Aetna's decision to exit the health insurance exchanges next year seems to say more about the CVS Health subsidiary than it does about the marketplaces established under the Affordable Care Act of 2010.
“It's never a good thing when you have an insurer pulling out of 'Obamacare,' but we haven't heard other companies talk about scaling back,” said Duane Wright, a senior research analyst at Bloomberg Intelligence, a market research firm.
Related: Aetna to exit health insurance exchanges
CVS Health announced Thursday that Aetna is abandoning the exchanges after failing to make the numbers work, in contrast to the sector at large, which has found the exchanges to be profitable.
As such, analysts see the for-profit company's strategic move as sensible for CVS Health and not a sign that the marketplaces will yet again struggle to attract insurance companies, as they did during the 2010s.
CVS Health has disappointed investors on many fronts in recent years, including the performance of its retail pharmacy, healthcare services and insurance operations. Aetna has been working to clean up its insurance business after reporting a $948 million operating loss in that line last year.
As the company executes a $2 billion cost-cutting plan to revive margins in its core Medicare Advantage, Medicaid and commercial health plan offerings, it determined the exchanges were no longer worth the trouble.
“There is not a near- or long-term pathway for Aetna to materially improve its position in this product,” CVS Health President and CEO David Joyner said during a call with investor analysts Thursday. The company expects to lose up to $400 million this year on the exchanges, Chief Financial Officer Thomas Cowhey said Thursday.
The insurer reported an average net loss of nearly 8% across 16 of the 17 states where it sold marketplace plans last year, according to an EvenSun Consulting analysis of state regulatory filings compiled by the National Association of Insurance Commissioners. That excludes California, which does not submit filings to the NAIC.
Aetna recorded a 96% medical loss ratio, which measures the share of premiums spent on care, in those 16 states in 2024, EvenSun Consulting found.
Selling exchange policies was always a sidebar for Aetna and this line of business doesn't support its other operations, such as primary care provider Oak Street Health or CVS Pharmacy, said Michael Cherny, senior managing director and senior research analyst at the investment bank Leerink Partners.
"CVS has never necessarily been the strongest player. Because of that, and given the fact that their business was profit-negative, removing a loss is a gain,” Cherny said.
Enrollment numbers illustrate that Aetna isn't integral to the exchanges and the exchanges aren't integral to Aetna.
Aetna reported it had 1 million exchange policyholders during the first quarter. That's less than 3.7% of its membership and represents just 4.1% of the 24.2 million-member exchange market.
After a rocky start, the exchanges have evolved into a stable platform for coverage and a profitable business for health insurers. Individual exchange plans generated higher average margins than any product besides Medicare Advantage in 2023, the health policy research institution KFF reported in July.
Enrollment has broken records for consecutive years and competition is robust. There is a national average of 9.6 health insurance companies participating in each state this year, the highest ever, according to federal data KFF weighted by state population. That average has climbed steadily since the low point in 2018, when it was 5.4.
Large rival insurers have entered and exited the marketplaces over the years when they don't see the results they demand. Unlike smaller local and regional insurers, these companies are much more focused on Medicare, Medicaid and large-group health plans.
Aetna participated in the exchanges for the inaugural 2014 plan year but exited four years later. Then, as now, the company cited financial losses.
“Big national carriers in the ACA market have traditionally been the last in and first out,” said David Anderson, a professor at the University of South Carolina Arnold School of Public Health.
CVS Health acquired Aetna in 2018 and the insurer rejoined the marketplaces for the 2022 plan year, with then-CVS Health President and CEO Karen Lynch saying the market had stabilized.
Congress and President Joe Biden beefed up financial assistance for exchange customer as part of COVID-19 relief in 2021, kicking off a kind of golden age for the marketplaces. Insurers such as Aetna, UnitedHealthcare, Cigna and the company then known as Bright Health (now NeueHealth) sought to capitalize on the growing market.
It didn't work out for everybody. In Aetna's case, the insurer underpriced to gain market share and suffered for it, said Ari Gottlieb, an independent healthcare consultant. "The exit represents the culmination of an ill-fated attempt to reenter the exchanges," he said.
Aetna took a $270 million premium deficiency reserve charge, an accounting measure that predicts future losses, in October after its exchange plan expenses came in higher than projected. Then Aetna incurred a $448 million premium deficiency reserve charge during the first quarter to cover medical expenses in excess of premium revenues.
Aetna immediately attempted to right the ship with the highest average premium increase, 17%, on the exchanges for the 2025 plan year, according to the investment bank Stephens. The insurer hoped that 800,000 customers — or about 80% of its exchange membership — would choose other carriers.
CVS Health executives said Thursday that while exchange membership fell, it didn't go down as much as they envisioned and the cost trend remained high.
Although analysts do not expect the health insurance sector to follow Aetna's lead under the present circumstances, trouble is on the horizon: The enhanced premium tax credits that jump-started exchange enrollment are due to expire at the end of the year.
As President Donald Trump and the Republican majority in Congress focus instead on significantly downsizing the federal government and slashing spending on Medicaid and other healthcare programs, an extension of the bigger subsidies seems unlikely, said Sabrina Corlette, co-director of the Georgetown University Center on Health Insurance Reforms.
In the meantime, the Trump administration is already retreating from the exchanges, as it did during the president's first term. CMS slashed 90% of the budget for navigators that help people enroll in coverage and is considering shortening the open enrollment period and curbing special enrollment periods, for example.
Reverting to smaller subsidies and de-prioritizing enrollment may give some insurers pause, Corlette said. “If you're a company like Aetna that had a small market share on the marketplaces, you see the writing on the wall, right? A smaller, sicker risk pool is not that great of a prospect,” she said.
Lauren Berryman contributed to this story.
