Aetna's Actions In Humana Merger Highlight Need For Antitrust And Public Option

Last August, Aetna decided to pull out of the Obamacare exchanges in 11 states, claiming they were losing money. This announcement was a big blow as Aetna was a significant provider and its departure left some states with health insurance competition levels below the lawful guidelines of the ACA. Of course, Trump and the Republicans leapt on this announcement as just another example that Obamacare was "collapsing".

There was, however, another theory about Aetna's actions that was explained more by what immediately preceded their announcement. Aetna was trying to merge with Humana, a smaller company in the health insurance industry and the Justice Department blocked that merger on antitrust grounds. It was only after that DOJ decision that Aetna suddenly announced they were losing money on the exchanges and decided to pull out of those 11 states. There was plenty of evidence out there that disputed Aetna's claim. On an earnings call in the spring where Aetna discussed their involvement in the exchanges, the company said, "We see this as a good investment, hoping that we have an administration and a Congress that will allow us to change the product like we change Medicare every year, and we change Medicaid every year." That surely does not sound like a company that was planning to pull out of that business just months later. Later, company documents filed in Pennsylvania, a state that Aetna pulled out of because they were "losing money", showed the firm had made $20 million in profits in the state in 2014 and 2015 and projected further gains in 2016 and 2017. Lastly, documents also showed that Aetna had threatened the DOJ that it would withdraw from Obamacare if the agency did not approve its merger with Humana. Incredibly, they actually made this threat in writing, saying, "[I]f the deal [with Humana] were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses. Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint .... [I]nstead of expanding to 20 states next year, we would reduce our presence to no more than 10 states .… [I]t is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked. By contrast, if the deal proceeds without the diverted time and energy associated with litigation, we would explore how to devote a portion of the additional synergies ... to supporting even more public exchange coverage over the next few years."

Well, the DOJ did go ahead and sue to stop the merger and the decision was handed down by a federal judge yesterday upholding the DOJ's decision to not allow the merger on antitrust grounds. In addition, the judge found that Aetna was lying to the public about why it left the exchanges and was, actually, essentially trying to blackmail the DOJ into letting the merger go ahead. According to the LA Times article, "Aetna executives moved heaven and earth to conceal their decision-making process from the court, in part by discussing the matter on the phone rather than in emails, and by shielding what did get put in writing with the cloak of attorney-client privilege, a practice Bates [the federal judge] found came close to 'malfeasance'." When Aetna announced it was pulling out of the Florida exchange, the top Aetna executive in that state wrote an incredulous email to his superiors saying, "I just can't make sense of the Florida dec[ision]. Based on the latest run rate data...we are making money from the on-exchange business. Was Florida's performance ever debated?" He was told to phone his superiors in order not to "avoid leaving a paper trail".

Now you would think that a company that lied to the public and its shareholders about why it was leaving a profitable marketplace might be in for some kind of censure; that a company that tried to obstruct justice by hiding material from a federal court in what the judge clearly felt was nearly "malfeasance" would be subject to some kind of penalty; that a company that essentially was trying to blackmail an agency of the federal government would be up for some kind of investigation and/or indictment; but not in the corporate kleptocracy that we currently live in. Aetna was merely doing what business always does, "exploiting the opportunity". This time it will be a little harder to sell the line that it was trying to "maximize shareholder value ", since it actually pulled out of profitable business lines.

There are two important lessons for Democrats here. The first one is that vigilant antitrust enforcement is critical. No company should ever be allowed to get big enough that they feel they can blackmail the government. Breaking up the oligopolies that dominate our industries would be a huge job creator as just the corporate structure would have to be duplicated in the smaller companies that remain would automatically produce thousands of jobs. Breaking up the oligopolies will reduce the enormous barriers to entry that currently block startups and smaller companies that truly do provide cheaper and more efficient solutions from entering the market. Secondly, the next time Democrats get to do healthcare, it must contain the public option. In general, the public option is likely to be cheaper and more efficient, forcing the bigger insurance companies to actually compete. And when they threaten to pull out of the market like Aetna did, the government can simply say goodbye.