(This story was updated at 12:25 p.m. ET.)
UnitedHealth Group's first foray with the health insurance exchanges turned out to be a little worse than expected. UnitedHealth lost $720 million on its individual-market health plans in 2015, the company said Tuesday, several million dollars above estimates made a few months ago.
In 2015 and 2016, UnitedHealth expects to lose approximately $1 billion on exchange plans.
The massive deficit on Affordable Care Act plans consequently ate away at UnitedHealth's fourth-quarter profit, which dropped 19% to $1.22 billion. The company also booked $95 million in expected losses from its new managed Medicaid contract in Iowa. However, UnitedHealth's full-year profit still increased 3.5% year over year, totaling $5.81 billion.
Last November, UnitedHealth forecast a $425 million net loss on its ACA policies for its 2015 financial statements. The final loss came in at $720 million, which includes $245 million set aside for 2016 losses, UnitedHealth said.
Dan Schumacher, chief financial officer of UnitedHealthcare, UnitedHealth's health insurance business lines, explained the losses during an earnings call Tuesday. UnitedHealth lost about $475 million on ACA plans for the 2015 policy year. UnitedHealth anticipates another $500 million in losses for 2016 plans, including the shortfall booked in 2015, known as a premium deficiency reserve. That would put UnitedHealth's losses at close to $1 billion.
The health insurer and services conglomerate said the poor experience in the ACA exchanges was due to sicker-than-average consumers enrolling in its health plans and a surplus of people signing up outside of the open-enrollment window. UnitedHealth may exit the ACA marketplaces as a result and will make a decision in the first half of this year. UnitedHealth and other insurers have demanded that the Obama administration make changes to the 2017 marketplaces, such as narrowing the hardship exemptions.
UnitedHealth ended 2015 with 650,000 individual ACA-compliant health plans, 500,000 of which were purchased on the state and federal exchanges, Schumacher said. Starting Jan. 1, UnitedHealth's individual enrollment went up to 700,000, and executives expect that tally will hit almost 800,000 by the end of open enrollment on Jan. 31. However, the number likely will recede as the year goes on since UnitedHealth stopped broker commissioners for ACA plans and took other measures to limit enrollment.
Executives attempted to deflect attention away from the ACA plans, which represent a small size of UnitedHealth's overall revenue and membership.
“The vast majority of our business performed exceptionally well,” UnitedHealth CEO Stephen Hemsley said on the earnings call.
Despite the failed exchange experiment thus far, UnitedHealth continued to expand its empire and remains profitable overall. Fourth-quarter revenue increased 30% to $43.6 billion, and full-year revenue for 2015 jumped 20% to $157.1 billion. Optum, UnitedHealth's services and analytics subsidiary, continues to enlarge at a rapid pace because of natural growth as well as through acquisitions. Optum's year-end revenue soared 42%, while UnitedHealthcare grew at a 10% clip.
UnitedHealth had 46.4 million medical members as of Dec. 31.
