Aetna CEO Mark Bertolini said he remains confident the company’s merger with Humana will be completed despite the legal challenge by the federal government.
Bertolini made the remarks in Thursday’s earnings call, in which Aetna said that its Affordable Care Act-related losses are mounting but were offset by strong growth in its government business.
The Hartford, Conn.-based insurer reported third-quarter net income of $603.9 million, up 8 percent from a year earlier. Revenue, at $15.8 billion, increased 6 percent.
Aetna wants to buy Humana for $37 billion, but the U.S. Department of Justice has filed suit to block the deal. The companies have said they believe that together they can offer better care to more people at a lower price, but the DOJ has said that it believes the deal would reduce competition, lower the quality of care and increase prices, especially for older Americans. A trial is set to begin Dec. 5.
CFO Shawn Guertin said in the call that Aetna now projects to incur a pretax loss of $350 million this year on individual ACA business, up from a projected $300 million three months ago.
Big health insurance companies have said that they have been struggling with higher-than-expected costs incurred by customers who sign up for insurance through the exchanges. Aetna said Thursday that it also is struggling with people who sign up for ACA compliant plans off the exchanges. That includes people who do not get insurance through their employer but earn too much to qualify for federal subsidies.
Guertin said Aetna is actually incurring a greater loss from individuals who sign up off the exchanges, though he categorized the losses from both customer segments as “substantial.”
Guertin said the results validate the insurer’s decision to significantly reduce its participation in the health exchanges, which are a central part of the ACA, informally called Obamacare.
Bertolini said that the current primary problems with the ACA are the so-called risk adjustment mechanism and the large share of unhealthy people who are signing up for insurance.
The risk adjustment mechanism requires that insurance companies that gain healthier, less expensive customers through the exchanges pay money to companies that gain sicker, more expensive customers. The mechanism aims to prevent insurers from cherry-picking the healthier customers and leaving other insurers to incur the higher costs from the sicker patients.
The mechanism contributed, for example, to Baptist Health pulling out of Kentucky’s health exchange, Kynect, even though Baptist had signed up relatively young and health customers.
The general ACA customer pool, Bertolini said, consists of people who are older but too young for Medicare and chronically ill.
“What we have in a zero-sum risk adjustment mechanism,” Bertolini said, “is a mechanism that takes people who are losing less money, and giving it to people who are losing more money, so that everybody loses the same money.
“And until that mechanism changes, or until the pool substantively changes, we’re going to find ourselves in a premium spiral that’s going to continue to drive rates up, good risk out and ultimately create a very bad risk pool for the overall mechanism.”
As more insurers exit state markets, the few remaining insurers are burdened with all the risk, he said.
“When you’re the last one left in the market,” Bertolini said, “you get all the risk and there isn’t any risk to share.”
Date:October 28, 2016