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Large Insurers Left Obamacare, but Not Because It Was Broken

Aetna, UnitedHealth, and others’ failures were largely their own, researchers suggest.

By Nathan Collins


The Aetna building in Hartford, Connecticut. (Photo: Wikimedia Commons)

When two of the nation’s largest health insurers, Aetna and UnitedHealth, announced they were (mostly) leavingthe marketplace created under the Affordable Care Act, they provided a simple explanation: They weren’t making enough money. But, a pair of health-policy experts now argue, that doesn’t mean there was a problem with the Obamacare marketplace—big insurers just couldn’t keep up with the competition.

“The available data reveal patterns of market entry and exit that are consistent with natural competitive processes separating out firms that are best suited to adapt to a new market,” Craig Garthwaite and John Graves write in the New England Journal of Medicine.

“We believe that efforts to reform or replace the ACA should therefore proceed with the knowledge that highly publicized market exits are a poor and probably inaccurate signal” of the health and efficiency of the marketplace. Indeed, their evidence suggests that such exits were signs the marketplace was doing what it ought to: culling those less fit to compete.

It’s relatively easy to see why Aetna and UnitedHealth failed, Garthwaite and Graves write. Both focus mostly on administering self-insured employers’ health plans. Though it may come as a surprise, neither bears very much of the actual financial risk involved in providing insurance, and neither had much experience providing insurance to low-income people. What’s more, as large, interstate companies, neither was well suited to compete in the state-level marketplaces set up under Obamacare.

Meanwhile, smaller, lesser-known insurers accustomed to working in the Medicare managed-care marketplace—Centene and Molina, for example— have actually done pretty well, Garthwaite and Graves note.

“Claims that the failure of certain insurers is evidence of unworkable policies seems misguided.”

Those observations are backed up by a review of insurers who provided ACA plans in 34 states in 2016 and (so far) 2017. Based on that data, Garthwaite and Graves conclude that insurers who exited the marketplaces just couldn’t—or wouldn’t—compete.

“Our data show that the exiting plans offered an unappealing combination of smaller provider networks and higher premiums,” the pair write. “For example, an unsubsidized 35-year-old person enrolled in one of the plans that was discontinued would have paid, on average, $16 more per month for a plan with 8% fewer local in-network hospitals than a similar person enrolled in a plan that was not discontinued.”

While exiting insurers provided similarly sized primary care physician networks, they offered fewer mental-health and substance abuse options compared to those who stayed in marketplaces after 2016. Those who left also had less experience in both Medicare managed care and situations where they actually bore some of the financial risk, compared with those who stayed.

“It is possible that the experience of insurers operating in the 17 state-based marketplaces we did not examine could be different; further work examining those marketplaces would be useful. But claims that the failure of certain insurers is evidence of unworkable policies seems misguided,” Garthwaite and Graves write.