Three Reasons Why Humana Left the Marketplace

Tuesday, February 14, insurance giant Humana announced that it’s completely pulling out of the ACA exchanges. As a result, President Donald Trump used Humana’s decision as evidence that President Obama’s signature healthcare law is struggling. “Obamacare continues to fail,” Trump tweeted. “Humana to pull out in 2018. Will repeal, replace & save healthcare for ALL Americans.”

While Obamacare is indeed struggling, evident by the rising costs, the CEO of Humana cited three main reasons in particular for the company’s withdrawal from the marketplace:

Reason 1: Risk Pool

According to the company’s CEO Bruce Broussard, the reason is because of the imbalance of sick to well customers. This risk pool is, well, too risky, and Humana has, as a result, lost money. They need healthy people to pay premiums to compensate for the sick people making claims. The risk pool is made worse under Obamacare because consumers wait to buy health insurance once they’re sick.

After the 2017 enrollment period closed, Humana said it doesn’t foresee the ACA market getting healthier – both literally and metaphorically. With the number of sick people outweighing the healthy, the company expects to lose $45 million this year doing business in the exchanges. Broussard said, “We are again seeing signs of an unbalanced risk pool based on the results of the 2017 open enrollment period. Therefore, we’ve decided we can’t continue to offer this coverage in 2018.”

Though Humana’s decision will affect many, it’s not as shocking considering how much Humana reduced its participation last year. Before this last open enrollment, Humana sold plans in 1,351 counties throughout 19 states. Following significant financial losses, Humana now only sells plans in 156 counties across 11 states in the 2017 plan year.

Reason 2: Failed Merger

The risk pool is not the only reason however. In January, District Court Judge John D. Bates blocked a $37 billion merger deal on antitrust grounds. Fearing that the merger would lead to fewer, more expensive Medicare Advantage options for seniors, the Obama administration, as well as several states, rejected the proposed deal. Then this week, Humana and Aetna announced that they would not appeal the U.S. District Court’s ruling.

Aetna CEO Mark Bertolini made the following statement: “While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction.”

Meanwhile, the Cigna-Anthem merger is still being debated. Cigna threatened to terminate and sue Anthem for approximately $13 billion in damages – a sum on top of the $1.85 billion breakup fee. When the bid was unsuccessful, shareholders lost money. To compensate for these losses, Cigna intends to sue.

As for ending the deal, Anthem spokeswoman Jill Becher argues that Cigna’s “purported termination of the Merger Agreement is invalid.” Becher also adds that they can’t end the deal before April 30 anyways. As such, Anthem intends to appeal the ruling against the $54 billion merger. Cigna, on the other hand, does not see how the merger will ever pass. Not in the recent past has the D.C. Circuit Court of Appeals overturned a similar antitrust verdict.

Interestingly, neither the Aetna-Humana merger nor the Cigna-Anthem merger focused on Obamacare. While the Aetna-Humana deal intended to grow their private Medicare business, Cigna-Anthem wanted to increase their major employer market. All four companies blame the uncertainty of the future of Obamacare for the failed mergers and subsequently Humana’s removal from the market.

Reason 3: Uncertain Future of Obamacare

Humana’s decision to pull out makes them the first major insurer to fully exit the marketplace. Humana has about 152,000 ACA customers. Though they only service a small part of the market, Humana’s decision is still troubling as it came during amounting skepticism about the GOP’s undefined healthcare plans. Even more troubling, Humana’s withdrawal may be a sign of what is to come. Other major insurers have admitted that they may also withdraw from the market like Humana. Unless immediate steps are taken to stabilize the marketplace, they argue that they will have no recourse but to non-renew. They want to see the current healthcare policy strengthened before repealing.

Bertolini said Obamacare is in a “death spiral” and that “it’s not going to get any better.”  As for Aetna, Bertolini didn’t say whether they would remain in the market or not. He did, however, predict that other insurers would probably drop out. If so, then the number of uninsured would likely rise because prices would increase for lack of competition.

Following the failed mergers and Humana’s withdrawal, the Trump administration did in fact take steps towards stabilization so as to prevent other big insurers from leaving. On Wednesday, February 15th, the Trump administration issued a new ACA ruling. Some of the rules include document requirements for SEPs, a shorter enrollment period, and controlled networks.

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