by Eleanore D. Sanchez
Moody’s Investor Service gave a credit positive rating to carrier Aetna’s decision to pull out of non-performing states in the Affordable Care Act’s (ACA) public exchanges. Aetna will cut its involvement in the exchanges to four states in 2017 from 15 this year.
“The decision is credit positive for Aetna because it reduces an earnings drag from unprofitable products. The company has estimated that its combined pre-tax losses from this business since January 2014 now exceed $430 million and it projects a $300 million loss for full year 2016,” Moody’s stated.
Aetna, the third largest US carrier, is the latest major player to pull out of the exchanges, which have yet to prove their viability following tremendous losses since being established with the passing of the ACA in 2014. The insurance firm follows the path of UnitedHealth and Humana who also exited the exchanges due to dismal market conditions.
“Aetna’s exit from these products in a large majority of its states reduces its exposure to what has become a poorly performing business for most health insurers. We estimate that the private health insurance sector’s losses from this business exceeded $3 billion in 2014 (based on submissions to the ACA’s risk corridor program), and the financial results of a majority of health insurers point to higher incurred losses for the industry in 2015,” the rating agency further observed.
The carrier’s pullout will result in a loss of 800,000 policy holders, which represents a 4% portion of Aetna’s total membership, Moody’s stated.
Additionally, Moody’s said it “(does) not believe that Aetna’s announcement will affect the judicial outcome of the Department of Justice’s (DOJ) lawsuit attempting to block the company’s proposed acquisition of Humana. In any case, we see a reasonable probability that the acquisition will ultimately be approved despite the DOJ lawsuit. We expect that if Aetna and Humana are successful in their legal challenge, the transaction will be delayed several months and may not close until 2017.”
