Obamacare backers are suspicious of the timing of Aetna’s decision to back out of most of the law’s insurance markets, suggesting the nation’s third largest carrier was trying to strong-arm the Obama administration into approving its controversial merger with another insurer.

And a letter emerged overnight in which Aetna CEO Mark Bertolini warned the Department of Justice that the health insurer would scale back Obamacare market participation if the administration tried to block Aetna's merger with Humana. Two weeks later, DOJ sued to stop the deal.


"If the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses," Bertolini wrote in the letter obtained by Huffington Post. He argued that Aetna needed the synergies of a successful merger to help cover its mounting costs, and that a legal fight would only worsen the company's finances.

"In other words, instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states," he wrote. Aetna cut back even more than that, announcing in a blow to Obamacare Monday might that it would sell exchange plans in just four states next year, down from 15 this year.

Bertolini cited unsustainable losses of $430 million since 2014.

Only four months ago Bertolini was bullish on Obamacare. “We see this as a good investment,” the insurance chief told investors on a call in April, touting the 1.2 million new customers that had flocked to Aetna under the health law’s new online markets. He also repeated in May that the company planned to stay in the exchanges.

One thing that changed since then: The Department of Justice's effort to stop Aetna’s proposed $37 billion merger with Humana. The two sides go to court in December.

The juxtaposition of that lawsuit last month and the company’s exit plans triggered the questions, even before the letter emerged.

“What they’re saying doesn’t hold a lot of water,” Topher Spiro, of the liberal Center for American Progress, said of Aetna’s turnabout. “So you have to wonder, what is the real motivation?"

Democrats on the Hill also voiced doubts. “Aetna’s CEO had touted the ACA Marketplace as a good investment in April, which raises very serious concerns about Aetna’s sudden change of heart,” said Frank Pallone (D-N.J.), the top Democrat on the House Energy and Commerce Committee.

Aetna denies a link between the DOJ lawsuit and its decision to exit most of the Obamacare markets, saying its prior bullish comments were made when the company still thought it would break even. Now, it expects to lose $300 million this year on the Obamacare. And it says it still expects to win approval of the merger at the end of the day.

The Obama administration and the insurance industry have been uneasy allies on the health law — and this confrontation between the administration and Aetna shows an increasingly frayed alliance. Aetna’s withdrawal from most of the state exchanges next year further undermines the stability of the exchanges — already hit by some other insurer defections and the likelihood of bigger rate increases for next year.

In some states, consumers may have only one or two insurers to choose from in the exchanges next year — and people eligible for Obamacare subsidies can’t get that financial assistance if they try to find a health plan outside the exchange.

“I’m very worried,” said Greg Scott, head of Deloitte’s health plans practice, of the possibility of more insurers fleeing the exchanges, which have attracted older and sicker customers than some insurers had anticipated. He said he knows "there are some regional plans that are very much intent on staying in the markets," but the exchanges are burning through money.

The Aetna dustup points to a dangerous reality for the Obama administration as it seeks to leave its signature domestic achievement on firm ground before leaving office: The insurers that are a linchpin of the law are increasingly unhappy with how it is playing out in the Obamacare markets.

“These are two parties that have to live with each other whether they like it or not,” said Tom Miller, a health expert at the conservative American Enterprise Institute. “The insurers may have a little more marginal leverage to ask for something back in return in order to play ball. But ultimately, neither side can walk away from the table.”

The Obama administration reiterated its faith in the stability of the markets, saying that health plans are still adapting to new rules of the road. Under the health law, they must “compete for business on cost and quality rather than by denying coverage to people with preexisting conditions.” The administration just a few days ago released new data that it says shows a stabilizing market.

But Aetna is the third major national carrier to announce a significant withdrawal from the Obamacare marketplaces as insurers across the board ask for bigger premium spikes next year. UnitedHealth is pulling out of all but a handful of the 34 states where it now competes; it anticipates $650 million in losses this year. Humana is leaving nearly 90 percent of the counties where it currently does Obamacare business.

In addition, at least a half dozen insurers are suing the administration over programs that were supposed to protect them from big lossesin the first turbulent years.

Big rate hikes are the norm for plans that are remaining in the markets. Independent analyst Charles Gaba estimates that plans are seeking average increases of 24 percent nationwide – though regulators will roll some of them back before the start of enrollment in the fall.

“The Affordable Care Act just does not work in its current structure,” said Raymond Farmer, the top insurance regulator in South Carolina, an anti-Obamacare state that’s seen an exodus of insurers. “Companies are leaving the marketplace for a reason. They don’t leave the marketplace if they’re making a profit.”

That’s precisely the point Aetna is making — it isn’t anywhere close to making a profit on its Obamacare business.

“As a result of these losses, significant structural challenges facing the public exchanges, an uncertain policy outlook and so many other payers exiting the exchanges, we can’t responsibly maintain our current footprint,” Aetna spokesman T.J. Crawford said. As of now, it's only staying in Virginia, Delaware, Iowa and Nebraska.

Health care experts from across the political spectrum agree the government will have to take steps to strengthen and stabilize the exchange markets in the coming months. But with the Obama administration approaching lame-duck status — and the next occupant of the White House unknown — how that happens is uncertain.

Larry Levitt, senior vice president of special initiatives at the Kaiser Family Foundation, says dealing with the repercussions of plan exits will likely be a top priority next year.

“Where that goes seems awfully unpredictable,” he said.

- Dan Diamond contributed to this report.