Aetna Pulls Out Of California Individual Insurance Market In Response To Obamacare

Tyler Durden's picture

If Obamacare's stated goal was to broaden the health insurance market, give more options to consumers, and generally lower the cost of health insurance, courtesy of the IRS' flawless execution of yet another unprecedented government expansion, it may be in for a tough time. Because while on paper every statist plan of centrally-planned ambitions looks good, in reality things usually don't work out quite as expected. Case in point the news that Aetna will stop selling health insurance to individual consumers in California at the end of 2013, in advance of Obamacare's complete transformation of the insurance market: a transformation which just incidentally may see most private health insurance firms follow in Aetna's steps and the emergence of a single-payer system along the lines of the British National Health Service. A government-mandated and funded system which, needless to say, crushes private enterprise, and ends up costing far more for all involved than an efficient market based on individual wants, needs and capabilities constantly in flux.

But that's ok - there is an administration which is smarter than the entire market, and a Federal Reserve which will monetize any deficit funding, and the only trade off is making the already ridiculous US federal debt ridiculouser.

For more irony we go to the WSJ which informs us that that "pullout is likely to draw attention as California has become a focus of national debate over the law's impact. Supporters, including President Barack Obama, who highlighted the state in a recent speech, argue that it has shown the success of the health overhaul in encouraging competition and pushing down prices."

If in some parallel socialist universe, the exit of competitors ends up boosting competition, than yes, we agree. In this one, however, things are a little... different.

For now, Aetna is just the start. A relatively small start:

Aetna said it currently has about 49,000 individual policyholders in California. In 2011, when it had substantially bigger membership, it was the fourth-biggest player in the state's consumer market, with about 5.2% of the plans sold that year, according to a report from Citigroup Inc.

 

Aetna isn't one of the 13 insurers participating in the state's new consumer insurance marketplace set to launch this fall under the federal law. Like several other major national carriers, it has said it would join only a limited number of these exchanges. A carrier can still offer consumer plans without being in the exchange.

 

Aetna said it will continue selling health insurance in California to employers and Medicare beneficiaries, as well as dental and life-insurance products. The insurer said it is "fully committed to serving the needs of our 1.5 million members in the state." A company spokeswoman declined to comment about the reasons for Aetna's individual-business withdrawal.

As long as those members aren't on individual insurance: those members will have to find a different provider of insurance.

People who currently have Aetna individual health coverage will have to find plans with other carriers by year-end. That might be easier because of the federal health law's requirements that insurers no longer decline coverage or set premiums based on people's health history, but still, "it's going to be confusing" for Aetna policyholders, said Ken Fasola, chief executive of HealthMarkets Inc., parent of insurance agency Insphere Insurance Solutions. His firm plans to send written notice to affected clients, then follow up with calls and, if wanted, visits.

Aetna is just the first to crunch the numbers and realize that one indeed has to pass a law first to find out how much money will be lost - by private companies - as a result.

The health law is expected to expand the individual insurance business, but the new coverage rules will also mean major changes. Also, in the new exchanges, consumers are expected to focus closely on costs, particularly monthly premiums. Insurers may find it tough to compete if they don't have scale in a particular market, partly because they can't match the prices that competitors win from health-care providers.

As for the "model" assumptions behind Obamacare, it is likely too late to clarify that one does not get strong competition in an artificial marketplace in which the service providers are dropping out one by one.

The Obama administration has highlighted its expectation that the new health-insurance marketplaces will generally boast strong competition, with around 90% of consumers buying their own plans living in states where there would be products from at least five insurers.

 

But in at least some places, the offerings will be limited. In Washington state, for instance, nine insurers bid to sell plans in the individual market but only one carrier, Kaiser Permanente, bid to sell a small-business plan through the exchange in some counties, forcing Washington officials to cancel plans to run a full small-business exchange for the first year.

So instead of "strong competition" the end results was a government-enforced... monopoly. And guess who has all the pricing power in a monopoly.

Oh well, such is life under "central-planning" - the end result is always complete disaster, but at least the intentions to promote "fairness" were quite noble.