Aetna Inc. became the last of the five major national health insurers to project a loss on Affordable Care Act plans for 2016, and the company said it would re-evaluate its participation in the business and cancel a planned expansion.Aetna, which had previously expressed relative optimism about the ACA exchanges, said it was setting up a reserve of $65 million to account for expected losses on individual plans over the rest of 2016. The move, coming after a similar shift in tone last week by Anthem Inc., is the latest sign of instability and financial pressures in the marketplaces that are at the heart of the health law.
"While we are pleased with our overall results, in light of updated 2016 projections for our individual products and the significant structural challenges facing the public exchanges, we intend to withdraw all of our 2017 public exchange expansion plans, and are undertaking a complete evaluation of future participation in our current 15-state footprint," said Aetna Chief Executive Mark T. Bertolini. Aetna had previously made regulatory filings indicating it was considering growing into five new state marketplaces in 2017.
Aetna and Humana Inc. also unveiled a joint deal to sell $117 million worth of assets to Molina Healthcare Inc. if the bigger insurers are able to consummate their merger. Aetna's planned Humana acquisition is facing an antitrust suit from the Justice Department, which the companies have vowed to fight. If Aetna and Humana win the approval of the federal judge who will rule on their case, they said they would sell assets representing about 290,000 Medicare Advantage enrollees in 21 states to Molina, a largely Medicaid-focused insurer.
Despite the exchange results, Aetna posted better-than-expected profit and revenue growth in the second quarter and reaffirmed its 2016 operating earnings guidance.
In April, Aetna had said that after a loss last year, it was aiming to roughly break even on its exchange business this year and move toward profitability in 2017. Then, Mr. Bertolini called its position in the ACA marketplaces a "good investment." The five new states in which Aetna was considering expanding were Maine, Oklahoma, New Jersey, Kansas and Indiana.
Aetna's darkening perspective on the ACA business echoes comments by Anthem, which last week went from projecting a slight profit this year to expecting a mid-single-digit loss on ACA plans. Anthem roughly broke even on individual plans in 2015 and had a positive margin in 2014. Anthem said it expected improvement on its results next year, but also that it would re-examine its full-on commitment to the exchanges.
UnitedHealth Group Inc. and Humana have in recent weeks deepened their projected 2016 exchange losses and confirmed they will largely withdraw from the business next year.
The rapid shifts in outlook, along with the withdrawals, are signs of continued upheaval in the ACA marketplaces in their third year, analysts said. "This market is very volatile," said Deep Banerjee, an analyst with S&P Global Ratings. Part of the problem has come from insurers finding that enrollees were running up medical costs greater than they expected when the companies set their premiums, he said, but also "there have been structural issues, there have been rule changes" by regulators that have made the business far harder to gauge.
Not all insurers are retrenching- Cigna Corp. , though it said it expected a loss this year on its exchange business, still plans to expand into a few new markets. Cigna, by revenue the smallest of the five national insurers after UnitedHealth, Anthem, Aetna and Humana, has a limited ACA presence and enrollment, however.
In addition, Medicaid-focused insurers continue to do well. Molina, for instance, is making a profit on its exchange business and plans to expand its offerings to 137 counties in 2017, from 118 this year. Centene Corp. has also said it has positive margin, though it is seeing losses on ACA business acquired when it bought Health Net Inc. and plans to largely withdraw the legacy Health Net exchange plans in Arizona.
Anthem is facing a Justice Department antitrust challenge to its acquisition of Cigna, and it said that if that deal went forward it would likely expand its exchange offerings into 9 new states.
The pullbacks by UnitedHealth and Humana, in addition to Aetna's possible move, will likely sharply increase the regions with limited or no competition among insurers on the exchanges. That will put a heavy weight on Blue Cross Blue Shield insurers, which in some states, including Alaska, as well as several largely-rural areas of others, are now expected to offer the only ACA marketplace plans.
"What you end up with is the not-for-profit Blues and other regional plans becoming the insurer of last resort in parts of the country," said Sam Glick, a partner with consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos. The situation is "a real concern," he said, particularly since a number of the Blue insurers are themselves losing money on the exchange business.
Pressured by the ACA-plan results, including the premium deficiency reserve set aside against future losses, Aetna's medical-benefit ratio, a key measure reflecting the share of premiums used to pay medical costs, rose to 82.4% from 81.1%. The ratio rose more for its commercial members, to 83.4% from 81.8%, than its government-based business, 81.4% from 80.3%.
In all for the quarter, Aetna reported earnings of $790.8 million, or $2.23 a share, up from $731.8 million, or $2.08 a share, a year earlier.