By Erin Mershon, CQ Roll Call
August 17, 2016 -- Aetna is pushing back on reports that it linked its participation in the exchanges established by the 2010 health law to the Obama administration's review of its merger with Humana.
The company had threatened in a July letter to the Department of Justice (DOJ) that if the administration blocked the $37 billion proposed merger, Aetna would have to withdraw from some exchanges to "steward its financial health"—rather than expanding to five additional states, as it had planned. The letter was first reported by the Huffington Post. Aetna's announced exit from exchanges in 11 states follows a major exodus by UnitedHealth Group, the nation's largest insurer, from more than 30 of the state exchanges established by the health law.
"If the DOJ sues to [block] the transaction, we will immediately take action to reduce our 2017 exchange footprint," CEO Mark Bertolini wrote in the July letter. The DOJ sued to block the Aetna–Humana deal, as well as a rival $48 billion insurance merger between Anthem and Cigna, earlier this month. The two cases will be tried separately starting later this year.
But the company said in a statement to CQ Roll Call Wednesday that executives made their decision to withdraw based on financial losses Aetna incurred in the second quarter of this year, not on the DOJ's decision to block the deal.
"That deterioration [in profits], and not the DOJ challenge to our Humana transaction, is ultimately what drove us to announce the narrowing of our public exchange presence for the 2017 plan year," spokesman T.J. Crawford said.
Encouraging insurers to participate on the exchanges is a major goal for the Obama administration, as competition among insurers is the main mechanism designed to keep premiums and other coverage costs in check. United and Aetna both cited millions in financial losses to justify their departures from the individual market.
Fellow insurance giant Anthem Inc. also had linked its exchange participation with its own merger approval, albeit in a more positive way. Executives said on an earnings call earlier this month that acquiring Cigna Corp. would enable the company to "continue its commitment to the public exchanges" set up by the health law. As yet, neither Anthem nor Cigna has publicly announced major plans to withdraw from the exchanges in 2017, despite reporting some financial losses.
Aetna's Crawford added that the July letter was written in response to a request from DOJ. It explains that the DOJ's decision to block the deal would have a negative financial impact on many different segments of its business.
"We indicated that there would indeed be an impact, which should not come as a surprise given a loss of deal synergies coupled with a potential break-up fee would raise further questions about sustaining a position in a business where we have yet to break even," he said.
If the merger is ultimately blocked after the trial, the company would follow through with the plans to withdraw that it outlined in the letter, he said.