(This story was updated at 1 p.m. ET.)
UnitedHealth Group has lost $425 million from health plans sold on the Affordable Care Act's marketplaces, which forced the company to lower its profit projections for the rest of the year. The company suggested it may exit the exchanges altogether by 2017.
It's a potentially huge blow to President Barack Obama's healthcare reform law, which has already suffered from the demise of half of its not-for-profit health insurance co-ops. The exchanges are the primary conduit to expand health coverage to middle-class Americans. If a major publicly traded insurer bows out, others may follow and destabilize the entire individual market.
UnitedHealth reported a $425 million shortfall from exchange products, and that includes $275 million UnitedHealth expects to lose from its 2016 plans. There's also another $200 million to $225 million in potential exchange losses that can't be booked until next year, the Minnetonka, Minn.-based health insurer and services conglomerate said.
“We cannot sustain these losses,” UnitedHealth CEO Stephen Hemsley said on an investor call Thursday.
UnitedHealth will evaluate its public exchange status during the first half of next year before deciding if it will leave the market. It has also “pulled back” significantly on marketing its 2016 plans and cut commissions to insurance brokers to minimize enrollment growth.
It's a swift turn of events for the nation's largest health insurer, which only a month ago touted its exchange strategy and said it was expanding into 11 new markets next year. UnitedHealth barely participated when the ACA's marketplaces kicked off in 2014.
“We continue to expect exchanges to develop and mature over time into a strong viable growth market for us,” UnitedHealth President and Chief Financial Officer Dave Wichmann said on the company's third-quarter earnings call in October.
Much has changed since then. Hemsley said many of UnitedHealth's 550,000 exchange enrollees were sicker than expected and “strong users of services.” In addition, many people have been signing up outside of the open-enrollment period, and those typically are the people using the most services, Hemsley said. The ACA established special enrollment periods so people could still sign up for coverage if they experienced a life-changing event, such as getting married or having a child.