Aetna Facing Lawsuit From Shareholders Over ACA Pullout Decision

July 29--An institutional shareholder has filed a lawsuit against Aetna Inc., alleging the Hartford-based insurer breached its fiduciary duty by withdrawing from 11 public health insurance exchanges established under the Affordable Care Act.

The lawsuit, filed this week in Pennsylvania state court by the Allegheny County Employees' Retirement Fund, charges that Aetna lied about the reasons it was pulling out of the exchanges. The company claimed it was a business decision, but the lawsuit alleges Aetna was motivated by a desire to punish government regulators who rejected its proposed merger with Humana.

"Aetna officials told investors that the company's withdrawal was purely a business decision, driven by the purported unprofitability of plans sold on the exchanges and the company's purported desire to better manage risk and avoid losses,'' the complaint states. "But that explanation was knowingly false and misleading and nothing more than a cover-story designed to conceal the true, scandalous reason for the company's decision: to follow through on threats senior Aetna officials made to Obama Administration officials in the Department of Health and Human Services and Department of Justice in an attempt to coerce the government into granting regulatory approval to Aetna's then-proposed $37 billion acquisition of Humana, Inc."

Anjie Coplin, Aetna's director of media relations for local markets and territories, said Friday that the company would have no comment on the lawsuit.

But in a statement on the company's website, Aetna said its participation in several public exchanges "simply became unsustainable."

"The fact is, since Aetna first started participating in public exchanges in 2014, we have absorbed more than $500 million in pretax losses on our individual commercial products,'' the company said. "In the face of such volatility and uncertainty, we made the difficult decision to withdraw from public exchanges in 11 states for 2017."

Aetna's deal to acquire Humana fell apart in February after a federal judge ruled against the merger, saying it would weaken competition and harm consumers in hundreds of counties where the two insurance giants compete.

Aetna argued that the merger would not weaken competition in the Affordable Care Act's public exchanges, because the insurer already made a decision not to compete in the 17 counties, in Florida, Georgia and Missouri, where it previously competed with Humana. But U.S. District Judge John Bates ruled that Aetna pulled out of those counties "specifically to evade judicial scrutiny of the merger," and said Aetna was likely in the future to offer plans in Florida in counties where its Obamacare plans had been profitable.

The lawsuit cites Bates' 158-page decision. "Judge Bates found that Aetna 'tried to leverage its participation in the exchanges for favorable treatment from [U.S. Department of Justice] regarding the proposed merger by threatening to reduce its participation in the public exchanges,'' the lawsuit states. Bates found "persuasive evidence" that when Aetna withdrew from certain exchanges "it did not do so for business reasons, but instead to follow through on the threat that it made earlier."

As a result of the foiled merger, Aetna's stock lost significant value and the company's image was dinged, the lawsuit states.

"As a direct and proximate result of the foregoing conduct, Aetna has sustained and will continue to sustain significant damages, including financial harm and loss of goodwill," the lawsuit said. "On news of Judge Bates's decision, Aetna's common stock dropped $3.33 per share, or 2.7%,erasing $1.17 billion of the company's market capitalization. National press reports concerning Judge Bates's opinion have also harmed the company's public image and goodwill. Aetna's reputation and credibility with the very regulators that oversee the company's business have also been severely damaged. Perhaps most concerning of all, by pulling out of exchanges where the company's on-exchange plans were making money, Aetna insiders chose to forgo corporate profits simply to make good on their wrongful threats to the government."

The lawsuit names CEO Mark Bertolini and several other top Aetna executives.

The Allegheny County Employees' Retirement Fund serves about 12,000 government employees, retirees and their beneficiaries in Pittsburgh and the surrounding area. In January 2016, the fund had a market value of about $858 million.

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