UnitedHealth, one of the nations largest health insurance companies, threatened that it may not participate in the Obamacare federal exchanges in 2017 unless changes are made.
UnitedHealth Group, one of the nation’s largest health insurance companies, told investors Thursday morning that it was significantly lowering its profit estimates and blamed an expected loss of hundreds of millions of dollars selling individual policies under the federal health care law.
In light of the losses, the company warned that it was also weighing whether it would continue to offer individual coverage through the online exchanges for 2017.
The announcement comes as the latest blow to the market created under the Affordable Care Act to allow individuals who buy coverage on their own rather than through an employer better access to health insurance. As the law enters its third year, with open enrollment for 2016 now underway, many customers have faced sticker shock as premiums have risen significantly in some parts of the country, and some of the new companies offering coverage, including the so-called co-ops, have stopped selling coverage in recent weeks, leaving people with fewer options.
While the insurance giant has only been able to sell a fraction of policies to individuals through the exchanges (which some critics contend are not priced competitively), its discontent with the federal health care law could signal a broader industry pushback.
And UnitedHealth may also be using the news to prod the administration into making changes to the law or paying more of what the federal government owes insurers under one of the programs aimed at protecting them from losses in the early years. Federal officials have said they are paying less than 13 cents of every dollar they owe, although they say they will make additional payments later.
This is tremendous news, as it represents one of the first public statements of an insurance company suggesting that HealthCare.gov’s business model–which depends on voluntary participation by providers–is not working. Louise Radnofsky at the WSJ offers an overview of why the insurers are unhappy. In short–the core structural protections of Obamacare are not working to maintain sufficiently large risk pools of health buyers.
Mr. Hemsley said the company was worried about people essentially signing up for health plans only when they need to cover health expenses. The health law has a defined enrollment window (Nov. 1 to Jan. 31 for 2016) aimed at restricting people from signing up opportunistically. But skeptics have said that rules governing the “special enrollment period,” which allows people to sign up at other times if they have life changes, or simply learned about the penalty for going uninsured after the main deadline had passed last year, have been too lax. The company also indicated that people were dropping the coverage after they ran up big bills on it, raising questions about whether the penalties for going without insurance are acting as a sufficient incentive for people to be covered.
In the final chapter of Unprecedented, I warned that the individual mandate was not high enough to encourage people to purchase health insurance, if rates went too high. I also noted that in this toxic political environment, it was simply impossible for Congress to raise the penalty to match demand. Finally, there are even constitutional problems, because as the price of the penalty gets closer to the price of the cheapest policies, the Chief Justice’s saving construction begins to unravel.
So what does this mean practically? At the ACA Death Spiral, Seth Chandler explains that if United drops out, in many markets there will be no plans available on the federal exchange, or perhaps only one other provider:
United is a major player in the Exchange markets. It sells policies in about 47% of the 395 rating areas serviced by the federal exchange. Moreover, the loss of United could be very harmful to any remaining competition of the exchange markets. A quick study of data fromhealthcare.gov shows that if one looks at Silver plans in rating areas in which United sells a policy and one looks at all plan types (HMO, EPO, POS,PPO), there are 204 combinations. In 73 of those (about 36%), United is the only insurer, meaning that if no one else steps in to the United vacuum, there will no longer be a seller of that plan type. HMO plans in Alabama rating area 13 is an example of such a market. If United exits, it would appear that there will be no HMOs in that area.
In another 59 of those 204 (about 29%) rating area/plan type markets in which United participates, United is one of only two players. An example of such a market is the POS market in Arkansas, rating area 1. There UnitedHealthcare of Arkansas, Inc. and QCA HealthPlan are the only sellers. This meaning that if no one else steps in, there will be another large chunk of markets in which there will be an Obamacare monopoly.
The ACA simply does not work without voluntary insurer participation. There is no public option and their closest cousin, the coops are mostly dead or in financial distress. It surely should work better if there is at least some competition. But insurers don’t voluntarily participate where they think they can’t make money. So, unless United, one of the biggest health insurance carriers is doing something particularly wrong or unduly gloomy, one has to worry about its warning being an oracle of things to come for other insurers.
Indeed, WSJ cited several other insurance companies that have been similarly troubled by the declining signup numbers:
Several other big publicly traded insurers also flagged problems with their exchange business in their third-quarter earnings Anthem Inc. said enrollment is less than expected, though it is making a profit Aetna Inc. said it expects to lose money on its exchange business this year, but hopes to improve the result in 2016. Humana Inc. and Cigna Corp. also flagged challenges…
There are signs that broad pattern has continued–and in some cases worsened–this year. A Goldman Sachs Group Inc. analysis of state filings for 30 not-for-profit Blue Cross and Blue Shield insurers found that their overall company wide results were “barely break-even” for the first half of 2015.
Goldman analysts projected the group would post an aggregate loss for the full year–the first since the late 1980s. The analysis said the health-law exchanges appeared to be a “key driver” for the faltering corporate results, and the medical-loss ratio for the Blue insurers’ individual business was 99% in the first half of 2015–up from 91% at that point in 2014, and 82% for the first six months of 2013.
Bob Laszewski concludes that this means “the Obamacare insurance company business model does not work.”
Every health plan I talk to tells me that they don’t expect their Obamacare business to be profitable even in 2016 after their big rate increases. That does not bode well for the rate increases we can expect to be announced in the middle of next year’s elections.
And, then there are the insolvencies of 12 of the 23 original Obamacare co-op insurance companies–the canaries in the Obamacare coal mine–with almost all of the rest of the survivors losing lots of money.
Why is this happening?
Because nowhere near enough healthy people are signing up to pay for the sick.
Insurance companies simply cannot be profitable with this model:
That the Affordable Care Act’s individual market risk pool is so far unacceptable was reinforced by a recent McKinsey report that health insurers lost an aggregate $2.5 billion in the individual health insurance market in 2014–an average of $163 per enrollee. They reported that only 36% of health plans in the individual market made money in 2014–and that was before they found out that the federal government was only going to pay off on 12.6% of the risk corridor reinsurance payments the carriers expected and many had already booked.
Because the risk corridor program is revenue neutral, the fact that the carriers in the red are only going to collect 12.6% of what they requested means that the carriers losing money did so at a rate eight times greater than the carriers making money!
So when, Bob asks, will this denial end?
The Robert Wood Johnson Foundation and Urban Institute findings have now given additional credibility to the very same conclusion many of us have been trying to make since the Obamacare launch: The Obama administration has NOT been so successful in enrolling those eligible–they’ve got more than 60% of the group remaining!
If the Obama administration signs up the 10 million they are estimating they will sign-up during the current open enrollment, based upon the historic number that are subsidy eligible, they will have less than the 9 million of the 24 million RWJF and UI estimate are in the potential exchange subsidy market–just a 38% success rate. And, that is nowhere near where they will have to be to make these risk pools sustainable for the insurance companies or politically sustainable in the country.
Or keep the likes of UnitedHealth Group in the program.
How can Obamacare be fixed?
First, the Obama administration can improve, but not completely solve, their Obamacare problems by dramatically revisiting their regulations so as to give health plans the flexibility they need to better design plans their customers want to buy.