More Crony Capitalism: Aetna Gives An Ultimatum To The DOJ - "If Humana Deal Is Blocked, We Exit Obamacare"

Tyler Durden's picture

US health insurer Aetna already made waves earlier this week when it announced on Monday that it would exit 11 of 15 state exchanges in which it offers Obamacare plans as a result of mushrooming financial losses. While that move was largely expected due to the inherent flaws in Obamacare, today it surprised market watchers, and its shareholders, again by handing an ultimatum to the Department of Justice, and thus the US government, threatening it would immediately reduce its presence in the remaining Affordable Care Act exchanges and cancel a planned expansion, if its merger with Humana was blocked.

Amusingly, the analysis of the announcement broke down firmly along party line: according to some, the previous decision to exit more than two-thirds of Obamacare exchanges was the first shot across the DOJ's bow, coming a few weeks after the Department of Justice filed a suit to stop the Humana merger. Prominent Republicans, including Donald Trump’s campaign, said the move, which came after similar ones by other major insurers, reflected flaws of the ACA. Others, notably those with a more Democratic bent, including Elizabeth Warren, suggested that Aetna’s stance on the exchanges was affected by the Justice Department’s decision. “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will,” she wrote in a Facebook post.

Of course, it could well be both. As the WSJ notes, Aetna wouldn’t be the only insurer to link its exchange position to a hoped-for deal. Anthem has publicly said that if it is able to consummate its acquisition of Cigna , a combination that is also facing a Justice Department suit, the merged company would likely expand into nine new exchange states.

In a July 5 letter to the Justice Department, reviewed by The Wall Street Journal, Aetna said that if the Humana deal drew a legal challenge, “instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.” In addition, the letter, signed by Aetna Chief Executive Mark T. Bertolini, said the insurer believed “it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked.”

Sure enough, one month later, Aetna executed on its warning with a dramatic reduction of its Obamacare offerings. It may only escalte from there.

The company said in the letter that an antitrust suit or a successful prevention of its deal would create financial strains that would force it to pull back from the exchanges, where it was losing money. “Although we remain supportive of the Administration’s efforts to expand coverage, we must also face market realities. Our customers expect us to keep their insurance products affordable and continually improving, and our shareholders expect that we will generate a market return on invested capital for them,” the letter said.

While it is undisputed that contrary to expectations, Obamacare has ended up being a far greater drain on profits than insurance providers had expected - on August 2, Aetna disclosed that its ACA plans had lost approximately $200 million in the second quarter of 2016 and were expected to lose more than $300 million this year - this type of "bargaining" with the government is disturbing, as it suggests a quid-pro-quo arrangement with the government is not only possible but expected when making corporate decisions.

An Aetna spokesman told the WSJ the letter came in response to a Justice Department request. After it was sent, “we then gained full visibility into our second quarter individual products loss, which is what ultimately drove us to narrow our 2017 public exchange presence,” he said.

Call it non-GAAP visibility.

In the letter, Aetna told the Justice Department that it was “challenged to get to break even this year” on its exchange business. CEO Bertolini wrote that, despite Aetna’s past support for the exchanges, “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.

Specifically, he wrote, if the Justice Department sued to block the Humana combination, “we will immediately take action to reduce our 2017 exchange footprint,” canceling the planned five-state expansion, and “we would also withdraw from at least five additional states where generating a market return would take too long for us to justify, given the costs associated with a potential breakup of the transaction.”

But, Bertolini added, if you allow the deal to take place, all shall be well, because if the deal closed without an antitrust challenge, Aetna would “explore how to devote a portion of the additional supporting even more public exchange coverage over the next few years.

There is another name for this: crony capitalism of the worst kind, a hallmark feature of the Obama administration's new normal.

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Syrin's picture

At least they're being honest.   Nothing else about Obamadoesntcare has been

economicmorphine's picture

Yeah, they're being honest.  If we don't have monopoly pricing power we're not playing.  Yeah, honest.  Right.

Syrin's picture

They're confessing to it.   How is that not honest?

bamawatson's picture

either way, an amusing clusterfuck to behold

Ghost of PartysOver's picture

If you don't keep feeding the beast the beast will eat you.    Be careful what you create as it could be your demise.

