Billion > Million Last Time We Checked

September 9, 2016

 

 

Yesterday, five U.S. Senators led by Elizabeth Warren sent a letter to Mark Bertolini, the CEO of Aetna, asking for more information on the company’s decision to reduce Obamacare exchange participation by 70%. The letter comes in the midst of an unfolding saga over a different letter, sent by Aetna to the Department of Justice on July 5, in which it stated that Aetna would be forced to exit some markets should its merger with Humana not be approved.

 

The Senators’ letter touches on Aetna’s seemingly unethical proposition that the decision to stay or go was in the DOJ’s hands. Aetna cited the $1 billion breakup fee in the merger agreement as a “significant unrecoverable [cost]…plus…litigation expenses if the DOJ sues to enjoin the transaction,” thereby making further losses on individual exchanges unfeasible. When Aetna pulled out of 11 of 15 exchange marketplaces, it cited $430 million in losses since January 2014, despite having praised the exchanges a few months ago. But the fee for abandoning the merger with Humana was self-imposed and set at $1 billion, more than twice the amount Aetna lost on the exchanges in almost three years. (It should be noted that Aetna was enormously profitable overall in that period.) Yesterday’s letter called Aetna out for the hypocrisy in their calculation to leave the exchanges.

 

Until recently, Aetna’s CEO Mark Bertolini praised the Affordable Care Act for expanding the market for insurers. So why is Aetna only now concerned over their losses when they themselves imposed a $1 billion penalty on a deal that they had to know would be an uphill battle in terms of antitrust regulation? The five Senators posed that question and gave Aetna until September 15 to answer.

 

This question goes to the heart of business strategy and the concept of weighing short term and long term goals. For the price of $1 billion in terms of risk, Aetna could have remained in the exchanges long enough to see them stabilize and eventually return profits. But for the same level of risk, Aetna seeks to grow in market dominance, which data shows will allow them to raise premiums. The latter option is a short-sighted and harmful business strategy, one that our regulatory system and laws are designed to prevent. The public should not suffer for wrong-headed calculations of already powerful insurance companies.

 

The September 8 letter stands in contrast to a probe sent by Senate Republicans Tom Cotton and Ben Sasse, questioning DOJ’s motivation in suing to block the merger. The Senators allege that DOJ gave unfair deference to ACA over potential efficiency gains due to the merger, thereby putting “agenda” before public interest. That premise, however, ignores the basic concepts of law: antitrust enforcement is a duty of the Justice Department and efficiency gains have always been scrutinized. Allowing companies to merge based on unsubstantiated efficiency claims has never been the Justice Department’s mandate.

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