Why did Aetna decide to exit a state where it was making money?

Recently the health insurance company Aetna announced that starting in 2017 it would no longer be selling policies through the Affordable Care Act exchanges in several states because it was losing too much money. Curiously, though, one of those states is Pennsylvania, where (according to Aetna itself, as Richard Mayhew pointed out) it made a healthy profit there in the individual market for at least the past two years, and it had expected to do the same next year. So why would Aetna want to withdraw from Pennsylvania?

The explanation might be politics. Aetna had been planning to merge with Humana, another large health insurer, but the Department of Justice Antitrust Division was concerned that the merger would be anticompetitive, and Aetna didn’t like that.

In a July 5 letter to the Department of Justice (PDF here), Aetna’s chairman, Mark Bertolini, issued a warning: “Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint. … In other words, instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.”

The DOJ did decide to object to the merger, and Aetna did as it had warned. To be clear, Aetna presented this as a business necessity, not a threat. But it is curious that the company would pull out of a state where it was making money and employing and insuring a fair number of people. For more on this see Jonathan Cohn’s Huffington Post article.

Incidentally, Aetna and other health insurance companies actually have been losing money selling individual policies some other places, mainly because not enough currently healthy people are signing up for coverage. Younger and healthier people are not signing up because extra tax imposed on those who go uninsured isn’t all that big, they may not realize that coverage for silver plans (and you generally do want to get at least a silver plan) is affordable when you take into account the tax credit around 80 percent of people get, and a lot of them think that they can just wait and sign up if and when they get sick, which is only partly true, since open enrollment is limited to a few months a year and coverage doesn’t start immediately and isn’t retroactive.

So the most popular part of the law (the one that says insurance companies aren’t allowed to cancel your policy, refuse to sell you one, or charge you more because you’re sick or were in the past) depends on the least popular part (the so-called “individual mandate”) in order to be economically feasible, because math. More on this in future posts.

(Updated 2016 August 27 to add the last to paragraphs.)

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