UnitedHealth Group will leave all but a handful of Affordable Care Act insurance exchanges in 2017 after losing $475 million on marketplace plans last year and projecting another $650 million in losses this year.
The nation’s largest health insurer currently sells exchange coverage in 34 states but serves only a fraction of the overall marketplace. Its withdrawal will not collapse the exchanges nationally, yet it may reduce competition and consumer choice in counties where few insurers already participate.
Chief Executive Stephen Hemsley said the market’s smaller size and shorter-term, higher-risk membership made broad participation unsustainable. A PBS report described the company’s decision after months of warnings that losses were mounting.
Claims exceeded the premiums collected
UnitedHealth priced its exchange products expecting a mix of healthy and sick customers broad enough to spread risk. Instead, enrolled members used more medical care than the company anticipated, while healthier customers were less likely to remain continuously insured.
The insurer said it ended the first quarter with about 795,000 exchange members. That is meaningful exposure for one company but small compared with the roughly 12.7 million people who selected marketplace plans for 2016 under the federal enrollment report.
A California Healthline account said UnitedHealth lost $475 million in 2015 and expected $650 million in 2016. Those figures incorporate higher claims and the cost of winding down membership.
UnitedHealth had already recorded substantial reserves. Its January results included $245 million in fourth-quarter exchange losses and reflected management’s view that the business would remain difficult.
The exchanges’ stabilization mechanisms
The Affordable Care Act created three mechanisms to protect insurers from unusually uncertain early enrollment: permanent risk adjustment, temporary reinsurance and temporary risk corridors. Each addresses a different source of volatility.
Risk adjustment transfers money from plans with healthier members to plans with sicker ones. Reinsurance reimburses part of very high claims. Risk corridors were designed to share unexpectedly large gains and losses during the first three years, but congressional limits on payments reduced the amount available to insurers with losses.
A CMS explanation describes how the programs are intended to discourage insurers from selecting only healthy customers while stabilizing premiums. UnitedHealth’s experience suggests that those protections did not overcome its pricing and membership problems.
The company also entered many exchanges later than competitors, limiting the claims history available for setting premiums. As new information arrived, UnitedHealth concluded that raising prices sufficiently could make its products unattractive while staying could deepen losses.
Consumers face uneven consequences
The national effect depends on local markets. In many metropolitan areas, several insurers remain and UnitedHealth holds modest share. In some rural counties, however, the departure of one carrier can leave consumers with only one or two choices.
The Kaiser Family Foundation’s review of 2016 insurer participation found wide geographic variation in competition. The relevant unit is not the state but the county, because provider networks and plan offerings differ locally.
Customers enrolled in a departing UnitedHealth plan will need to choose a different product during the next open-enrollment period. Subsidies will continue to be calculated from local benchmark premiums, but changing plans can also mean changing physicians, hospitals, formularies or deductibles.
UnitedHealth is far larger in employer coverage, Medicare Advantage and Medicaid than in the individual exchanges. Its overall business remains profitable, which means the withdrawal is a targeted response rather than a threat to the corporation.
A warning, not a final verdict
Other major insurers have taken different positions. Some built large exchange membership and expect the business to improve through higher premiums and better data. Others are reporting losses and reconsidering their footprints.
KFF Health News reported that UnitedHealth increased its projected 2016 exchange loss as newer enrollees appeared less healthy. The finding will intensify debate over whether the marketplace pool includes enough younger and healthier people.
The administration argues that premiums, subsidies and insurer participation should be evaluated across the full market, not through one company’s results. UnitedHealth’s limited market share makes that caution valid, but its scale and actuarial resources make its exit impossible to dismiss.
State regulators will now review 2017 filings to determine where competition is weakening and whether remaining premiums are adequate. Insurers must decide whether to raise rates, narrow networks or withdraw. Consumers will not see the final landscape until plans are approved later this year.
The exchanges were built to create a stable individual market without excluding people for pre-existing conditions. UnitedHealth’s decision shows that legal access and federal subsidies do not by themselves guarantee that every insurer can price the risk successfully. The next test is whether remaining carriers can adapt without leaving parts of the country with too little competition.
