Last year, when Aetna announced that it was withdrawing from the bulk of its Obamacare exchange business, liberals were incandescent with rage.
Many, Senator Elizabeth Warren among them, alleged that this was basically a thuggish threat, aimed at an administration that had sued to block the firm’s merger with Humana. As if Aetna were saying: “Nice exchanges you’ve got there. It’d be a shame if something happened to them.”
This week, many of those people are feeling vindicated. A judge hearing an antitrust complaint about the merger has ruled that Aetna’s decision to pull out of the exchanges was motivated by the merger suit, rather than by other business considerations.
But the people who think that their prior opinion has been vindicated should actually read the ruling. The judge certainly has reason to think that Aetna was behaving strategically about its exchange participation -- but it’s more complicated than “they just did this to threaten the government.”
Let’s start with what the advocates of this theory claimed. The idea was that Aetna was firing a warning shot across the administration’s bow, threatening the integrity of Obamacare if the insurers weren’t allowed to merge.
As I noted at the time, this wouldn’t exactly be unheard of for heavily regulated public companies, whose public statements and actions are often aimed as much at regulators as they are at the market. (The Huffington Post even published a letter, obtained through the Freedom of Information Act, in which Aetna basically said it would reduce its exchange participation if the merger was not allowed to go through.)
On closer examination, this was less exciting than it looked. It turned out that the administration had asked Aetna how blocking the merger would affect its exchange participation; Aetna had answered the question, which then wound up with the Huffington Post in what must be close to the world record turnaround time for a FOIA request.
This started to look more like a quasi-leak intended to punish Aetna, and less like an outrageous threat. In the great regulatory game, both teams often resort to hardball tactics.
Moreover, Aetna was losing money on a lot of exchanges, though not all of the exchanges it abandoned. Companies often decide that even marginally profitable markets aren’t worth maintaining, if they sap too many internal resources relative to the profits they produce. No one has successfully alleged that the Obamacare exchanges are a great place for insurers to do business.
Now along comes this week's ruling from the DC District Court. The court found that Aetna did allow the government’s decision about the merger to impact its decision about which states it withdrew from, in order to improve its litigation position.
But that wasn't just about "making threats"; it was pre-emptively addressing a potential claim that the merger would be anti-competitive. The exchanges left by Aetna were ones where Humana also had a presence.
Courts don’t like it when you change the facts, artfully arranging your corporate operations so as to lessen the appearance of anti-competitive effect for a brief window of time between proposing and consummating the merger.
The court therefore decided to look at the market as if Aetna were still participating. Which is fair enough; Aetna does not have a legal obligation to sell insurance if it doesn’t want to, but the government does not have a legal obligation to take strategic behavior at face value, either.
That said, the court acknowledged that Aetna was losing money in a lot of places, and refused to assume that, in the absence of a merger possibility, Aetna would have been willing to continue losing money indefinitely. In the early startup years of Obamacare, it might make sense to sell insurance at a loss in order to establish a presence, gain customers or simply gather data on the market.
Eventually, however, companies do want to turn a profit. The court’s ruling ended up hinging on just a handful of counties in Florida where the company was making money. As noted above, even this might be a stretch; those Florida counties might have turned unfavorable in future years, or the company might have decided it wasn’t worth expending resources on a comparatively tiny market.
Overall, there’s a great deal less here than apparently met many eyes. The court concluded that the withdrawal was mostly sensible:
Given that one can expect firms to operate in markets where they can achieve a profit, this is strong evidence that notwithstanding the reason for Aetna’s withdrawal, it is unlikely to compete in those markets in the near future.
Because the merger “will not produce the forbidden result if there be no preexisting substantial competition to be affected,” Int’l Shoe, 280 U.S. at 298, the Court therefore concludes that there will be no substantial lessening of competition on the public exchanges in the 14 counties in Missouri and Georgia.
Once you acknowledge that, however, any “threat” looks pretty minuscule. Even if there were not a plausible innocuous reason for Aetna to have pulled out of those exchanges, “Let our merger go through, or we’ll pull out of three Florida counties” is not exactly a devastating weapon to wield against the full might of the Department of Justice. Aetna doesn’t exactly come off looking like a hero here. But it doesn't come off looking particularly villainous, either.
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