Why Aetna is pulling back, big time, from Obamacare markets now

Aetna's actions — and those of other big insurers — speak louder than nice words about Obamacare.

The decision by Aetna to bail out next year from 11 of the 15 states where it sells Obamacare plans is just the latest move by a major insurance company to pare back — sharply — its involvement in the markets for individual health plans that are a key component of the Affordable Care Act.

But it came less than a week after federal health regulators suggested that a big concern about the viability of that business wasn't justified by the actual data. Insurers have been saying Obamacare customers are, overall, less healthy than the companies need them to be so that the medical costs covered by the plans don't exceed the premiums the customers pay in each month.

That disparity between the two events reinforces an idea, long stated by Obamacare analysts, that 2017 will be a crucial year for the ACA. This is expected to be when it will become much clearer if insurers can make money in the market, or whether the law needs a fix to allow that to happen.

Aetna, like UnitedHealth and Humana before it, cited financial losses from its individual plans as the reason it would reduce the number of counties where it sells such plans.

Last week, Massachusetts Sen. Elizabeth Warren suggested that Aetna's recent statement that it would evaluate its ACA involvement may have been prompted by the U.S. Department of Justice's move to block a proposed merger between Aetna and Humana.

"Aetna says this change of tone about the Affordable Care Act has nothing to do with the merger — but some analysts have suggested that Aetna might 'use its future participation in the exchanges in bargaining over its purchase of Humana,'" Warren said.

That said, Aetna's losses on ACA plans are real, as are those of Humana and UnitedHealth.

"It seems increasingly apparent that the big, national insurers are having trouble making money and competing in the ACA marketplaces," said Larry Levitt, senior vice president at the Kaiser Family Foundation. "Some insurers, particularly those that historically served the Medicaid market, are doing better. It's clear that there's going to be less competition and choice in the marketplaces in 2017."

Levitt also said, "The next open enrollment period will be pivotal."

"If enrollment grows in 2017, I think a lot of the current concerns will dissipate," he said. "On the other hand, if enrollment next year stagnates, it will likely precipitate a debate about how to fix the law, amidst big disagreement among Democrats and Republicans about what those fixes look like."

Enrollment growth is important because it is a way that the so-called risk pool can be improved. The healthier the pool of customers Obamacare plans have, the better chance the insurers have of making money from them.

Insurers who have been exiting the markets and other observers have said that the risk pool so far is not what they had hoped for, or priced their plans for.

But last week, the federal Centers for Medicare and Medicaid Services issued a report on the risk pool that painted a different picture.

"The report shows that per-enrollee medical costs in the ACA individual market were essentially unchanged in 2015, even as costs in the broader insurance market continued to rise," CMS said.

"Moreover, the states with the highest enrollment growth saw significant reductions in per-enrollee medical costs. These findings suggest a year-over-year improvement in the ACA individual risk pool, with the marketplace gaining healthier, lower-cost consumers as it grew," CMS wrote in its blog.

CMS also said that it expects the risk pool to keep growing and to improve as a result of several actions planned by the agency, including strengthening the outreach it makes to people, particularly young adults, which will include reminding them of the tax penalty for failing to have insurance.

Levitt said that while the data suggest that the risk pool improved in 2015, the second year of Obamacare sales, "there's no systematic data yet on what 2016 looks like."

"Individual insurers can see how their own risk pools and finances are shaping up, but no one insurer has the full picture," he said.

Robert Laszewski, president of Health Policy and Strategy Associates, said, "What is most significant about Aetna's reasoning for dramatically cutting back on its participation in the ACA exchanges is that it is saying the claims experience is getting worse not better."

"People had hoped the risk pool would have stabilized midway through the third year," Laszewski said. But "other carriers [insurers] I talk to are finding the same continued deterioration in the risk pool."

"What I find most disconcerting is that the local Blue Cross plans are in a real bind here," he added. "One plan after another is reporting unsustainable underwriting results in the ACA exchanges but, given their long-standing commitment to their states, it isn't so simple for them to walk away as the big for-profits like United, Humana and now Aetna are doing."

"I don't think you can underestimate just how critical the instability of the ACA risk pool is," Laszewski said.

Officials in the U.S. Health and Human Services Department noted Tuesday that Aetna CEO Mark Bertolini in April had said that if the company was to go out and buy the 1.2 million Obamacare customers it had "it would cost us somewhere around $1.2 billion to acquire them," and that it would cost up to $750 million to build out the 15 state markets where it now operates.

Bertolini then added, "So in the broad scheme of things, we are well, well below any of those numbers from the standpoint of losses we've incurred in the first 2 ½ years of this program. So we see this as a good investment."

Sara Collins, vice president of the Health Care Coverage and Access program at the Commonwealth Fund, said Aetna's decision to drop out of many markets despite that picture Bertolini painted last spring could well reflect how Obamacare has given consumers more power in the individual insurance market.

Collins noted that the Obamacare consumer market is highly price sensitive, with more than 40 percent of returning enrollees switching plans, often because they wanted to pay a lower premium than they had been paying.

"It is not surprising given the high level of price competition that there will be winners and losers in the reformed individual insurance market," Collins said. "Aetna's announcement this week is consistent with this."

Collins also noted that an Urban Institute analysis of Obamacare competition in a select number of rating areas in 26 states suggested that big national insurers often are not pricing their plans as competitively as are Blue Cross-affiliated insurers, regional insurers, provider-sponsored insurers and Medicaid insurers that are selling ACA coverage.

"While UnitedHealth Group participated in more than half of the regions the researchers analyzed, its premiums were higher relative to their competitors in most markets," Collins said. "In 2016, United was one of the two lowest-cost insurers in 18.5 percent of the regions analyzed. This was true of Aetna in 16 percent of the regions and Humana in 6.2 percent.