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Aetna to exit a key market in California

Facing tougher price competition from a state-run marketplace, Aetna Inc. said it would exit California’s individual health insurance market by year-end and leave nearly 50,000 customers searching for new coverage.

Aetna, the nation’s third-largest health insurer, will maintain a major presence in California with a focus on large and small employers. But the move reflects how the federal healthcare law and its rollout in different states is rapidly reshaping the health insurance landscape for millions of consumers.

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California Insurance Commissioner Dave Jones expressed concern about reduced competition from Aetna’s departure, but other industry experts predicted that the company wouldn’t be missed much given its small share of the individual market. They viewed Aetna’s retreat as a sign the company didn’t have enough market power in California to aggressively compete on price against a lineup of new and established rivals in the state’s health exchange.

Aetna and two other big insurers, UnitedHealth Group Inc. and Cigna Corp., chose not to participate in Covered California, the state-run market opening Jan. 1 as part of the Affordable Care Act. Instead, the state selected 13 other health plans last month and announced proposed rates that were lower than expected.

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California, more so than other states, is forcing insurers to compete for consumers more directly on price by requiring them next year to offer uniform deductibles and benefits across four main product categories. In turn, insurers have resorted to squeezing hospitals and physician groups for better rates and forming smaller networks of medical providers to hold down premiums.

“National companies that don’t have a strong local presence may not be able to compete on price very well if they don’t have the best networks or best discounts,” said Gary Claxton, a vice president at the Kaiser Family Foundation, a nonpartisan research group. “Aetna has places where it is stronger.”

Still, Jones, the state’s elected insurance commissioner, said Aetna’s exit “is not good news for California consumers. A competitive market with more choices for consumers is important as we implement the Affordable Care Act and health insurance coverage is a requirement.”

The insurance department said Aetna cannot reenter California’s individual market for five years after it leaves.

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Aetna was a distant fourth in the state’s individual health market with a 5.2% market share in 2011, according to Citigroup data. Anthem Blue Cross, Kaiser Permanente and Blue Shield of California dominate that business with a collective 87% market share in the state.

The company said its share of individual customers had dwindled to 4%, and “we have identified California as a state where we are not able to meet the needs of our individual members.”

Outside California, Aetna said it plans to participate in exchanges in as many as 15 states.

“Our decisions about which exchanges to participate on are based on a careful review of key attributes, such as our current market presence, our ability to offer strong networks and competitively priced products and the regulatory environment in each state,” said Aetna spokesman Anjie Coplin.

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In addition to employers, Aetna said it would continue to sell other products in California related to Medicare, dental and life insurance.

“We are fully committed to serving the needs of our 1.5 million members in the state,” Coplin said.

The company said it expects to have about 49,000 individual policyholders in the state by December. Regardless of its decision, it estimated that up to 30% of those customers would seek other insurance through Covered California next year.

Aetna said it will stop taking applications for individual policies after July 15. Under the healthcare law, it should be easier for Aetna customers to find new coverage next year because they cannot be turned down by other insurers for preexisting medical conditions.

Barry Sikov, a health plan advisor and broker at Belair Insurance Services in Brentwood, said he wasn’t surprised by Aetna’s move in light of its diminishing interest in selling to individuals in recent years. In contrast, he said, Cigna has been rolling out new products for customers outside the exchange.

“Aetna hasn’t been a serious player for individuals,” he said.

chad.terhune@latimes.com


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