Aetna Exiting Most Affordable Care Act Exchanges

Aetna Inc. (NYSE:AET) has announced plans to reduce its presence in the Affordable Care Act exchanges and cancel a planned expansion. On Monday, the company announced that it will withdraw from 11 of the 15 state exchanges where it sells marketplace plans. Aetna cited growing financial losses and structural problems with the exchange markets as the causes for its withdrawal.

The move came after similar ones by other major insurers. Aetna is the third large insurer, after United Healthcare and Humana, to significantly reduce its presence on the exchanges. The moves are seen as a huge blow to the future of the Affordable Care Act.

In early July, Aetna warned Justice Department antitrust officials that this action may occur if they sued to block its deal to acquire Humana Inc. The company claimed that the cost savings from the Humana deal would allow the companies to further expand coverage into new parts of the US. However, the cost of fighting the DOJ would make Aetna unable to sustain the losses incurred from the public exchanges.

On Aug. 2, Aetna revealed that its ACA plans had lost approximately $200 million in the second quarter of 2016. Nearly half of the company’s total individual-plan losses since the exchanges launched in January 2014 came in the second quarter of 2016. The plans are expected to lose more than $300 million this year. Higher-than-expected medical costs among enrollees was a big driver of the losses.

The Department of Justice blocked the merger between Aetna and Humana on the grounds that consolidating the industry would lead to lower competition and higher costs for consumers. Attorney General Loretta Lynch said of the deal, “They would leave much of the multitrillion health insurance industry in the hands of just three mammoth companies, restricting competition in key markets.” A trial in the Justice Department’s lawsuit is scheduled to begin Dec. 5, with a ruling expected in mid-January.

In a letter to the Justice Department on July 5, Aetna said that if the Humana deal drew a legal challenge, “instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.” The letter also stated that the insurer believed “it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked.” The letter continued, “Although we remain supportive of the Administration’s efforts to expand coverage, we must also face market realities.”

Aetna’s actions surrounding its exchange business have drawn a political spotlight. Critics, including Massachusetts Democrat Sen. Elizabeth Warren, have suggested that Aetna’s decision about the exchanges were sparked by the Justice Department’s decision. Some Republicans, including the presidential campaign of Donald Trump, said that Aetna’s decision reflected flaws in the ACA.