BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Merger-challenged health insurers rethinking public exchanges

Merger-challenged health insurers rethinking public exchanges

Federal antitrust regulators are worried that merging insurers will reduce competition on the public health insurance exchanges, but competition is already in jeopardy as several insurers pull back on 2017 exchange participation.

The Justice Department filed suits in July seeking to enjoin the pending $54 billion Anthem Inc.-Cigna Corp. deal and the $37 billion Aetna Inc.-Humana Inc. merger, citing reduced competition in several markets, including Medicare Advantage, employer business and the public exchanges.

When asked about public exchange competition concerns, Principal Deputy Associate Attorney General William Baer said during a news conference that while insurers “are going to make independent decisions about what markets to enter and to leave … consumers are entitled to the benefit of the competitors in those markets, and ... the reasons we are seeking to enjoin them is to prevent that competition from being artificially reduced by acquisition.”

Observers have questioned whether blocking the mergers would accelerate insurers' exit from the exchanges, thus reducing competition even more.

“While there is a potential for (the Aetna-Humana) merger to keep one healthier plan in the exchanges, blocking this transaction may force two weaker participants to simply exit the market,” Barclays P.L.C. analysts said in a July research note. The analysts added that “exiting the exchanges altogether would be worse, in our view.”

Citing losses in its exchange business, Aetna this week said it is withdrawing plans to expand its public exchange presence next year. Humana in July also announced it would curtail its 2017 exchange participation.

Anthem Chairman, President and CEO Joseph Swedish said last week during an analyst conference call that “our acquisition of Cigna will help stabilize pricing in this volatile market, enabling Anthem to continue its commitment to the public exchanges, and provide the opportunity to expand our participation to nine additional states.”

Still, “The insurers that are merging are already pretty strong on their own,” said Gary Claxton, Washington-based director of the health care marketplace project at the Kaiser Family Foundation. “I don't know that the combination will make them more or less likely to be in exchanges. What will ultimately matter is whether things stabilize, and going forward they view it as good business or not.”


Profits elusive

“It's just not a healthy insurance market at the moment, and it doesn't have any profitability,” said Vishnu Lekraj, Chicago-based senior equity analyst with Morningstar Inc. The exchanges unsurprisingly attracted “an older, sicker cohort,” and not enough younger, healthier consumers to offset the high-cost population, he said.

That could change though, as more young people enroll to avoid the penalties for not buying insurance, he said.

Hartford, Connecticut-based Aetna said Tuesday that it expects to lose more than $300 million on policies sold through the exchanges in 2016 because of high medical and pharmacy costs. Aside from withdrawing plans to expand in 2017, Aetna said it is re-evaluating future participation entirely.

That's a sharp departure from earlier this year, when Aetna Chairman and CEO Mark Bertolini told analysts that he expected Aetna's exchange business to break even this year and that the exchanges represented a “good investment.”

Louisville, Kentucky-based Humana, which has pledged with Aetna to fight the Justice Department's lawsuit, last month said it would sharply reduce its exchange offerings in states where it had “very limited presence,” a spokesman said, and curtail its individual products to only 11 states, down from this year's 19 states.

And Indianapolis-based Anthem, which is defending its union with Cigna, last week said it expects to lose money this year on its exchange business because of high-cost members, despite earlier this year stating it would profit from exchanges in 2016. Still, Anthem remained optimistic it will turn a profit next year through medical management and higher premiums.

Anthem earlier this year said it had no plans to expand its exchange participation in 2017.

Cigna, however, is expanding its exchange presence slightly. The Bloomfield, Connecticut-based insurer filed plans to sell policies in 2017 on exchanges in Chicago, Raleigh and Durham in North Carolina, and Richmond and northern Virginia, a company spokesman said last week.


Read Next

  • 2015 year in review

    From mergers and acquisitions to the widely loathed 'Cadillac' tax, Business Insurance takes a look back at the key insurance industry news stories of 2015.