Aetna (NYSE:AET) has decided to pull out of the Obamacare-created insurance exchange in the state where the company was founded — Connecticut. The insurer has withdrawn from the California and Colorado markets as well, but its decision leave its home state is quite the corporate identity crisis. The Wall Street Journal likened it to “L.L. Bean quitting Maine or Apple (NASDAQ:AAPL) leaving California — for the moon.” However, Aetna’s decision is more than a corporate identity crisis, it is a warning to the success of the exchanges.
The company has pulled out because it could not settle a dispute with the state’s regulators over the price of plans it wanted to charge customers on Connecticut’s insurance exchange, known as Access Health CT. Any insurer that sells coverage through the online marketplaces must have its rates approved by the state, which, in the case of Connecticut, required very low rates in return for permission to sell its products on the exchange, reported the Journal. The exchanges are preparing for open enrollment on October 1.
In approaching the pricing for insurance plans to be offered on the exchanges, insurers can take several approaches: they can either offer lower prices in the hope that the plans will attract younger, healthier people whose premiums will offset the cost of covering sick people, or they can offer higher-priced plans which may be able to offset costs with higher profits. But Connecticut found Aetna’s prices to be too high; the state objected to the actuarial calculations made by the company as to how expensive health costs would be and the general health of those uninsured Americans who would sign up.
President Barack Obama has said that the superstore-like insurance exchanges mandated by the Affordable Care Act will not only bring coverage to many uninsured Americans, but also bring customers more choice at more affordable prices. Whether prices will be affordable depends on several factors, among them the participation of enough insurers to facilitate the needed competition to bring down prices. The Obama administration is also trying to harness the powers of state insurance commissioners to keep prices low, urging them to use their rate review powers to try to offset the Affordable Care Act’s regulations and mandates, such as the coverage of those with preexisting conditions, which are expected to make care less affordable. Connecticut was “happy to oblige,” reported the Journal.
In a letter acquired by the Associated Press, Aetna’s senior actuary Bruce Campbell said that the decision was not made lightly and it was part of a review of the company’s exchange strategy. “We have spent considerable time identifying those states in which we can be competitive and add the most value to the market,” he wrote. “As a result of our analysis, we have reluctantly concluded that we will withdraw our Individual Exchange filings in Connecticut for 2014.” The insurer also dropped out of Maryland’s exchange last week because the state pressured it to lower its proposed rates by up to 29 percent.
Aetna is the second insurance company to drop out of Connecticut’s exchange; ConnectiCare Benefit decided last month to withdraw its application to provide health insurance in the small-group market. Kevin Counihan, the Chief Executive Officer of Connecticut’s health exchange, told the AP that residents of the state will still have a number of health care options. He said that “the rigorous rate review process defined by both the Connecticut Insurance Department (CID) and AHCT ensures that individuals and small businesses in Connecticut are getting the lowest possible rates.” But with Aetna’s departure, only three insurers will offer individual coverage through Access Health CT.
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