AHCA’s Patient and Stability Fund would benefit large states, study finds

Large states and states with fewer insurers offering coverage in the individual and small group markets could receive the most money under the American Health Care Act’s (AHCA) Patient and State Stability Fund, according to a study by Avalere. The AHCA, which consists of two bills that came out of the House Ways and Means and Energy and Commerce Committees, is touted as an effort to repeal and replace the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

Bill

Section 132 of the Ways and Means bill would add title XXII to the Social Security Act to create the Patient and State Stability Fund. The Fund would provide funding for the states and District of Columbia from 2018 through 2026 for eligible states to do any of the following:

  • provide financial assistance to high-risk individuals who do not have employer health insurance to enroll in health insurance coverage in the state’s individual market;
  • provide incentives for entities to enter into agreements with the state to help stabilize health insurance premiums in the health insurance market;
  • reduce the cost for providing coverage in the individual and small group markets;
  • promote participation in the individual and small group markets and increase available insurance options;
  • promote access to preventive services, dental care, and certain services for individuals with mental or substance abuse disorders;
  • provide payments to providers for the provision of health care services as specified by the Administrator; and
  • provide assistance to reduce out-of-pocket costs for individuals enrolled in health insurance coverage in the state.

Funding

The bill would appropriate $100 billion over 10 years to provide allocations to states. According to Avalere, the first 85 percent of the funds would be distributed based on the share of the state’s insurance claims as a percentage of the nation, so states that have more people with insurance and higher medical costs could receive more funding that states lower overall enrollment and spending.

The remaining 15 percent would be distributed to states that have seen an increase in the number of low-income uninsured from 2013 to 2015 or have fewer than three insurers offering coverage in their exchange in 2017.

Distribution among states

According to Avalere, the allocation methodology could result in states like California, Florida, and New York receiving the most money North Carolina, Arizona, Alabama, Oklahoma, and South Carolina could receive disproportionately high amounts of money due to the lack of health insurance participation on their markets in 2017.

The funding levels “vary widely” on a per capita basis compared to the state’s individual market enrollment in 2015, Avalere concluded. They range from $1,830 in the District of Columbia to $220 in Montana.

Tale of two mergers: Cigna-Anthem goes south; Humana, Aetna drop plans

Cigna Corp. has chosen to terminate its proposed merger agreement with Anthem, Inc., which would have combined two of the largest medical health insurance carriers in the U.S. in a $54 billion deal. The decision comes after a D.C. court order enjoining the transaction. The district court found that the merger would decrease competition and lessen choices in the health insurance market and that the competitive harm could not be offset (see Swan song for Anthem’s acquisition of Cigna?, Health Law Daily, February 9, 2017). In 2015, proposed mergers were announced between four of the five largest health insurance companies in the United States. In addition to Anthem’s proposed acquisition of Cigna, Aetna, Inc. attempted to purchase Humana Inc., and the subject quickly came under scrutiny (see To merge or not to merge, that was the question before a Senate subcommittee, Health Law Daily, September 24, 2015).

In Cigna’s announcement about the merger termination, the company noted that its decision was based on its belief that the proposed merger would not have been approved. To effect termination, Cigna filed a complaint in the Delaware Court of Chancery seeking declaratory judgment that it lawfully terminated the merger agreement and that Anthem is not permitted to extend the termination date. Cigna’s complaint seeks payment by Anthem of the $1.85 billion reverse termination fee contemplated in the merger agreement, as well as additional damages in an amount exceeding $13 billion. In response, Anthem sought a temporary restraining order in the same court to enjoin Cigna from terminating and taking any actions contrary to the terms of the proposed merger agreement. Anthem contended that there was still sufficient time to meet the merger agreement date of April 30, 2017, and that the merger would save more than $2 billion in annual medical costs for consumers. Anthem also provided a long list comparing the carrier’s interests in proceeding with the merger and Cigna’s interest in avoiding it.

In addition to Cigna and Anthem’s announcements following the D.C. court ruling, Humana and Aetna recently terminated their pending merger agreement (see Aetna, Humana plan separate futures after dissolving merger plans, Health Law Daily, February 14, 2017; Aetna’s $47 billion purchase of Humana enjoined, Health Law Daily, January 23, 2017). Under the terms of the merger agreement, Humana is entitled to a “breakup fee” of $1 billion, or approximately $630 million, net of tax. Of note, in order to demonstrate that its proposed merger with Humana would not run afoul of antitrust issues similar to the now contentious Anthem-Cigna merger, Aetna had pulled out of some health insurance exchanges for the upcoming enrollment period. Humana has now stated its intent to pull out of the exchanges for 2018. President Trump weighed in on the pullout, repeating the “repeal and replace” mantra. The pullout is based on Humana’s analysis of data associated with the company’s exchange membership following the 2017 open enrollment period, and what it perceived as future uncertainty in the risk pool.

