Letter shows Aetna warned DOJ it would exit Obamacare markets if merger challenged

Aetna CEO Mark Bertolini (file photo)

Aetna warned the Department of Justice in a July 5 letter that it would leave the public exchange market if the agency went forward and blocked its merger with Humana.

"Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses," Aetna CEO Mark Bertolini said in the letter. "Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint."

The letter to Ryan M. Kantor, assistant chief for litigation in the Antitrust Division, was sent days before the DOJ's injunction blocking Aetna's $37 billion merger with Humana, and also Anthem's planned $54 billion deal with Cigna.

This week, Aetna announced it was exiting the Obamacare-created exchange market in all but four states in 2017, a reduction of its current participation in 15 states.

[Also: Aetna to exit Obamacare market in all but 4 states]

However, Aetna left the exchange markets after seeing deteriorating numbers in its second quarter results, the insurer said in a request for comment today.

"That deterioration, and not the DOJ challenge to our Humana transaction, is ultimately what drove us to announce the narrowing of our public exchange presence for the 2017 plan year," Aetna said.

Bertolini said in the July letter that If the DOJ had allowed its acquisition with Humana to proceed, Aetna would expand its exchange product to 20 states.

He said he was responding to the Department of Justice's June 28 request that the insurer provide information on Aetna's participation on the public exchanges, as well as the likely consequences of the DOJ's challenge of the transaction.

"The acquisition of Humana puts Aetna in a significantly better position to continue and expand its support," Bertolini wrote. "Unfortunately, a challenge by the DOJ to that acquisition and/or the DOJ successfully blocking the transaction would have a negative financial impact on Aetna and would impair Aetna's ability to continue its support, leaving Aetna with no choice but to take actions to steward its financial health."

This week, in announcing it would reduce its exchange market presence, Bertolini said the company expected a second-quarter pretax loss of $200 million and total pretax losses of more than $430 million since January 2014 over the individual exchange products.

"Should the deal be blocked the challenges will be exacerbated as we are facing significant unrecoverable costs including carrying costs of the debt required to finance the deal that are projected to be from now to the end of the year, and significant unrecoverable transaction and integration costs," Bertolini said.

[Also: Aetna and Humana trial set for Dec. 5, later than companies had hoped]

Should the DOJ be successful in blocking the merger, a matter to be decided in a trial starting December 5, Aetna would have to pay Humana $1 billion breakup fee, per the conditions of the merger contract.

Aetna expected to incur additional exchange losses, but it hoped that cost savings created by its merger with Humana woudl allow the insurer to weather those, Bertolini said in the letter.

These issues were discussed at a June board meeting in which the board asked for a contingency plan for a failed merger, he said.

Aetna has been operating on the public exchanges since 2014.

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"The reality is that our continued ability to participate in the public exchanges under the ACA is ultimately dependent on our ability to continue to invest in the market development of exchange plans in terms of both startup costs and losses," Bertolini wrote. "As outlined above, those investment decisions cannot help but be impacted by a failed merger with Humana."

Aetna said Wednesday the letter was in response to a request from the Department of Justice to provide in writing its views on the potential impacts to its individual public exchange business should the Humana transaction be blocked.  

"If the Humana transaction is eventually blocked, which we don't believe it will be, the underlying logic of our written response to DOJ would still apply with regard to the public exchanges where we will participate in 2017," Aetna said.

Twitter: @SusanJMorse