The nation’s largest health insurance company, Minnesota-based UnitedHealth Group, announced Thursday that huge losses in its Affordable Care Act health plans would prompt the company to evaluate their “viability” for 2017.

Including $275 million in advanced recognition of losses for 2016, the company said it expected total 2015 operating losses for its ACA exchange plans at $700 million. “We cannot sustain these losses,” said Mr. Hemsley, “We can’t subsidize a market that doesn’t appear at this point to be sustaining itself.”  

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UnitedHealth Could Exit ACA Exchanges in 2017

Fri Nov 20, 2015

In recent weeks, growth expectations for individual exchange participation have tempered industrywide; cooperatives have failed; and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated.  –Stephen Hemsley, CEO, UnitedHealth Group

The nation’s largest health insurance company, Minnesota-based UnitedHealth Group, announced Thursday that huge losses in its Affordable Care Act health plans would prompt the company to evaluate their “viability” for 2017.

Including $275 million in advanced recognition of losses for 2016, the company said it expected total 2015 operating losses for its ACA exchange plans at $700 million. “We cannot sustain these losses,” said Mr. Hemsley, “We can’t subsidize a market that doesn’t appear at this point to be sustaining itself.”

UnitedHealth Points to Key Issues—

In its statement the company blamed two unfavorable trends for losses in its exchange business:

First, “growth expectations,” i.e., enrollment numbers in ACA exchanges. UnitedHealth says enrollment has “tempered,” meaning that exchange signups have turned out to be far lower than hoped.

The Obama Administration recently forecasted that by the end of 2016 some 10 million people would be enrolled in federal or state exchanges. That figure represents a small increase from the 9.9 million estimated to have enrolled and paid premiums as of June 2015. In other words, little growth in exchange enrollment.

For comparison, the Congressional Budget Office and other nonpartisan groups originally projected exchange enrollment at about 20 million or higher for 2016.

Disappointing enrollment has an ominous implication for the sustainability of the ACA exchanges: the health insurance risk pool remains skewed toward older and sicker participants.

This is obviously a complicated question, but what the company calls “our own claims experience” implies that the exchanges have yet to attract the younger and healthier demographic that typically incurs lower medical costs and thus allows insurance risks to be spread more broadly—what the insurer terms “balanced participation.”

It’s well known that the 2010 law imposed penalties on individuals, later upheld by the Supreme Court, who failed to enroll in minimum essential coverage of the kind available on the exchanges. But government regulations created numerous waivers, including a catchall “hardship waiver,” that have allowed many people to avoid liability for not enrolling.

A second loss-driver the company mentioned is equally ominous for the future of the exchanges: “We have identified higher levels of individuals coming in and out of the exchange system to use medical services.”

A purpose of an Open Enrollment Period with fixed start and end dates is to prevent people from enrolling in health insurance after the onset of an injury or illness and thus “gaming” the system.

The company acknowledges that it had reservations about whether the government would have “effective controls over participants moving in and out of coverage as healthcare needs emerge and whether exchanges would be regulated in ways that prioritize sustainable underwriting to ultimately reflect the true cost of coverage.”

The nation’s largest health insurance issuer seems to have concluded that the government’s practice of extending open enrollment windows and declaring special enrollment periods has made it more difficult to price risk into premiums for health plans offered on exchanges. The result: big losses on health plans sold in the exchanges.

Next Steps for UnitedHealth—

While the company maintains that it is “evaluating the viability of the insurance exchange product,” and will decide in 2016 whether it will “continue to serve the public exchange market in 2017,” the tea leaves indicate that UnitedHealth is preparing to withdraw from the Affordable Care Act exchanges.

Significantly, the company said that although it will offer exchange plans in 2016 it would pull back on marketing these plans during the current open enrollment period. It seems inevitable, therefore, that the nation’s largest health insurer will pull out of the exchanges in 2017.

Implications—

It’s worth noting that of the 10 million or so people expected to be enrolled in ACA plans in 2016 UnitedHealth will likely account for only 550,000. With alternatives available in the exchanges, a pull-out will have little direct effect on ACA coverage.

Nevertheless, the problems the company has cited (i.e.namely flat enrollment numbers, a risk mix skewed toward higher-cost participants and in-and-out signups to cover medical expenses) could be systemic weaknesses.

If these defects can be corrected by regulation or tougher enforcement there’s a good chance the ACA exchanges can be sustainable as an option for the uninsured. If on the other hand UnitedHealth has identified something more fundamental in the design of the Affordable Care Act, then the “viability” question could apply not only to one company’s health plans but to the law itself.