Insurance Companies Narrowing Role in ACA Exchanges

In recent months, several major health insurance companies, including Aetna, Humana, and UnitedHealth Group, have announced their intention to reduce their footprints in the ACA healthcare exchanges. Aetna recently announced that it sustained a $200 million loss in the second-quarter of 2016 and over $430 million since January 2014 with respect to individual products. As a result, it “will reduce its individual public exchange participation from 778 to 242 counties for the 2017 plan year, maintaining an on-exchange presence in Delaware, Iowa, Nebraska, and Virginia.” However, Aetna also announced that it would remain an off-exchange presence in most of the areas where it is currently on exchange.

Likewise, Humana announced its intent to reduce its footprint with respect to on- and off- exchange products. Specifically, “the company’s 2017 geographic presence for its Individual offerings is expected to cover no more than 156 counties across 11 states, down from 1,351 counties across 19 states in 2016.” UnitedHealth announced back in April 2016 that it was reducing its footprint.

One of the key issues driving these decisions is the unbalanced risk pools associated with the exchanges. The exchanges only work if there is a sufficient balance between healthy and unhealthy participants. However, fewer healthy individuals are purchasing policies from the exchanges. As such, insurers are paying claims out of proportion with collected premiums.

This question of financial implications for insurance companies operating on the individual exchanges recently saw a new twist with Aetna’s disclosure of a letter to the U.S. Justice Department (DOJ) regarding Aetna’s proposed acquisition of Humana. Aetna argued that it had been “operating on the public exchanges since the beginning of 2014 at a substantial loss” and that it was “challenged to get to break even [in 2016]. The letter cites that the ultimate goal of the Humana deal is to achieve “synergies” that would allow Aetna to continue and even expand its participation in the exchanges.

The letter also clearly notes that if DOJ were to challenge or attempt to block the acquisition, Aetna “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.” Some supporters of the exchanges are now questioning the motivations behind Aetna’s decision to reduce its footprint.

As the exchanges are still relatively new, the question of financial viability is still an open issue. Some insurance companies are making money on the individual exchanges. However, there are serious risks that accompany the decisions of major insurance companies to leave the exchanges. The purpose behind the exchanges is to encourage competition. However, if only a few companies are offering products, this could lead to a de facto oligopoly potentially driving up the price of individual plans.

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