On Monday night news broke that one of the five largest insurers in the US, Aetna, was leaving 70% of the counties in which it offers insurance through Obamacare’s public exchanges.
The move was seen as a huge blow to the future of the Affordable Care Act, making Aetna the third large insurer — after United Healthcare and Humana — to significantly reduce its Obamacare business.
Aetna cited the large losses that the company has incurred from the exchange business, $200 million in the second quarter alone, when explaining its decision to roll back its business.
These statements, however, appeared to be a dramatic turnaround from the company’s first quarter earnings call in April, when CEO Mark Bertolini said the firm planned to stay in the exchanges and that the company was “in a very good place to make this a sustainable program.”
Now, however, it appears that a large reason for the shift in tone was due to the Department of Justice’s decision to file a lawsuit and block Aetna’s merger with rival Humana.
A letter acquired by the Huffington Post in July outlined Aetna’s thinking on the public exchanges if the deal with Humana was blocked. The letter from Bertolini to the Department of Justice outlined the impact of a possible merger on its Obamacare business.
For one thing, Bertolini notes that the cost savings from the Humana deal would allow the companies to further expand coverage into new parts of the US.
“As we add new territories, given the additional startup costs of each new territory, we will incur additional losses,” said the letter. “Our ability to withstand these losses is dependent on our achieving anticipated synergies in the Humana acquisition.”
Additionally, the letter seemed to foretell the exact move made on Monday. Here’s the key passage (emphasis added):
“Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses. 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 breakup 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.”
In other words, the cost of fighting the DOJ would make Aetna unable to sustain the losses incurred from the public exchanges.
The Department of Justice blocked the merger between Aetna and Humana, along with the merger of fellow big five insurers Anthem and Cigna, on the grounds that consolidating the industry would lead to lower competition and higher costs for consumers.
“They would leave much of the multitrillion health insurance industry in the hands of just three mammoth companies, restricting competition in key markets,” said Attorney General Loretta Lynch announcing the lawsuit blocking the mergers.
Typically the number of independent options available to consumers is highly correlated to lower costs.
“If the big five were to become the big three, not only would the bank accounts of the American people suffer, but the American people themselves,” said Lynch.
The companies countered that the merger would not impact consumers and would allow the combined firms to be more cost-efficient and sustainable.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.