Failed mergers and regulatory uncertainty shape insurance industry in 2017

The health insurance industry in 2017 was defined as much by events that didn't take place as those that did.

Two megamergers between four of the largest insurance companies were ultimately abandoned at the start of the year, sparing hospitals from the possibility of lower reimbursement and consumers from higher prices. Months later, in December, CVS Health and insurer Aetna announced a deal that could ultimately spark change in the way Americans access care, if their merger is greenlighted by regulators.

Congressional Republicans failed repeatedly to repeal the Affordable Care Act, former President Barack Obama's signature healthcare law under which some 20 million people gained coverage. Yet, the Trump administration succeeded in undermining the law in part by ending the cost-sharing reduction subsidies that lower out-of-pocket costs for certain exchange enrollees, and through actions that ensured fewer Americans signed up for coverage during open enrollment.

Amid all of the chaos, health insurance companies and other stakeholders were forced to operate in an environment in which regulations, policies and even the future of the individual insurance market and Medicaid expansion were uncertain. That made it difficult for insurers to set rates and ultimately led to higher premiums.

"It was week after week, month after month of not even knowing which way you were trying to adapt," said Ceci Connolly, president and CEO of the Alliance for Community Health Plans, which represents not-for-profit insurers. "You know, we're still living that right now."

As 2017 came to a close, congressional Republicans ultimately included the repeal of the ACA's individual mandate in its tax bill, nixing the requirement that leads many to buy insurance.

"This has been the year of uncertainty, but the ACA is a lot more resilient than people gave it credit for. That thing's hard to kill," said Dr. Mario Molina, the former CEO of Long Beach, Calif.-based insurer Molina Healthcare.

The year was bookended by proposed billion-dollar mergers that promised to irrevocably alter the insurance industry landscape, for better or worse. Hartford, Conn.-based Aetna and Louisville, Ky.-based Humana called off their $37 billion merger in February, after a federal judge sided with the U.S. Justice Department in its argument that the tie-up would threaten competition in Medicare Advantage.

The Justice Department also successfully challenged a $54 billion deal between Indianapolis-based Anthem and Bloomfield, Conn.-based Cigna Corp., which ended their proposed marriage in May after a nearly 2-year-long bitter engagement. The federal government's defeat of those mergers made it more difficult for insurers with heavy footprints in Medicare Advantage or commercial group insurance to combine.

That may be one reason insurers are now seeking to couple up with nontraditional partners. While No. 1 UnitedHealth Group has been gobbling up doctor groups and ambulatory-care providers for years, Aetna this month agreed to become a stand-alone unit inside pharmacy chain CVS in a $69 billion deal, the largest healthcare transaction in history. The two aim to lower healthcare costs by encouraging patients to seek more care from retail clinics instead of costlier hospitals.

Instead of merging to become bigger health plans, "insurers are now moving into vertical integration, which is sort of a different way to go," Molina said. "It remains to be seen if (the CVS-Aetna merger) will create synergies and lower costs."

Meanwhile, congressional Republicans, cheered on by the new Trump administration, sought to repeal and replace the ACA and failed in each of their three direct attempts. Those failures meant the individual market and Medicaid expansion remained intact.

But the repeated attempts to undo the law kept Congress from focusing on finding ways to improve the exchanges, which have suffered from lower-than-expected enrollment and more sick members than healthy ones.

"The lack of bipartisanship in Congress has been a major hurdle in achieving a sustainable, highest possible quality health system," said Dan Hilferty, CEO of Independence Blue Cross and former chair of the Blue Cross and Blue Shield Association.

Instead, the Trump administration found other ways to weaken the ACA, starting shortly after President Donald Trump's inauguration through an executive order handed down in January directing federal agencies to "minimize the economic burden" of the healthcare law. In October, the president signed another executive order opening the door for insurers to sell cheaper, skimpier plans on the individual market. Experts said such plans could further destabilize the exchanges.

For months, the administration kept insurers in the dark about whether it would continue to pay the cost-sharing reduction subsidies before announcing in October it would end them. Those payments go toward lowering out-of-pocket insurance costs, like copayments and deductibles, for exchange members with incomes below 250% of the federal poverty level.

Even before Trump said he would end the payments, insurers had been requesting 2018 individual market rate hikes of 20% to account for the absence of the subsidies. Many other insurers, including Anthem, opted to quit selling plans on the exchanges altogether citing both financial losses and the pervasive uncertainty in the market.

The federal administration also shortened the fifth open-enrollment period that began Nov. 1 from three months to 45 days. At the same time, it slashed the budget for marketing the exchanges from $100 million to $10 million, and gutted the funding that goes to "navigators" who help educate and enroll customers in exchange coverage.

Despite those obstacles, more than 8.8 million people enrolled in 2018 coverage through the federally run marketplace before open enrollment ended Dec. 15.

"Figuring out how the legislation and the regulatory framework will evolve in a new administration that cannot legislatively accomplish what it set out to accomplish is what we will find out as we move into '18 and '19," said Ron Williams, former CEO of Aetna and now chairman of value-based care company Agilon.