If the presidential candidacy of Donald Trump has taught us anything it is that the federal government is a good punching bag and scapegoat. Yesterday, Aetna Chief Executive Officer, Mark Bertolini, took some time on the bag. Bertolini announced that the company “decided to reduce our individual public exchange presence in 2017.” Aetna will pull out of 11 states on the public exchanges but continue to sell individual policies off of the exchanges. The reasons provided for the pull out, in insurance-speak, were an unbalanced risk pool and “inadequate risk adjustment mechanism.”

What Aetna means by “an unbalanced risk pool.” Put plainly, Aetna did not sell enough policies to healthy people with low to no health care expenses to cover the cost of care for the unhealthy people it sold policies to.

What Aetna means by “inadequate risk adjustment mechanism.” The Affordable Care Act risk adjustment programs are technical. There is a state-based risk adjustment and reinsurance program and a federal risk corridor program. Basically, these programs give money to, take it away from or share it among insurance companies to balance out their losses and gains.

Is It Really The Governments Fault…?

Aetna stated that, it might return to the exchanges in the future, “should there be meaningful exchange-related policy improvements.” This shameless blaming of a federal program to increase access to health insurance is a disguise to hide Aetna’s incompetence at predicting and managing risks. Aetna has a history of not anticipating changes in the health care market and of dropping unprofitable policyholders.

Back in the early 2000s, Aetna was in deep financial trouble. According to a New York Times article, in 2001, then Aetna CEO, Dr. John W. Rowe, said, “the company had misjudged rising cost trends for two years.” Sound familiar? Well another statement by Dr. Rowe in this same article will sound familiar too, “part of the problem was Aetna’s failure to recognize the higher density of expensive members and raise premiums accordingly as its customer mix changed.” (That balanced risk pool problem that is unique to Obamacare...)

So is Obamacare the mess that Aetna wants the country to believe or is Aetna really bad at forecasting risks and controlling costs? I’m inclined to believe the latter. Why should we give Aetna the benefit of the doubt that their losses are due to Obamacare program design issues and not their own incompetence? Because other insurers are also claiming they are losing money and getting out… Not so fast.

Unlike Obamacare whose rules and costs are available for anyone to review, we don’t know how health insurers forecast costs, profits or losses. We don’t know how their actuaries determine risks and set premium rates. We also don’t know the discounts they negotiate with pharmaceutical companies, hospitals, doctors and other medical care related providers. And until all of that information is available to the public we should not and cannot take Aetna’s word that the problem rests with Obamacare and not with insurance company management.

Conclusion

Health insurance companies glibly justify the huge salaries of their CEOs and other top executives, claiming they are responsible for managing a very complex organization. But the only measure of their performance is the value of their stock. How they forecast and manage risks and who pays when they get it wrong is a policyholder problem and now a government one.

Tags: obamacare, public exchanges, Aetna