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Judge says Aetna dropped out of some Obamacare markets to help win its merger fight

(AP Photo/Jessica Hill, File)

Aetna announced it would pull out of most of the state exchanges where it sold health insurance under the Affordable Care Act last August, citing financial losses. But a U.S. District Court judge who rejected the company's proposed merger with Humana on Monday revealed in his opinion that profitability wasn't the only concern driving the company's decision -- Aetna also exited several markets as part of an effort to "improve its litigation position."

U.S. District Court Judge John D. Bates wrote that Aetna, pushing for a $37 billion merger with Humana since summer of 2015, decided to leave 17 counties in three states in order to improve the likelihood that the deal would be approved -- including one where the business was doing well. Florida was the company's third most-profitable exchange market in 2015 and the beginning of 2016.

“I just can’t make sense out of the Florida decision," Christopher Ciano, Aetna’s Florida market president wrote in an email quoted in the opinion. "Never thought we would pull the plug all together. [sic] Based on the latest run rate data ... we are making money from the on-exchange business."

The federal court decision hinged largely on an argument that the proposed merger between Aetna and Humana would substantially decrease competition in the Medicare Advantage market in 364 counties, where private insurers provide Medicare benefits. But it also included the politically tempestuous issue of competition on the exchanges, which are a linchpin of the Affordable Care Act, also known as Obamacare. The exchanges are state and federally run marketplaces where insurers sell plans to people who do not have employer-based insurance.

When Aetna announced last summer that it was losing money in the health insurance exchanges and would exit most of them for 2017, the announcement helped spark a national debate about the sustainability of the Affordable Care Act's exchanges. The opinion provides a rare glimpse into the politics behind Aetna's participation in the exchanges, revealing what executives said in e-mails and in depositions. It also shows that competition with Humana appeared to be working in Florida to lower prices for consumers.

'I would appreciate a good word for all that we've done with you'

Aetna was losing money in the exchanges, nationally, from day one -- and faster than it expected. The company projected losses of $70 million in 2014, but lost $100 million. The next year, it expected a $100 million profit, but instead lost $131 million. The company remained committed to the exchanges in early 2016 and, the opinion reveals, tried to remind the Obama Administration of its dedication as its proposed merger was being evaluated by antitrust officials.

A month before the Justice Department blocked the merger, Aetna chief executive Mark Bertolini talked with Secretary of Health and Human Services Sylvia Burwell by phone.

“If, by chance, you get a reach-out from the DOJ about us as a candidate for this merger, I would appreciate a good word for all that we’ve done with you," he said, according to the opinion.

When the merger was blocked in July, Bertolini said in an email to former Aetna chief executive Ron Williams that "the administration has a very short memory, absolutely no loyalty and a very thin skin," according to the opinion. He was frustrated that his company had endured major losses on the exchanges and yet were "doing good things for the administration and the administration is suing us," according to a later deposition.

In early July, Bertolini learned that there were big losses in Aetna's exchange business for the second quarter of 2016 and began to re-evaluate its participation. Shortly after, the Justice Department blocked the merger. According to the opinion, after learning that Humana was staying in the 17 counties that had been highlighted by antitrust officials in their case, the company decided to withdraw from those counties -- "to avoid antitrust scrutiny," the judge wrote.

"Other documents and testimony also indicate that the team of executives did not evaluate the profitability of the 17 counties in the same manner as it did for the other states from which Aetna was considering withdrawing," Bates wrote in his opinion.

The judge ultimately decided that Aetna would be likely to continue to offer exchange plans in one of the states, Florida, because the business was profitable, even though the company said it was a business decision. Thus, the proposed merger would have had anticompetitive effects in that state's three counties.

Competition in action

The opinion also illustrates how competition works between insurers to help consumers -- at a time when five states and nearly a third of counties have only one insurer offering plans on their exchanges, according to the Kaiser Family Foundation.

Ciano, the Florida market president, expressed concern in an email that Aetna was falling behind Humana in enrollment and recommended lowering "rates" by 4 percent for 2016 to "maintain #1 in Broward" County, according to the opinion.

A Humana executive, according to the opinion, was doing similar research on its competitor, requesting information on Aetna's pricing and plan design and where it offered plans in the exchanges.

Bates was unpersuaded by the companies' arguments that the merger would not hurt consumers in Florida.

"The Court concludes that the merger is likely to substantially lessen competition on the exchanges in the three counties in Florida where Aetna is likely to compete in the future," Bates wrote. "The Court’s conclusion is again based on the level of market concentration and the evidence of substantial head-to-head competition between Aetna and Humana that would be lost."

It is unclear what action the companies will take next. A spokesman for Aetna said on Monday that the company was considering an appeal. A joint statement released Tuesday added little clarity.

“After putting forward a compelling case that addressed each of the Department of Justice concerns, we are disappointed with the court’s decision and will carefully consider all available options,” Bertolini and Humana chief executive Bruce Broussard said in a joint statement. They stressed that health plan members would be unaffected as the companies worked through next steps.

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