#Unbreakable or #Undone

August 17th, 2016

Just as soon as Unraveled is completed, the next chapter in this Obamacare trilogy opens up. By now, you should have read that Aetna is pulling out of virtually 11 out of the 15 ACA exchanges. Humana is also dropping from 15 states to 11 states. UnitedHealth will offer policies on “three or fewer exchanges.” In one county in Arizona, there will not be any ACA policies on the exchange. A number of states will have only one policy available. Alaska came close to having none, but the legislature bailed out the remaining provider.

What caused Aetna’s withdrawal? Jonathan Cohn and Jeffrey Young obtained through FOIA a letter Aetna’s CEO sent to DOJ Antitrust Division. (The Obama administration finally found a FOIA request that it quickly turned around, huh?) In short, the letter states that if Aetna’s merger with Humana goes forward, the “anticipated synergies” will allow the company to expand coverage on the exchanges. However, if the merger is blocked, due to the lack of such “synergies,” the company would have to scale back its exchange coverage. Aetna wrote:

Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint. We currently plan, as part of our strategy following the acquisition, to expand from 15 states in 2016 to 20 states in 2017. However, if we are in the midst of litigation over the Humana transaction, given the risks described above, we will not be able to expand to the five additional states. In addition, we would also withdraw from at least five additional states where generating a market return would take too long for us to justify, given the costs associated with a potential break- up of the transaction. In other words, instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.

Cohn and Young call it a “threat.” Nick Bagley writes that, “’there’s something disquieting about its thinly veiled suggestion that the Justice Department should bless anti-competitive conduct for short-term political advantage.” My perspective? Aetna made their Faustian pact–now they have to deal with it.

Aetna and their ilk wholeheartedly supported a law they thought would make them lots of money–can you imagine a government mandate to buy your product! They severely miscalculated. Everyone from Jonathan Gruber on down all suffered from the same fatal conceit: if we tinker with subsidies like this, and risk adjustment like that, and structure these risk corridors, then presto, we can erect a magical, dynamic marketplace. When I wrote Unprecedented, I expected the law to chug along for at least a decade before it seriously started to show signs of failing. Boy was I wrong. Now Aetna is in the position that without expanding the size of their risk pools–necessarily through mergers, because enrollments are flat–they can’t afford the law’s onerous mandates and community rating provisions. So now they’re stuck.

Seth Chandler wrote a painstakingly detailed post on whether the ACA is collapsing. Towards the end of the post, Seth uses an image I created in Unraveled about how the ACA is creeping up on the death spiral’s event horizon.

When you see the rapid contraction of the marketplace, when you see gross premiums increasing by more than 20%, and when you yourself are calling for the federal government to spend considerably more on Obamacare, it is time to admit that the existing Obamacare spaceship is passing the event horizon of the adverse selection black hole. Another quest for the unicorn of community rated health insurance has failed.

At some point in the future, I will complete the Obamacare trilogy  (likely publication date in the fall of 2020, around the next election, assuming the Republic is still standing). To keep with the theme, my working titles are #Unbreakable or #Undone. That is, over the next four years, the long-term viability of Obamacare (HillaryCare II?) will become well known. Either the law will survive, against all odds, or it will have to be completely reworked to prevent its implosion. You can probably guess what my prediction is, but I’ll leave my options open.

Update: The WSJ has a fitting take on the release of the letter:

This is some gall. Aetna was answering a June 28 “civil investigative demand,” in which Justice’s antitrust division specifically asked how blocking the merger would “affect Aetna’s business strategy and operations, including Aetna’s participation of the public exchanges related to the Affordable Care Act.”

Soliciting sensitive internal information that Aetna is legally compelled to provide—and then making it public to sandbag the company—is the behavior of political plumbers, not allegedly impartial technocrats. If police tried this, it’d be entrapment