The Villain Always Believes They Are the Hero

September 2, 2016

 

Annotated Version: Why Aetna Is Not a Villiain [sic]
Originally by Anne Marie Malecha & Steven Schlein
Annotations by The Coalition to Protect Patient Choice

 

Last week, we linked to this article in our weekly newsletter. This week we are responding to the arguments set forth by the authors through annotation. Portions of texts annotated are highlighted in yellow. The CPPC's response is below highlighted in white.

 

Aetna, the giant insurance company, is finding out what happens when you're a company that doesn't fall in line with the government's agenda. 


Governments can make laws about how businesses must behave so that they do not hurt consumers. Business create externalities - costs not reflected in the price of a good - for which the public will ultimately be responsible. Aetna also violated what many consider to be the norms of doing good business, and that has nothing to do with government.

 

As the Huffington Post's Jonathan Cohn and Jeff Young recently reported, Aetna CEO Mark Betolini notified the Department of Justice (DOJ) last month that should the agency challenge or block their pending merger with rival insurer Humana, Aetna would reduce its participation in the Affordable Care Act's (ACA) exchanges.

In late July, Attorney General Loretta Lynch filed suit to block the proposed Aetna-Humana and Anthem-Cigna mergers. Last week, keeping its promise, Aetna announced its significantly rolling back its participation in the ACA.


Oddly enough, the government seems to be scratching its head as to how that happened, and defaulting to its tried and true strategy of portraying insurers, particularly Betolini [sic], as villains.


Whether or not the government truly does portray insurers as villains, let’s look at how consumers view insurance companies. Aetna has a rating of one star on ConsumerAffairs.com, based on 126 ratings. Humana, the company Aetna is seeking to merge with, also has a rating of one star, based on 185 ratings. That hardly makes the CEO a “villain,” but it does not make the company look good. 

 

The Huffington Post story raises an important issue, but not the one you think. The issue is: Is it the job of the federal government to villainize a company that didn't break the law, but merely made a strategic business decision and pulled out of a government program? 


Reporters were not alleging that Aetna broke the law with this letter. Rather, the charge was that Aetna was trying to squirrel out of a legitimate lawsuit from the US government over antitrust concerns. 
 

Aetna is a public company with almost 50,000 employees and shareholders to answer to. Its obligation is to these groups and to its customers. 


Interesting that customers are mentioned almost as an afterthought. Employees and shareholders seem to be most important in the eyes of the authors. That may be a legitimate stance for many businesses to take. However, health insurance companies should be held to a very high standard, as people’s lives are quite literally at stake. 


If Aetna behaves ethically, complies with laws and pays its taxes, must it also be on board with a government agenda or face leaks to the media to make the company look bad


    This one is on Aetna. They had to know that the letter would make them look bad.


This "Aetna (and other insurers) is a villain" narrative being pushed in the media is nonsense and is designed to deflect attention from the government's own failures in designing and implementing the ACA.


The ACA does need legislative fixes, and a lot is being written about that right now. Reporting on a bombshell letter from a Fortune 500 company did not take away from reporting on the ACA, and most news outlets did both.


While the ACA has brought insurance to those that previously didn't have coverage, Democratic lawmakers failed to consider that one of their primary target demographics for coverage is not interested. Government mandates are in direct conflict with millennials' values-and they're not signing up at the rate initially expected. For insurers that's a huge issue and it equates to dollars and cents. Millennials are the healthy population needed to enroll and balance the scales for those in the exchanges that heavily draw on their coverage, like the sick or elderly. As it stands the numbers simply don't add up and insurers are losing hundreds of millions on their ACA health plans.


Aetna is not alone in being targeted because it made a business decision or has practices that don't please the government. Under the auspices of protecting consumers or the environment, government agencies-DOJ, EPA, FDA, FTC, USDA-pressure companies through subpoenas, document production demands, and threats of onerous regulations and mandates all the time. Usually, these companies don't have any leverage over the feds or state governments and just have to take it-or they hire attorneys and consultants like us to fight back. 


This statement shows a fundamental lack of understanding of what regulation does. Regulation keeps the playing field even for everyone to come in, be sportsman-like, and play fair. It preserves the free market system when powerful companies don’t want it to be “free” for everyone. “Threats” are not the appropriate term; we have transparent laws that apply to all. Big companies, even the biggest job creators, should expect to be held accountable for breaking the law. Corporations not having leverage over the feds is great! That’s exactly what we want and why antitrust laws exist in the first place. 


There is a constant operational calculation for the companies as to whether they should spend the money or just give in. This merger adverse administration is forcing these companies to throw good money after bad. 


The administration’s antitrust enforcement record will be one of President Obama’s signature economic achievements. In the wake of unprecedented merger activity that many have called a “frenzy,” the Obama Administration has stood strong on the side of consumers. Income inequality has been bad enough in the recovery -- mergers can exacerbate it further.


As of May, the Obama DOJ and the FTC have killed mergers valued at more than $400 billion. 


The value of mergers is not a measure of cash that goes into the economy for everyone’s benefit.


Meanwhile, a barrage of new and changing government regulations, or uncompetitive policies are increasing the cost of doing business for many of the companies that sought to merge. 


Antitrust enforcement is definitionally pro-competitive.


Ironic because these mergers are frequently intended to achieve economies of scale in complying with government regulations. 


A curious notion. Aetna and Humana are two of the five largest health insurers. Considering both are already enormously profitable, it would seem that they have achieved critical scale to deal with government regulation.


Denying these mergers while continually burdening the nation's primary tax-base, doesn't win any favors.


The middle and lower-middle class will be hit hardest if insurers use their considerable market power to raise prices. 

 

How this particular chapter for Aetna concludes remains to be seen, but if insurers (or any industry for that matter) aren't able to turn profits, and aren't able to reduce those losses through mergers and acquisitions, and are being hit with an unpredictable regulatory landscape-there is little hope for significant economic growth.


1. Reducing losses through mergers and acquisitions does not mean companies are passing through savings to consumers. Even if companies assert their plans to pass through savings, after the merger is consummated, there is no method to ensure they make good on their promise. 
2. See above statement about regulatory transparency and equality under the law.
3. Mergers do not generate economic growth. They create deadweight loss and decrease allocative efficiency. They may create temporary improvements in shareholders’ portfolios, but the economics shows that long-term, consolidation actually decreases economic growth. 


And while media are dubbing Bertolini's letter as a "smoking gun;" we'd call it a sound, strategic and completely legal business decision, rooted in keeping his company profitable so they can create jobs, contribute to the economy and provide quality insurance coverage at a reasonable cost.


Premiums have been increasing while many consumers report lacking quality from major insurers. Additionally, we have not forgotten that before the Affordable Care Act, insurers can and did deny coverage for pre-existing conditions. 


We don't begrudge the government, state or federal, doing its job. Debating the merits of proposed mergers is beyond our expertise. But the fact remains that companies have a right to make business decisions without retribution from the government.
 

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