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Marketplace Shockwaves: Insurer Exits Leave Marketplaces Vulnerable

By:  Jennifer Kiesewetter, Esq.  and Minyon Bolton, J.D.

Early this month, Aetna announced that in 2018, it will not expand its Health Insurance Marketplace ("Marketplace" or "Exchange") coverage, and is evaluating whether it will completely pull out of the Marketplaces created by the Patient Protection and Affordable Care Act (“ACA”).  Insurer scale backs and exits have become a trend as insurers have been reporting record number losses with enrolled participants that are sicker and require costlier treatments than expected.  Also, insurers are uncertain when the ACA will be repealed, if and when the ACA will be replaced, and what will be offered.  

In 2017, Aetna withdrew from eleven (11) of the fifteen (15) states it offered Marketplace coverage citing huge profit losses.  Aetna currently only offers Marketplace coverage in Delaware, Iowa, Nebraska, and Virginia.  In Nebraska, Aetna is one (1) of only two (2) insurers operating in the Marketplace.  In addition to Marketplace coverage, Aetna also offers Medicaid coverage in sixteen (16) states across the South, Midwest, and Northeast. 

Aetna’s Chief Executive Officer Mark Bertolini has said that the ACA is in a death spiral, meaning the Marketplaces are collapsing under a large pool of sick participants that have few insurer options and rising premiums.  Bertolini has also said that, depending on the market, between one percent to five percent (1%-5%) of Aetna’s customers account for fifty percent (50%) of its costs.  Aetna has stated that is has sustained approximately four hundred and thirty million dollars  ($430,000,000) in losses since 2014 through its operations in the Exchanges. 

While Aetna will not be expanding its operations in the Exchanges, it appears poised to continue to offer individual policies in many states.  However, these policies are sold outside the Marketplaces and are not eligible for federal subsidies.  Humana, which had already significantly lowered its 2017 participation in the Marketplaces, recently announced it was completely leaving the Marketplaces in 2018.  Humana cited poor profits as the reason for exiting the Exchanges.  Humana’s recent announcement could be an indicator of more insurer exits from the Marketplaces.  

According to health insurance analysts, Aetna is one of the top ten insurers operating in the United States.  Humana has also been named as a top ten insurer in the United States by health insurance analysts.  In 2017, Aetna and Humana ended their merger plans following a District Court ruling that granted the Department of Justice’s (“DOJ”) injunction to prevent the merger.  The District Judge in the case called Aetna’s decision to scale back its 2017 Marketplace operations deceitful and aimed at bolstering Aetna’s position in the litigation with the DOJ.  It has been reported that the DOJ warned Aetna that it would attempt to block an Aetna-Humana merger prior to initiating litigation.  Financial analysts calculate that the failed Aetna-Humana merger cost Aetna upwards of $1.8 billion. 

Most of the larger insurers have scaled back coverage for 2017.  Molina Healthcare, which is also a large insurer, has fared well in the Marketplaces compared to other insurers, according to insurance analysts.  However, February 2017 financial filings for Molina Healthcare reveal that the insurer netted profits of about eight million ($8,000,000) in 2016, down from one hundred forty-three million ($143,000,000) in 2015.  Molina Healthcare has announced that it plans to evaluate its participation in the 2018 Marketplaces.  This shows that insurer profits very wildly from year-to-year in the Exchanges and for now insurers’ doubts are not going away.

With the combined market value in the health insurance industry held by large insurers like Aetna, these insurers’ decisions impact the Marketplaces.  Large insurers leaving the Marketplaces create coverage voids that can lead to Marketplace destabilization and eventual collapse.  Mergers between large insurers reduces competition and creates monopolies.  Even seemingly innocuous statements by these insurers about the Marketplaces, or their companies’ operations in the Marketplaces, can cause speculation.  Large insurers are a vital part of the Marketplaces.  Without their full participation, the future of the Marketplaces is uncertain.    

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