Aetna and United Are Out of California. Who's Moving In?

by Dan Diamond, California Healthline Contributing Editor

United Healthcare has more than 4,700 hospitals in its national network.

Valley Health Plan has four.

That relative scale is one reason why United's departure from California's individual market last week got so many headlines -- even though the health plan only covers 8,000 people -- while the news of Valley's inclusion in Covered California last month got almost none.

And on the surface, the thought of losing the nation's largest health insurer doesn't seem to augur much good for the Golden State's health reform efforts. Especially in the wake of Aetna's similar announcement last month.

But take the glass half-full approach, a handful of experts say: Think about who's stepping in to fill the void.

"For me, the story is [the] new participants" in California's insurance exchange, Micah Weinberg of the Bay Area Council tells California Healthline, citing LA Care Health Plan, Valley Health Plan and a handful of the other small plans.

"Who exactly they are, and how they are being offered in these marketplaces, is worth watching," he adds.

"In many ways, their participation fulfills the promise of reform."

Putting United and Aetna's Departure in Context

Weinberg's perspective isn't shared by some critics of Obamacare, who suggest that the departure of major insurers from the Golden State is an indictment of the health law and a sign of more trouble to come.

According to Sally Pipes of the Pacific Research Institute, the insurers pulled out of the California market "because all the regulations in the state made it not worthwhile to do business."

And as David Gorn reported for California Healthline last week, state Insurance Commissioner Dave Jones further stoked fears by saying he was worried about the prospects for competition.

But Larry Levitt of the Kaiser Family Foundation agrees with Weinberg that Aetna and United's departure may be getting more ink than needed.

"It's important and interesting -- but not for the reasons that one would think," he says.

"You hear about major insurers exiting the market, and you think that must be bad for consumers and competition," Levitt adds.

"But in some ways, it's a sign that the competition is actually working. In a very price-competitive market, you would expect players to exit if they can't compete."

Levitt and others also note several reasons why United and Aetna's loss may be overstated at first blush. For example, the ACA offers more protections for consumers who need to shop around if their plans stop offering coverage. And they stress that Aetna and United combined covered fewer than 60,000 people in California's two-million-strong individual market. Given the relative size of United and Aetna's share of customers, "it barely causes a ripple for them not to be offering coverage," Levitt adds.

Still, there's one lament: Given Aetna and United's scale and operations, the two payers were perfectly suited to help absorb the rush of newly insured patients in what's likely to be a bumpy transition next year.

"Both of these companies have great IT infrastructures for enrolling and servicing their members," according to Kevin Knauss, a blogger and health insurance agent in Northern California. "They are the sort of 'military defense contractors' [that] the U.S. market needs to lend experience and expertise during this period of difficult transition to a new health care and insurance marketplace."

Looking at the Plans That Are Staying

In many respects, the "new" participants in California's insurance exchange are the same as the old. Anthem Blue Cross, Blue Shield of California and Kaiser Permanente already command more than 70% of the individual market, and the combination of other payers' departure and the ACA's coverage expansion may allow them to further consolidate.

But Covered California is slated to also offer a number of small, local plans like Valley, which serves Santa Clara County, and LA Care Health Plan, which serves the Los Angeles market and is the nation's largest publicly operated health plan.

As a result, these payers are likely to see a huge influx of new patients. And that could be a good thing.

"These [plans] are expert in providing care in the population that [the ACA] is hoping to cover," according to Weinberg. He notes that residents with lower incomes who will gain coverage through the Medicaid expansion or obtain subsidized plans through the exchange may have different needs that make them more challenging to care for -- but a plan like LA Care already has expertise in working with a Medi-Cal population.

Meanwhile, provider-linked plans like Sharp Health Plan (offered by San Diego-based Sharp Healthcare) also will be available through the exchange. And when considering the promise of health reform, "what really gets me excited is managed competition" as offered through these provider-linked plans, Weinberg says, given their potential to improve price transparency for consumers, as well as leverage the benefits of an integrated delivery system.

Forecast for Other States and in the Long-Run

Weinberg, Levitt and others stress that California's market is sufficiently competitive that it can easily weather the loss of United and Aetna.

"California certainly has enough health insurance plans participating in [its] exchange," Bob Laszewski, president of Health Policy and Strategy Associates, told California Healthline via email.

But other states -- where only a handful of plans, or perhaps none at all, choose to participate in the insurance exchange -- will be less prepared when insurers pull out of the individual market. And that's exactly what may happen in coming months; as Jay Hancock recently reported for Kaiser Health News, many of the largest payers are taking a wait-and-see approach in the first year of the exchanges before jumping in.

Laszewski thinks observers should take a wait-and-see approach on the Golden State, too. "Time will tell where both the Obamacare insurance exchanges and California's aggressive application of them take the market," he added.

Around the nation

Here's a look at other reform-related stories making news this week.

Life under Obamacare: The Wall Street Journal takes an interactive, personalized look at how your life may change under the ACA.

Oregon's "twee" insurance exchange: At the Washington Post's "Wonkblog," Sarah Kliff examines Oregon's creative effort to get consumers to sign up for the state's new insurance exchange.

Walgreen joins Blue Cross to promote exchanges: The pharmacy chain -- which has made waves for its efforts to capitalize on the ACA's coverage expansion -- has signed on to the effort to boost awareness of the law's marketplaces, Alex Wayne reports at Bloomberg News.

ACA may cause problems for current Medicaid enrollees: Politico's Jason Millman rounds up two studies on how current enrollees could lose out on access to preventive services (given a quirk in the law) and physicians (who are already hesitant to see Medicaid patients).



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