CheapBastard's picture


Hillary Clinton does not mention Obamacare.

It's one of her greatest accomplishments, along with Soweto Obama and Pelosi and Reed.

Not a peep.

That's odd.

ToSoft4Truth's picture

Hillary Clinton no longer uses "Rodham" either.  That was a big deal way back ween. 

MalteseFalcon's picture

So if the government doesn't deliver single payer, Aetna will?

DownWithYogaPants's picture

Fuck Big-O Care.  I can't wait to see it fail.  And whatever it comes after it.

....on Shrillary's Rod-Ham name: Appropriate.  I fully expect every year they walk in on Bill in the kitchen and catch him shimming up a ham where the pig's hip bone used to be and cooing Monica's name.

Guess these companies are not "required to participate" like we are.  Good on them.  Let's get our right to not participate back.  

Poundsand's picture

Ken Lewis moment coming up... 

Obama: "Mark, thank you for joining me in the media room here in the whitehouse.  I understand you have indicated that Aetna may wish to withdraw from my signature political achievement?  You know what gives me joy?  Baseball.  A man stands alone at the plate...  But in the field, part of a team.  Do you know the movie I am quoting?  The Untouchables, a Chicago classic!  I remember quoting that same scene to Ken Lewis.  You remember Ken Lewis don't you..."


j0nx's picture

Yep, nice racket these guys are engaged in. There's a reason why we call it racketeering. If only we had a large government entity that would enforce these RICO statutes. Oh wait, we do. They just don't do it. At least not for those who are on their 'special' list. One law for me and one for thee.

More Ammo's picture

There is another name for this: crony capitalism of the worst kind, a hallmark feature of the Obama administration's new normal.



Bullshit!  It is a CARTEL at multiple levels, Plain and Simple... Which are also Illegal...


But Fuck Rule of Law, who needs that.

Bob's picture

It couldn't have anything to do with Aetna Ceo Bertolini making $131 Million if this deal gets approved, right?

Gee, how much was Aetna coming up short on profit?  Makes you wonder where the rest of the million$ go . . .

drendebe10's picture

fuk obamascare, aetna, humana and the progressive liberal democrap jackasses they rode in on....    they can take their premium increases and jam up the azzes over their overpaid, overprivileged CEOs, officers and bureaucraps.... 

Son of Loki's picture

Agree. The sad thing is we have some of the best doctors and hospitals in the world yet these parasites like Obama, Pelosi and their gang fuck it up. It's sad to see Americans flying to Chiang Mai or similar for their health care and surgery because they can no longer afford treatment here or even afford Obama's outrageous insurance premiums.


Hospital systems should be more proactive in this business of settin gup affordable plans for the people in their city/state with ability to somehow tranfer if they move. I can't blame to doctors seeing how much they owe in the overpriced med schools [another racket].

Bob's picture

My daughter's in-state tuition for this year alone at a State medical school is $38,000.  Big bucks. 

Of course, at average income over $200,000 a year, it pays off big.

Bigger than it needs to be in order to attract the brightest and best of the right kind of people, imo.  Way more.

DownWithYogaPants's picture

You think?  For 10+ years of jacking around in what I consider the most boring methodology of learning: ROTE MEMORY

You can make 200K+ as an engineer and you actually get to think about new creative and interesting stuff and I do mean THINK. Not memorize like you reading god damned fucking Quran and them hymm it back to a bunch of fucktards.

I was once young and among the National Merit Scholars putting me with the "best and brightest".  The idea of it sounded pretty dull.  That and you have deal with a bunch of people some good some really fucking nasty.

For only 200k a year the rest of us are getting a good deal of sorts.  You ain't going to see DeNigrious making this kind of deal.   You have to have more in the game than just a paycheck or you life will be miserable.  Even at 200k per year medical could be cheap if it weren't for all the cartel behavoir on the part of government and big medical.

Bob's picture

You've clearly found your place in the work world then!  Most people look at your professional discipline and the course of study leading to it as fatal boredom in a world of maths that they have no interest or aptitude for. 

