(Reuters) - Aetna Inc pulled out of Maryland's health insurance exchange being created under President Barack Obama's healthcare reform law after the state pressed it to lower its proposed rates by up to 29 percent.
Under the law, often called Obamacare, each U.S. state will have an online exchange where Americans will be able to buy insurance plans, starting on October 1. The government is counting on about 7 million people to enroll next year for this insurance, many of whom will qualify for subsidies.
The success of the exchanges, as well as the expansion of the government's Medicaid program for the poor, are key elements in the political battle between Republicans and Democrats. State officials say the price of the new insurance plans will help determine whether enough people sign up.
In an August 1 letter sent to the Maryland Department of Insurance, Aetna said the state's requirement for rate reductions off its proposed prices would lead it to operate at a loss. The rate reductions include products from Aetna and Coventry Health Care, which it bought this spring.
"Unfortunately, we believe the modifications to the rates filed by Aetna and Coventry would not allow us to collect enough premiums to cover the cost of the plans, including the medical network and service expectations of our customers," Aetna said in the letter to insurance commissioner Therese Goldsmith.
According to online documents, Aetna had requested an average monthly premium of $394 a month for one of its plans and the agency had approved an average rate of $281 per month.
Aetna Chief Executive Officer Mark Bertolini said earlier this week during a conference call to announce financial results that it was closely looking at its plans for the exchanges since buying Coventry.
Like most other large U.S. insurers, Aetna has taken a cautious approach to the new products which must include a broader set of benefits and be sold to all people regardless of their health.
On Friday, Aetna spokeswoman Cynthia Michener said the decision to withdraw from the individual market in Maryland included both new plans proposed for the exchange and new products for the individual market. Aetna and Coventry combined insure 13,000 individual members in Maryland and 620,000 individuals nationwide.
"This is not a step we take lightly," she said.
Aetna said it was not clear yet how the move would affect all of its current policyholders in the state.
Maryland's Insurance Administration, which provided a copy of the letter, declined to make an immediate comment beyond the explanation of its rate modification decision posted online. It announced approved rates on July 26.
In the online document, the agency said that many factors went into its request for a lower rate, such as Aetna's assumptions about the health of people who apply for insurance on the exchange. Healthy people cost less to insure.
Earlier this year, Aetna and UnitedHealth Group Inc both said they would withdraw from the individual market in California, where they had not planned to sell exchange-based products but would have had to change off-exchange individual policies there to meet the same standards.
Reporting by Caroline Humer; Editing by Gerald E. McCormick, Dan Grebler and Phil Berlowitz