Health insurers just can’t stand competition.
Aetna, the third largest health insurer in the US, announced Monday night that it would exit the health insurance exchanges established under the Affordable Care Act in 11 of the 15 states where it participates in them. It claimed that it had lost “more than $430 million since January 2014” by selling insurance to individual participants in these exchanges. It didn’t say how it figured that – for example by counting imaginary profits it could have extracted if there had been no competition.
It follows in the footsteps of Humana which said it would cut participation down to 11 states from 15. UnitedHealth had announced earlier this year that it would slash participation to “three or fewer” states. And there were other insurers too. Aetna put it this way:
More than 40 payers of various sizes have similarly chosen to stop selling plans in one or more rating areas in the individual public exchanges over the 2015 and 2016 plan years, collectively exiting hundreds of rating areas in more than 30 states.
Health insurers aren’t exactly suffering, though. Aetna reported that in the second quarter, ended June 30, revenue rose 5% year over year to $16 billion and net income rose 8% to $783 million.
While Corporate America in the S&P 500 is reporting the sixth quarter in a row of revenue declines and the fifth quarter in a row of “adjusted” earnings declines, the entire health care sector has been booming. But not because it’s selling more to every needier Americans but because it’s raising is prices and premiums wherever it can, and it usually can. It now consumes nearly 20% of GDP. Anything that gets in the way of price or premium increases gets trampled down and run over without hesitation.
Health insurers just can’t stand the competition on the insurance exchanges. But no problem. Mergers are designed to cut competition down to a manageable level or kill it altogether, even on the health insurance exchanges.
So these health insurers that are publicly so frazzled about potentially seeing somewhat less growth in their enormous profits, by insuring people that might be a little more expensive to insure, have no problem dishing out tens of billions of dollars buying each other out precisely to lessen competition and to be able to jack up premiums even more.
Our impoverished and whining Aetna made a deal to blow $37 billion on buying Humana. In the same vein, Anthem is buying Cigna for $54 billion, the largest health insurance merger ever. This would cut down the already huge insurance oligopoly in the US of 5 big insurers to just three mega-insurers with enormous power to take an ever bigger bite out of consumer and corporate spending.
Other health insurers have also gone on the same binge, with UnitedHealth acquiring Catamaran Corp. and Centene acquiring Health Net.
In July, the Justice Department said enough is enough; some competition was needed in the insurance exchanges. And it sued to stop the two mega-mergers Aetna-Humana and Anthem-Cigna. It explained its decision:
“These mergers may increase the profits of Aetna and Anthem. But they would do so at the expense of consumers, employers, and health professionals across the country, inflicting costs that cannot be measured in dollars alone.”
In order to get these mergers done, the insurer would have to borrow ungodly amounts of money, to the point where Fitch Ratings just downgraded UnitedHealth and put Aetna and Anthem on Negative Watch.
Higher leverage ratios for the health insurers Fitch tracks combined with declining revenue growth and declining interest coverage ratios have weakened the credit picture.
Fitch pointed out that over the past 12 months, health insurers issued nearly $30 billion of bonds and loans to fund these mergers: UnitedHealth $14.4 billion; Aetna $13 billion; and Centene $2.4 billion. And if the two mega-mergers overcome the resistance from the Obama administration and manage to close, Fitch expects debt issuance of an additional $22 billion – which would “further impact the sector’s credit metrics,” it said – bringing the total in new debt for those mergers to $52 billion.
These companies hate competition. It hampers their all-American freedom to raise premiums whenever they want, knowing that people will somehow pay them, even if they’re so maxed out that they stop paying for other things. They hate competition so much that they’re willing to borrow $52 billion and spend a whole lot more in order to get rid of competition.
On the other hand, they just love cannibalizing consumer and corporate spending. Health care spending looks good for GDP. Insurance is a service, with fits beautifully into the meme that the US is a service economy. And GDP doesn’t care where that consumer or corporate spending comes from or goes to – it only counts dollars that get spent.
Now that the big health insurers can’t have their tighter oligopoly without a fight from the Justice Department, they’re stabbing competition in the back the other way they can: by exiting the health care exchanges and causing the Obama administration a nasty and very public headache – in the hope of softening it up and getting it to sit down at the merger settlement table.
On paper, Big Pharma is booming, even as the rest of the goods-producing sector is declining, but it’s a costly boom. Read… This is What’s Cannibalizing the US Economy
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.