When Aetna Inc. announced that it would withdraw from three-quarters of the states where it offers Affordable Care Act exchange plans, the move wasn’t entirely unexpected: The company had signaled its woes early this month.
But the decision by one of the nation’s largest health insurers AET, -0.79% to withdraw from 11 of 15 state exchanges follows similar moves by UnitedHealth Group Inc. UNH, -0.09% , the largest U.S. health insurer, and Humana Inc. HUM, -0.82% , another large health insurer.
The string of bad news marks a tidal shift for the ACA. Where insurers, including Aetna, had once planned on exchange expansions next year, many are instead curtailing their coverage.
Aetna’s pared-down 2017 exchange participation “raises further questions about the long-term viability of the ACA marketplaces,” said Susquehanna analyst Chris Rigg.
Aetna explained the decision as a way to “limit our financial exposure moving forward,” after pretax losses of $200 million in the second quarter and losses totaling $430 million on individual products since January 2014. The company did not specify what portion of the losses was attributable to individual public plan offerings.
The company criticized the ACA’s “inadequate” risk-adjustment mechanism, which is meant to limit insurers’ losses as they start covering sicker individuals. It’s a common criticism from health insurers, which have long said that the risk-pool program isn’t working the way it’s supposed to, though others say big insurance companies should instead change their model to keep costs down.
Of Aetna’s exchange membership this year, more than half is new, with those needing expensive care making up “an even larger share” in the second quarter, the company said.
Coupled with the risk pool, this makes premiums costlier and “creates significant sustainability concerns,” the company said.
The upshot of major health insurers withdrawing could be that in 2017 “potentially fewer insurers are participating on the exchanges than [in] the first year” of the ACA, with the effects playing out on a state-to-state and county-to-county level for individuals seeking coverage, said Cynthia Cox, the associate director of health-care reform and private insurance at the Kaiser Family Foundation.
Aetna’s decision looks to affect Arizona in particular, as well as North Carolina and South Carolina, though it’s possible other health insurers could expand or shift coverage to certain counties before open enrollment begins this fall, she said.
Aetna didn’t close the door to future participation on ACA exchanges, noting that “meaningful” policy changes could “expand our footprint in the future.” The Centers for Medicare and Medicaid Services has indicated a willingness to make changes to the risk-pool mechanism, although it’s unclear whether legislation to that end would be passed.
Any fixes will also depend on strong enrollment figures. Premiums have increased for 2017, but the financial penalty for not having health insurance has also increased. Whether that penalty, an average of $969 per household, according to a Kaiser analysis, will prompt increased enrollment is a “big wild card,” according to a co-author of the Kaiser report.
A rise in premium costs “suggests additional enrollment growth is not a given,” said Riggs, having potential negative implications for hospital and managed care, along with investors in those spaces.
The retreats from exchanges don’t mean the health-care law is unsustainable, Cox said, since the exchanges constitute a “small piece” of how Americans obtain insurance.
The law also encompasses far more than the exchanges, she noted, including Medicaid expansion, health-insurance coverage expansions, changes to how people qualify for insurance coverage and more.