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3 ways Aetna just shook the ACA’s foundations

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Aetna executives were kinder to the Affordable Care Act public exchange system and market rules in the first quarter than executives at some of the company’s competitors.

Mark Bertolini, chairman of the Hartford, Connecticut-based company, said improving and saving the ACA exchange system would be a good investment, and that the existence online health insurance supermarket had helped the insurer jump into markets cheaply and quickly.

That was then.

Now, the Obama’s U.S. Department of Justice has sued to block Aetna’s efforts to acquire Louisville, Kentucky-based Humana.

Related: Fight or run is choice for health insurers after DOJ suit

Aetna is not yet talking directly about shutting down most or all of its public exchange operation, but today, during a conference call the company’s executives held to discuss second-quarter earnings with securities analysts, the executives repeatedly said the company had done well during the quarter in spite of the ACA exchange operation and the performance of its fully ACA-compliant small-group business. They implied that major changes in the exchange operation may be coming.

Related: UnitedHealth’s earnings, dissected

The company is reporting $793 million in net income for the quarter on $16 billion in revenue, compared with $732 million in net income on $15 billion in revenue for the second quarter of 2015.

The company ended the quarter providing or administering health coverage for 23 million people, down from 23.7 million people a year earlier.

But the company let insured commercial enrollment shrink to 5.7 million, from 6.2 million. The growth came from Medicare and Medicaid. About 838,000 of the commercial enrollees were ACA exchange enrollees.

The individual products arm suffered a $200 million pretax operating loss for the quarter, and the company has already set up a $65 million premium deficiency reserve for the second half of the year, to compensate for what the company believes to be baked-in underpricing.

For a look at some of what Aetna’s executives said during the conference call about the ACA insurance operations, and what that might mean for the future of the ACA, read on:

Earlier, Aetna had applied to put its plans on the menu in more states. (Image: Thinkstock)

Earlier, Aetna had applied to put its plans on the menu in more states. (Image: Thinkstock) 

1. The 2017 exchange plan menus might be shorter than they looked a few weeks ago.

In light of the disappointing exchange program performance, “combined with the significant structural challenges facing the public exchanges, we believe it is only prudent to reassess our level of participation on the public exchanges,” Bertolini said during the conference call. “Our initial action will be to withdraw our 2017 public exchange expansion plans. Additionally, given the deadline to attest to our final rate filings for 2017, we are also undertaking a complete evaluation of our current exchange footprint, as the poor performance of these products warrants such an analysis.”

Related: Humana and Covered California

Other players in the market know Aetna will pay its risk-adjustment program bills. (Image: Thinkstock)

Other players in the market know Aetna will pay its risk-adjustment program bills. (Image: Thinkstock)

2. The Affordable Care Act risk-adjustment program could lose a major source of liquidity.

Aetna expects to pay $971 million into the ACA risk-adjustment program, which is supposed to use cash from individual and small-group plan issuers with low enrollee health risk levels to issuers with high risk levels.

Some other insurers have failed and may not make their risk-adjustment program payments.

Aetna executives said their ACA risk program results are better than they expected and, even though they are talking about cutting the company’s individual health insurance service area, are not talking about walking away from existing risk-adjustment payables.

Aetna executives say individual market claims are so high partly because of "third-party intervention." (Photo: Allison Bell/LHP)

Aetna executives say individual market claims are so high partly because of “third-party intervention.” (Photo: Allison Bell/LHP) 

3. The level of anger between insurers and drug companies could increase.

Bertolini said one reason ACA individual claims appear to be so high is that drug companies and other parties with a business interest in coverage expansion seem to be making a special effort to get very-high-cost individuals covered.

“We now believe we have third parties paying premiums for special interest groups, both in small group and individual, that are supporting people getting access to these services,” Bertolini said. “And because of that, we have, while we have the same demographic mix in this population, we have a much higher intensity and morbidity in that population.”

Ordinary people may think the product and care providers are simply helping sick people get care. Insurers see that kind of activity as a move to game the system and increase the morbidity of the risk pool in a way that threatens their ability to price coverage.


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