Humana to exit exchange business in 2018

Humana's Louisville headquarters

Starting in 2018, Humana will exit the Affordable Care Act exchange business, according to an earnings call Tuesday held after the insurer and Aetna announced they would call off their planned $37 billion merger.

An unbalanced risk pool in the individual exchange business is the reason for the exit from the ACA, according to CEO Bruce Broussard.

Ways and Means Committee Ranking Member Richard Neal, a Democrat from Massachusetts, blamed Republican efforts to repeal the ACA for Humana's exit.

"Republican efforts to sabotage the ACA have now driven Humana to exit the Marketplace," Neal said. "Republicans' refusal to provide certainty is harming American business and middle-class consumers. Republicans complain there is lack of choice, but it is their policies that are causing competition to wither."

Broussard said Humana has worked over the past several years to address market challenges in the ACA believing the market would stabilize.

This has included modifying networks, restructuring product offerings, reducing the company's geographic footprint and increasing premiums, according to Broussard.

"However, based on its initial analysis of data associated with the company's healthcare exchange membership following the 2017 open enrollment period, Humana is seeing further signs of an unbalanced risk pool," Broussard said. "Therefore, the company has decided that it cannot continue to offer this coverage for 2018."

Humana will leave the individual commercial business, substantially all of which is offered on-exchange through the federal marketplace, starting Jan. 1, 2018.

Through the remainder of 2017, Humana will remain in the 11 states where it offers individual commercial health plans.

In 2016, the company offered on-exchange ACA coverage in 15 states.

Secondly, Broussard said, Humana believes the exchange business is not aligned with the company's longer term goal of an integrated care strategy.

"We're really feeling this organization needs to stay focused on what we do well," Broussard said.

This is taking care of people with chronic conditions, he said.

Humana will concentrate on its Medicare Advantage business, increased risk-based arrangements, population health investments and expanding partnerships with primary care clinics.

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Acquisition priorities will be primarily aimed at expanding the healthcare services segment, he said.

The Medicare Advantage segment of the business to projected to grow by 5 percent in 2017, said CFO Brian Kane. This is just shy of Humana's target margin.

"Our individual Medicare Advantage and healthcare services businesses improved significantly year over year and our cash flow from operations more than doubled," Kane said. "We have entered 2017 with a solid balance sheet and keen operational focus, positioning us well for the future."

Humana is moving to Plan B following a Jan. 23 federal court order blocking its merger with Aetna. Both insurers announced Tuesday that they would not pursue an appeal and that Aetna would pay Humana the $1 billion breakup fee stipulated in the merger contract.

[Also: Aetna to pay $1 billion breakup fee to walk away from Humana merger]

Humana will receive approximately $630 million, net of tax.

The Department of Justice argued the merger would create the largest insurer of Medicare Advantage plans. Humana is currently considered the second largest insurer of MA.

The Louisville, Kentucky insurer had been holding off on giving its 2017 earnings projections due to uncertainty about the merger.

Twitter: @SusanJMorse