THE NEW YORK TIMES
By Reed Abelson
November 19, 2015
UnitedHealth Group, one of the nation's largest health insurance companies, stunned investors on Thursday morning when it significantly lowered its profit estimates, placing the blame for an expected loss of hundreds of millions of dollars on 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.
It is the latest blow to the individual market overhauled under the law to make it easier for people to buy coverage on their own if they are not covered by an employer.
As the law enters its third year, with open enrollment for 2016 now underway, many customers are facing sticker shock as premiums have risen significantly in some parts of the country. Some of the new insurers offering coverage, including the cooperatives created under law to foster competition, have stopped selling policies for next year, leaving people with fewer options.
While UnitedHealth has been able to sell only a fraction of the policies sold to individuals through the exchanges (which some critics contend have not been competitive enough), its discontent with the federal health care law could signal broader industry resistance.
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.
On Thursday, federal officials issued a statement expressing their commitment to pay the amount owed the insurers. Officials said the timing was unrelated to the UnitedHealth announcement. The company's threatened withdrawal also puts more pressure on regulators to scrutinize the proposed mergers of its rivals: Anthem with Cigna and Aetna with Humana.
Still, the company has not been considered an industry bellwether on the exchanges. It had been a reluctant participant, staying largely on the sidelines in 2014.
“United doesn't matter that much to this market right now,� said Larry Levitt, an executive with the Kaiser Family Foundation, which closely tracks the Affordable Care Act. “They came late to the party, and their enrollment is still relatively modest.�
UnitedHealth cited weak growth in the numbers of new people signing up for coverage, especially during the first weeks of open enrollment, and the high costs of medical care for existing customers, which it said affected the overall industry. The company said it was estimating losses of more than $600 million from its exchange business, before taxes, in 2015 and 2016.
The company emphasized that other areas of its business remained strong.
“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 J. Hemsley, the chief executive of UnitedHealth, said in a statement.
The company said it was already scaling back its marketing efforts for 2016 in order to minimize the increase in individual customers buying on the online exchange and would decide by the middle of next year whether it would drop out altogether for 2017.
With plans to offer policies in 34 state exchanges next year, the company said it had enrolled about 550,000 customers to date, less than its major rivals. About 10 million people are expected to enroll for 2016.
“As we see those markets actually being sustainable, we would be open to participating in them,� Mr. Hemsley said. But he emphasized the company was not willing to continue losing money. “We cannot sustain those kinds of costs and losses, and we will evaluate the marketplace as it goes.�
The company's stock fell on the news, closing down 5.7 percent at $110.63.
The Obama administration played down the significance of UnitedHealth's experience. “The marketplace is stable, vibrant and a growing source of coverage for new consumers,� said Benjamin Wakana, a spokesman for the Health & Human Services Department, adding that individuals would continue to have a robust choice of plans. “Today's statement by one issuer is not indicative of the marketplace's strength and viability.�
Two other major for-profit insurers, Anthem and Aetna, appear to be staying the course.
Anthem, which operates for-profit Blue Cross plans in 14 states and has been a major presence in selling coverage to individuals, has indicated it is not losing money in the market.
Aetna told investors this month that it expected to be able to break even in the market through a combination of higher prices and better management of medical expenses.
And UnitedHealth, unlike some of its rivals, can afford to walk away from the market, given its size in other business like private Medicare plans and its Optum services operation. “It's a drop in the bucket for them,� said Ana Gupte, an analyst with Leerink Partners. “They don't need all these losses.�
But UnitedHealth's announcement underscores the industry's frustration with the exchanges and the difficulty in drawing large numbers of new — and healthy — customers. The administration recently forecast minimal growth in the numbers of people it expected to sign up for 2016, and insurers continue to complain that many of their customers are enrolling for only short periods of time and consuming significant amounts of medical care.
“If enrollment stagnates, we could very well see other insurers thinking twice about participating,� Mr. Levitt said. Mainstream insurers, like UnitedHealth, could drop out, leaving the marketplaces dominated by the same insurers who focus on Medicaid populations.
But Mr. Levitt emphasized that the market was unlikely to collapse at this stage. “I suspect the program has reached the tipping point of sustainability,� he said, but added that it was too early to declare it a success.
Analysts also say the administration could make course corrections as way of enticing insurers to stay. Critics have argued that some of the original provisions to protect insurers from losses have not been sufficient, particularly because of limited funding to help them absorb early losses, one of the reasons so many of the start-ups have faltered.
But insurers have also been unhappy with the rules about when people can sign up, saying they need to be tightened so they are better able to cover costs.
Mr. Hemsley declined to comment on whether UnitedHealth was in discussions with federal officials about making any modifications to the law.
Eventually, however, the for-profit companies will need to make money and will not be able to continue subsidizing the cost of coverage through other lines of business. Ms. Gupte, for one, said UnitedHealth and other insurers would make good on their promise to leave the public exchanges if they cannot break even by the first half of 2016, but she believed the administration will respond to some of their concerns.
“I have to believe H.H.S. will have to meet them halfway,� she said, referring to the federal department.