blocking its US$37 billion merger with Humana.
“I like my chances in front of a judge,” Bertolini told Leslie Picker and Reed Abelson writing for the New York Times.
But then Jonathan Cohn and Jeffrey Young writing for the Huffington Post obtained a 5 July 2016 letter from Bertolini to Ryan Kantor at the DOJ (.pdf; 51KB), through a Freedom of Information Act (FOIA) request. In the letter, Bertolini clearly threatens Aetna’s withdrawal from the ACA exchanges if the DOJ blocks the Humana merger:
“Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses. Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint. 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 breakup 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.
“Finally, based on our analysis to date, we believe it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked. By contrast, if the deal proceeds without the diverted time and energy associated with litigation, we would explore how to devote a portion of the additional synergies (which are larger than we had planned for when announcing the deal) to supporting even more public exchange coverage over the next few years.”
Sixteen days later, the DOJ announced it would challenge the Aetna-Humana merger.
“The company’s claim that only after April did it realize how bad things were beggars credibility,” notes Michael Hiltzik writing for the Los Angeles Times. “Aetna has been selling health insurance since 1899 and has been in the Obamacare market since the exchanges opened for business in 2014. From the inception it took the long view, as Bertolini explained in April. As we observed earlier, if the economics of the exchanges really caught it by surprise between April and August, it should fire its entire financial analysis team. The only thing that really changed in that time frame was the DOJ’s move against the merger.”
What’s worse than pants on fire?
As it turns out, Aetna is abandoning all but four state ACA exchanges, including at least one that’s profitable.
Hiltzik cites Richard Mayhew writing for Balloon Juice and Charles Gaba writing for ACASignups reporting that Aetna is profitable in the Pennsylvania ACA exchange, one of the state ACA exchanges from which it is withdrawing.
You might very well think that profits of US$6.4 million (on US$60 million in premiums in 2014) and US$13.6 million (on US$71.4 million in premiums in 2015) are reasonable, good, or maybe even great. But apparently not enough for Aetna. After all, that doesn’t cover Bertolini’s 2015 compensation of US$27.9 million (that’s US$107,005 per day if you’re keeping score at home) which is a pretty big nut. And that’s up from a meager US$15 million in 2014.
Hiltzik suggests the government counter Bertolini’s threat:
“We’ve mentioned before that the government isn’t entirely powerless to goad big insurers like Aetna into greater participation in the ACA exchanges. Among other things, the companies make money hand over fist by serving Medicaid expansions in many states and in Medicare managed-care plans. Why not tie their access to those lucrative markets to sticking with the exchanges until they’re finally stabilized?”
Me? I’m for immediately dissolving Aetna’s corporate charter. But I can compromise, if I have to, I suppose, and I’d support Hiltzik’s suggestion.