August 18, 2016

ACA and the Increasing Politicization of Health Care

Brian Blase

Former Senior Research Fellow
Summary

Now more than ever, we need to depoliticize health care and create transparent marketplaces where insurers heed the wishes of customers rather than government officials.

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The Affordable Care Act (ACA) has produced massive consolidation among health care providers, largely the result of hospitals merging and large hospital systems taking over private doctor practices. In response and in an apparent attempt to improve their negotiating position with the consolidated providers, four of the five major for-profit health insurance companies have proposed mergers: Aetna with Humana and Cigna with Anthem. The Department of Justice (DOJ) has moved to block the mergers, citing a growing threat to health care market competition.

Before making that decision, the DOJ asked Aetna, and likely the other insurers as well, how DOJ action to challenge the merger would affect the insurer’s decision to participate in the ACA exchanges. Aetna CEO Mark Bertloni wrote in reply:

The President asked us to take a long-term view when this law went into effect, and, unlike many others, we have stayed the course and worked constructively to make the public exchange market work. The acquisition of Humana puts Aetna in a significantly better position to continue and expand its support.

Unfortunately, a challenge by the DOJ to that acquisition and/or the DOJ successfully blocking the transaction would have a negative financial impact on Aetna and would impair Aetna’s ability to continue its support, leaving Aetna with no choice but to take actions to steward its financial health. …

Although we remain supportive of the Administration’s efforts to expand coverage, we must also face market realities. … We have been operating on the public exchanges since the beginning of 2014 at a substantial loss. … Our ability to withstand these losses is dependent on our achieving anticipated synergies in the Humana acquisition. …

Our analysis to date makes clear that if the deal 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.

In other words, Aetna’s position is that it would continue to participate in the exchanges, despite the fact that they were a money losing proposition, if a favorable decision on merging with Humana was forthcoming so the insurer would have extra synergies, i.e. profits, elsewhere. The inescapable and disturbing implication here is that due to the ACA, important decisions affecting health care markets, made both by government and by private companies, are now increasingly becoming a function of political negotiations and DOJ market concentration calculations. 

Providing Insurers with Taxpayer Funds to Prop up the ACA

While I worked for the House Committee on Oversight and Government Reform in 2014, we obtained and released communications between top White House officials and insurance company executives, which demonstrated the close relationship between the Obama administration and health insurers. For example, in the spring of 2014, the CEO of CareFirst, Chet Burrell, exchanged numerous emails with senior presidential advisor Valerie Jarrett, asking that the administration allow tax money to flow through the ACA risk corridor program. Burrell warned Jarrett of “an unwelcome surprise” and that premiums would increase upward of 20% if risk corridors were made budget neutral. Jarrett forwarded the information to the administration’s top health care staffers, telling Burrell that “the policy team is aggressively exploring options.” Eventually, Jarrett told Burrell that the administration had given the industry 80% of what it requested.

More recently, the administration has provided billions of dollars above what the law allows to insurers participating in the ACA. In May, a federal judge ruled that the Obama administration’s payments to insurers through its cost sharing reduction program are unconstitutional because Congress never appropriated the funding. (I discussed this program and the decision in depth here.) These payments likely exceeded $7 billion in 2014 and 2015 combined, and the administration continues to make them. The administration is also diverting billions of dollars in funds in reinsurance program contributions to insurers, funds that are legally required to be deposited in the U.S. treasury. (Doug Badger of the Galen Institute discussed this issue in depth here.) Given how poorly the ACA exchanges are performing relative to projections, the situation would likely be far worse without the administration delivering billions of dollars in unlawful payments to insurers on top of the enormous front-end subsidies that insurers are receiving.

Conclusion

The ACA has led to significant consolidation among providers through the health care market and is producing a severe adverse selection spiral in many states’ individual health insurance markets. Despite substantial subsidies—well in excess of $10 billion thus far beyond what the law allows—many insurance companies, faced with massive losses, have either collapsed or are exiting the exchanges. Now, exchange participation decisions are reportedly being made contingent upon DOJ decisions with respect to corporate mergers. What a mess! Now more than ever, we need to depoliticize health care and create transparent marketplaces where insurers heed the wishes of customers rather than government officials.