Although insurers are already factoring in additional costs and impacts from implementing provisions of the Patient Protection and Affordable Care Act, the transfer of a major client's policy from fully insured to self-insured, meaning less revenue from UnitedHealth, may be part of a larger theme among larger clients. Under self-insured coverage, a company pays for claims out of its own pocket, with the carrier essentially playing a third-party role.
There has been a “trend in commercial risk-based customers and businesses moving from fully funded to self-funded, putting pressure on the top line,” Morningstar senior healthcare analyst Vishnu Lekraj told Modern Healthcare. “Most signs point to profit pressure for” managed-care organizations going forward, he said.
The conversion of the public-sector client, which UnitedHealth did not name, to self-funding will reduce annual revenue by $2.5 billion, the company said. As a result, the insurer now forecasts 2013 revenue of $122 billion, a change from an earlier estimate of $122 billion to $124 billion. However, its full-year earnings projection of $5.25 to $5.50 per share was maintained.
On the bright side, the carrier's UnitedHealthcare benefits unit saw its total membership increase almost 1.1 million since the end of 2012 to 42 million.
During the conference call, UnitedHealth Group CEO Stephen Hemsley said the Medicare Advantage payment cuts would remain a challenge throughout the year, adding that the insurer may exit some markets.
“We will take the time to fairly assess the implications to our 2014 UnitedHealth Group growth outlook—and whether our growth expectations for 2014 can be sustained in light of the continuation of both sequestration and a significantly greater rate setback than anyone could have expected," Hemsley said.
Hemsley added that sequestration cuts will have an impact of between $250 million and $300 million on the insurer's bottom line for the year.
Lekraj says that leading up to the launch of exchanges in January, many insurers may have trouble appropriately pricing plans due to market changes, especially with the tens of millions of new enrollees getting coverage. And even with reinsurance and other programs designed to spread risk among insurers from new enrollees, Lekraj says it may take insurers time before they can appropriately price for the new environment.
Hemsley also reiterated comments made last year that UnitedHealth will not offer insurance in every state exchange. “We will be very selective in where we participate and do not believe the exchanges will be a significant factor for us.”
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