UnitedHealth Group's decision to pull out of most of the Affordable Care Act's insurance exchanges created a big headache for the Obama administration, but the reality of the situation is a lot more nuanced than it might appear.
Many experts still believe the insurer's self-induced exchange flop doesn't portend a broader crisis. However, it's clear the exchanges have not stabilized as quickly as predicted for insurers or consumers.
Policymakers need to figure out how to entice younger, healthier people to buy coverage and how to make the products more appealing and functional for consumers.
“I don't think we'll reach the death spiral of Obamacare,” said Michael Morrisey, a health policy professor at Texas A&M University, referring to the theory in which mostly sick people buy health coverage, thus forcing healthy people to drop their plans because premiums get hiked. “But there are clear issues of the claims experience in the risk pool,” he said.
UnitedHealth will exit at least 24 of the 34 states where it sells individual ACA plans, Bloomberg reported. The Minnetonka, Minn.-based insurance and health services giant, which barely made a footprint in the exchanges in the inaugural year and is still a highly profitable company, estimated its losses on individual ACA plans will surpass $1 billion for 2015 and 2016.
“We will remain in only a handful of states, and we will not carry financial exposure from exchanges into 2017,” UnitedHealth CEO Stephen Hemsley told investors.
Nationally, UnitedHealth's exits won't cause the ACA to implode. A Kaiser Family Foundation analysis found widespread UnitedHealth departures will have only a “modest” impact on competition and premiums, though more so in rural areas. The company, which has almost 800,000 ACA members, or 6% of the exchange population, has not been particularly competitive on price, which is a leading metric for exchange shoppers.
Few believe other large insurers will follow UnitedHealth. Yet the exits raise an important question: How much longer can insurers tolerate red ink?
“Everybody's losing their shirt,” said Robert Laszewski, a health policy analyst and critic of the ACA. “It's not just United.”
Indeed, multiple insurers across the country have hemorrhaged money in the new individual marketplaces, including most of the ACA's co-ops and many of the Blues carriers. Blue Cross and Blue Shield of Alabama, by far the largest insurer in the state, lost $170 million on the ACA exchanges in 2015. The insurer would have been profitable had it not been for heavy individual-market losses.
Health Care Service Corp., the Chicago-based parent company of Blue Cross and Blue Shield plans in Illinois, Texas and three other states, cumulatively lost more than $2 billion in 2014 and 2015—roughly double UnitedHealth's ACA losses. HCSC has replaced many of its broad provider networks with narrower HMO plans to control costs.