Aetna, Humana plan separate futures after dissolving merger plans

Aetna Inc. and Humana Inc. announced the termination of their merger agreement as a mutual decision following a January 2017 federal district court ruling enjoining the merger. Aetna is now on the hook for a $1 billion “breakup fee” to Humana, as well as a termination fee for ending its agreement to sell Medicare Advantage (MA) assets to Molina Healthcare, Inc. (Molina).

Merger enjoined

In the decision enjoining the merger, the D.C. District Court focused on the merger’s impact in the MA market, and believed that the divestiture of some MA assets was insufficient to alleviate antitrust concerns (see Aetna’s $47 billion purchase of Humana enjoined, January 23, 2017). The Molina deal involved two separate agreements with the merging companies, which would have resulted in Molina gaining about 290,000 MA members for a total of about $117 million in cash. The federal government also challenged the merger’s potential anticompetitive effect on the health insurance marketplaces, even after Aetna’s withdrawal from the marketplaces in 11 states for the 2017 plan year. The court agreed with the government, finding that Aetna withdrew from competing in the 17 complaint counties for 2017 specifically to evade judicial scrutiny of the merger.

Aetna

Aetna’s Chairman and CEO Mark Bertolini stated that pursuing the merger further would be “too challenging,” despite Aetna’s belief that a combined company would benefit consumers. Bertolini noted that the companies have spent 19 months planning the deal, and spoke of Aetna and Humana’s mutual respect. Although the companies will now move forward separately, they share the goal of moving toward a health system centered on consumer needs.

On or about March 16, 2017, Aetna will redeem a large number of senior notes for cash, all of which were due at some point from June 2019 through June 2046. Aetna will fund this redemption with the proceeds of notes issued last year.

Humana

Humana’s initial press release was briefer than Aetna’s, announcing the mutual termination of the agreement and the expectation of receiving about $630 million from Aetna’s breakup fee payment, after tax. Humana expects to release 2017 financial guidance and a strategic plan update.

Aetna slashes exchange presence; administration cries foul

Aetna, one of the nation’s largest health insurance companies, is slashing its marketplace participation by removing its current offerings from 536 counties. For plan year 2017, it will only offer marketplace plans in 242—as opposed to 778—counties in Delaware, Iowa, Nebraska, and Virginia. The company publicly stated that it based its decision on financial losses that it contends result from an unbalanced risk pool. The Obama Administration, however, argues that Aetna is following through on threats it made in a recent letter to the Department of Justice (DOJ) related to actions the DOJ has taken to block Aetna’s merger with Humana, indicating that Aetna would “immediately take action to reduce [its] 2017 exchange footprint” if the merger were “challenged and/or blocked.”

Reduction in presence

The insurer stated on its website that it suffered a “second-quarter pretax loss of $200 million and total pretax losses of more than $430 million since January 2014” in its individual products. Aetna maintains that marketplace insurers nationwide are struggling financially due to an unbalanced risk pool. It noted that its 2016 exchange membership increased by 55 percent in 2016 and that individuals requiring high-cost care now represent “an even larger share” of the exchange population. It also faulted “an inadequate risk adjustment mechanism” for the financial strain insurers face. The company promised to communicate options to those affected by its decision prior to the 2017 open enrollment period and reminded the public that it will continue to offer off-exchange plans in most affected counties.

Following through on a threat?

The announcement comes on the heels of a CMS analysis suggesting that higher enrollment has actually led to a more balanced risk pool and a decrease in costs (see Higher enrollment leads to lower costs, reflects healthier risk pool, Health Reform WK-EDGE, August 17, 2016). Obama administration officials, have suggested that Aetna’s move is retaliation for the government’s recent efforts to block the company’s desired merger with Humana (see DOJ lawsuit steps in between Aetna-Humana and Anthem-Cigna mergers, Health Reform WK-EDGE, July 27, 2016).

In a July 5, 2016, letter signed by Aetna Chairman & CEO Mark Bertollini and obtained by the Huffington Post, Aetna told the DOJ that the company’s ability to withstand losses incurred under the ACA “is dependent on . . . . achieving anticipated synergies in the Humana acquisition.” After explaining that challenges to the merger would force it to reduce or eliminate its exchange presence, it noted that if the merger were to proceed, “without the diverted time and energy associated with litigation, we would explore how to devote a portion of the additional synergies (which are larger than we had planned for when announcing the deal) to supporting even more public exchange coverage over the next few years.”

Senator Elizabeth Warren (D-Mass) noted in a Facebook post that Aetna recently referred to exchange participation as a “good investment.” She lambasted the insurer, stating, “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.”