I think the main thing this shows is that different people have dramatically different ways of experiencing the world.  There's no doubt that med school is one fuck of a lot of rote learning, but the people who belong there find each piece of information something they want to make their own because of the way it all completes a beautiful puzzle of how shit works that they are deeply interested in.  Imagine how long it would take to discover all that info in a hands-on format--it would take hundreds of years of virtually reinventing the wheel just to make it other than rote.  It is what it is . . . but each new bit completes a picture of systems and processes that answer a deep desire to know.  All the terminology is simply the language required to put it into a coherent order necessary to systematically master understanding.  All disciplines necessarily have their own languages that involve rote learning, though--surely including engineering. But you had better excel at rote memory at the extreme for medicine, that's for sure!  Many people have that ability, though, even if they use it for nothing more productive than crossword puzzles or playing trivial pursuit.

Damn, checking your salary comment, I'm surprised the average engineer's salary is that high!  I can see why $200k sounds reasonable.  What I think medicine requires that would argue for letting more people in--and let's face it, medicine is an AMA-controlled monopoly nothing remotely like a free market--is that far more people would be willing to do the job due to the heavy element of service that the profession embodies.  Many people are willing to make tremendous sacrifices for the greater good and to improve the lot of their fellow man . . . look at what young men endure in time of war driven by the belief that their sacrifice is truly needed.  People will endure a whole lot when it has a meaning that inspires them.  We like to see that attitude in our doctors--and for good reason.  Ultimately their mission is to help other people . . . and they need to find that element itself inherently meaningful. 

It takes high intelligence to simply succeed in the education required for many professions, though the aptitudes vary tremendously.  In grad school I heard from a prof that the average medical doctor's IQ was 145 . . . and that's easily believable.  In spite of their often obvious shortcomings when seen in the real world, the education itself would obviously require that much raw intelligence.  145 is pretty, high, too--the top 0.2 percentile of the population. 

But it's a big country . . . on 320 million, the 0.2 percentile and above comprises about 6.5 million people.  And that's if we exclude the very large population of self-selecting "geniuses" from elsewhere in the world who immigrate here. 

I dunno what the "right" salary for doctors would be to my mind nor do I know what they would be earning in a market freed from the AMA's domination, but I do know they're sucking us dry. And that's something antithetical to the fundamental premise of their profession itself.

All that said, then, thanks for pushing me to really think about it.  I think a good place to start would be to free the market for education and training from AMA control . . . then we'd actually find out--empirically--what kind of salary is required to attract people to medicine.  Short of that, all I've got is a strong hunch.  And, I know, we're talking about average salaries of practitioners when the problem of the health care industry is far more than that--but that's a problem I see as developing from the bottom up. 

If you're interested in the subject of "intelligence," btw, here's something I ran across while checking my memory on percentiles for my comment . . . both informative and hilarious:

Hey, as an engineer, have you noticed that the ZH logo is theta?  I looked at it for years without recognizing the obvious!

Lady Jessica's picture

What do you call a society where "health care" is not principally concerned with health?

N0TaREALmerican's picture
N0TaREALmerican (not verified) Lady Jessica Aug 17, 2016 12:14 PM


Doom Porn Star's picture

Sick in the head?

Bereft of morality?


Maybe it isn't a society at all?  

Maybe you are mistaking rackets for markets?

E.F. Mutton's picture

Three-Card Monte

Except with the Healthcare version, they get to pick the card for you

KickIce's picture

Prescription drug addicts?

VAD's picture

Deceitful and delusional.

shovelhead's picture

The profit is in health.

Unfortunately, sickness is where the losses come in.

BillPrep's picture

the dept of 'defense' says, "fuck off and mind your own business why dont you"

DCFusor's picture

Reminds me of Microsoft vs DOJ.  "Oh yeah?  We'll see who the real government is here, won't we?".  Here's my wrist, you may slap it lightly if you kiss it after.

