UnitedHealth to Pull Back From Insurance Exchanges, Citing Losses

New York Times
APRIL 19, 2016

The UnitedHealth Group, one of the nation’s largest health insurers, told investors on Tuesday that it continued to lose hundreds of millions of dollars selling individual policies under the federal health care law. The company said it planned to pull out of a majority of states where it offered coverage and would offer policies on the public exchanges in “only a handful of states” for 2017.

UnitedHealth, which was a late and seemingly reluctant participant in the public exchanges, surprised investors last year when it announced its sizable losses, now estimated at more than a combined $1 billion for 2015 and 2016, because of its poor performance in the public exchanges. Policy analysts have been watching UnitedHealth closely as an indicator of whether the new individual market developed under the Affordable Care Act is sustainable.

Addressing investors, Stephen J. Hemsley, the company’s chief executive, continued to offer a pessimistic view. “The smaller overall market size and shorter-term, higher-risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustainable basis,” he said. UnitedHealth estimated its losses from the exchanges would be $650 million this year.

UnitedHealth reported overall earnings from operations of $3 billion on revenue of $44.5 billion for the first quarter of 2016, compared with earnings of $2.6 billion on revenue of $35.8 billion for the 2015 quarter.

The company would not specify which states it planned to exit. It appears to be staying in Virginia and Nevada next year, but it is not known what other states remain attractive. A small unit of UnitedHealth, which offers exchange plans that feature a primary care clinic, is being tested in some states, including Georgia, where United says it is pulling out.

Despite the concerns over United’s decision, just how much of its struggles are because of a lackluster embrace of the market and small presence is unclear. The company has 795,000 people in its plans, a small fraction of the roughly 13 million people who have signed up for 2016. Without large numbers of customers, insurers are unable to demand low prices from hospitals and doctors. They also cannot balance the high cost of very sick patients with the low expense of more healthy customers.

The number of insurance carriers for every state has increased every year, Ben Wakana, a spokesman for the Health and Human Services Department, which oversees the exchanges, said in a statement. “With millions of Americans insured through the marketplaces, it’s clear that this is a growing business for insurers,” he said.

While United is not alone in finding the new market challenging, some insurers, especially those that have traditionally served low-income customers in Medicaid programs, appear to be more successful. “This is still a new market, and both entrants and exits come with the territory,” Cynthia Cox, one of the authors of a recent analysis from the Kaiser Family Foundation, said of the impact if UnitedHealth were to leave all of its markets.

While the analysis found the overall impact to be modest, if UnitedHealth left all the markets and was not replaced by another carrier, the Kaiser analysis found, “the effect on insurer competition could be significant in some markets — particularly in rural areas and Southern states.”