BuddyEffed's picture

If I recall correctly, the similarly veiled scuttlebutt on that case I was hearing local to Seattle was if hardball was going to b played by the DOJ then maybe they'll move the business to Canada. I don't know if that scuttle was coming from Msft internals, or just from locals talking, but if it ever was on the table as a serious consideration, it wouldn't have been patriotic, would it?
And that approach wouldn't make America greater or stronger neither.

Philo Beddoe's picture

Humana deal approved! Is there anything else we can do for you, Sir?

Rainman's picture

'yes ...all these pre-existing conditions pummeled our bottom line,...can we have a do-over and get rid of them ?'

Salsa Verde's picture

Who run Barter Town?

SillySalesmanQuestion's picture

Sounds like open extortion and blackmail, with a dose of cronyism thrown in...but by FBI standards, there is probably, "a lack of intent."

The Ram's picture

I am hoping the entire thing comes apart by the end of 2017. I want to make sure Barrack's legacy is kept intact. Also, it's quite wonderful when the liberal agenda destroys that which it says it wants to create!

N0TaREALmerican's picture
N0TaREALmerican (not verified) The Ram Aug 17, 2016 12:29 PM

Yeah, the liberal agenda destroying itself is as-good-as the conservative agenda that says it wants a small-unobtrusive government and supports the Patriot Act.   

Seems that liberals and conservatives are both dumbasses.   Which explains why the US is where it is today.

KickIce's picture

The only difference in the two parties is the bases.  The democratic base thinks that more government is the solution to every problem and more free shit so the candidates can openly pander to their wishes.  Most of the GOP base values The Constitution, wants conservative, responsible fiscal policy, welfare reformation and a return to legal immigration so for the establishment GOP candidates it comes down to who can sound the most conservative without actually making any promises that can be measured against later.  In the end, they both to the bidding central banks, corporations and other large interest groups.  I do think tptb prefer Dems because passing something like Obamacare would be political suicide for a GOP member.

jmthomas1987's picture

Pretty much an empty threat as Aetna is showing all the signs of pulling out either way.

I would tell them go ahead, stick a fork in O'Zero Care, it is already done for.

yourapostasy's picture

Not only are they showing signs of pulling out no matter what, they are even clearly telegraphing it in the notice to the DOJ. They aren't even saying something along the lines of a merger yields a larger entity that will definitely expand with its increased market prowess, they are only saying they "will explore" expansion. They'll take those "synergies" and either spend it on more dividends for shareholders or more share buybacks, just like what most companies did with the one-time offshore tax repatriation holiday; expanding into state exchanges is a non-starter costs margins and that gets punished in the stock price.

spanish inquisition's picture

Aetna  "Apparently we did not give enough to the Clinton Foundation to grease the wheels.  so we are going to kick it old school blackmail with public notice."

KickIce's picture

Except Obama doesn't give a shit, he's looking for a single-pay system and this is another step in that direction.

The Gun Is Good's picture

Do it, Aetna! DO IT, FUCKERS!!! Let's get this show on the road!

(TBTE = Too Big To Exit. Bunch of prick-teases....)

HerrDoktor's picture

now THAT"S what I'm talking about!!!

SmittyinLA's picture

Make no mistake the USDOJ would prefer 1 insurer not 2

Froman's picture

Aetna Playbook:

1) Publically begin stating that exchange business is not profitable and threaten to pull out of certain States.

2) Announce merger with another large insurer.

3) Tell the US DOJ and the press if there is any challenge to the merger Aetna will pull out of the exchanges in total with the hope of rallying insured with pre-existing conditions to pressure polticians.

4) Politicians knuckle under in attempt to save deeply flawed ACA exchange model and appease small part of constituency, DOJ backs down and merger is approved.

5) 16 months pass, Aetna declares to have exhausted all synergies that were associated with the Humana merger as positives, savings were not at the levels projected at the time of the merger and that the insurer continues to lose money due to the exchanges.  Announce that Aetna will be pulling out of the exhange business in all States in 2018.

6) In effort to keep Aetna in the exchanges and the deeply flawed ACA in tact poiticians approve mid to high double digit reimbursment increases for the insurer prior to 2018 mid-term elections.


83_vf_1100_c's picture

  We need moar synergies!