United Health Care reported earnings today and those earnings disappointed investors as the stock is taking a battering today. UNH officials laid the blame on ObamaCare and questioned whether or not the company would remain in the exchange program.<\/p>\n
Via the WSJ:
\nBy Anna Wilde Mathews
\nUpdated Nov. 19, 2015 8:04 a.m. ET
\n82 COMMENTS<\/p>\n
UnitedHealth Group Inc. said it expects major losses on its business through the Affordable Care Act\u2019s exchanges and will consider withdrawing from them, in the most prominent signal so far of health insurers\u2019 struggles with the health law\u2019s marketplaces.<\/p>\n
The disclosure by the biggest U.S. health insurer, which had just last month sounded optimistic notes about the segment\u2019s prospects, will sharply boost worries about the sustainability of the law\u2019s signature marketplaces, amid signs that many insurers\u2019 losses on the business continue to mount.<\/p>\n
UnitedHealth Group\u2019s chief executive, Stephen J. Hemsley, said it made the move, which included a downgrade of its earnings projections for 2015, amid reduced growth expectations, the expected shutdowns of the majority of the health law\u2019s nonprofit cooperative insurers, and signs that its own enrollees continue to increase their use of medical services, raising costs.<\/p>\n
As a result, UnitedHealth said it is pulling back on marketing its exchange products, as open enrollment is currently under way for plans that will take effect in 2016. And the insurer said it is \u201cevaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.\u201d UnitedHealth had previously expanded its exchange offerings to 11 new states for 2016, and said in October it had around 550,000 people enrolled.<\/p>\n
UnitedHealth said it was revising its 2015 earnings projection to $6 a share, from a previous range of $6.25 to $6.35. The move reflected \u201cpressure\u201d of $425 million, or 26 cents a share, tied to individual plans sold under the health law, it said. The $425 million includes $275 million related to the \u201cadvance recognition\u201d of losses it expects to incur in 2016. UnitedHealth also said it expects its 2016 earnings to be between $7.10 and $7.30 per share in 2016; previously, the company said it thought next year\u2019s earnings would be within the range of analysts\u2019 projections, then around $7.09 to $7.55.
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Chris Rigg, an analyst with Susquehanna Financial Group, wrote that it was likely \u201cthis is more of an industry issue,\u201d and if the exchanges don\u2019t stabilize, he would expect UnitedHealth to \u201cexit this business line.\u201d<\/p>\n
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UnitedHealth\u2019s announcement comes as other insurers have been sounding alarms about their exchange business, but the big insurer went considerably farther than its peers in flagging the recent rapid deterioration of its performance and raising concerns about future viability. UnitedHealth also changed its own tone markedly from its Oct. 15 earnings call, when it said it expected \u201cstrikingly better\u201d results on the exchanges in 2016, due partly to price increases that it said averaged in the double digits.<\/p>\n
The impact of the insurance industry\u2019s struggles is already clear in the products currently on offer in the marketplaces, many of which are aimed at stanching a flood of red ink. For these plans, which will take effect in 2016, many insurers have raised premiums in order to cover the medical costs of enrollees, which have run higher than many companies originally projected, fueling this year\u2019s losses. Insurers have also shifted to offering more limited choices of health-care providers. The majority of the startup cooperative insurers created under the health law are slated to shut down.<\/p>\n
Analysts say the danger is that higher rates might discourage enrollment, particularly by the younger, healthier consumers that the marketplaces need to draw in, since they are the ones that are most likely to feel they can go without insurance. That would have the effect of driving premiums even higher in the future, because insurers would need more rate increases to cover the costs of a smaller, sicker pool of enrollees. At its worst, this cycle can feed on itself, creating what the industry calls a \u201cdeath spiral.\u201d<\/p>\n
However, in the ACA\u2019s marketplaces, the impact of rate increases on consumers is blunted by federal subsidies that cover much of the cost of coverage.<\/p>\n
The Obama administration has said it aims to have about 10 million people with paid-up coverage on the state and federal health-law exchanges by the end of 2016. But that falls well short of some earlier projections: the nonpartisan Congressional Budget Office earlier this year estimated that at least 20 million people would buy policies under the law for 2016 coverage.<\/p>\n
In mid-October, UnitedHealth said that the exchange business was hurting UnitedHealth\u2019s performance on a key measure called the medical-loss ratio\u2014which tracks the share of premium revenue spent on patient care\u2014but UnitedHealth still expected its overall MLR for 2015 to be within its projected range.<\/p>\n
David S. Wichmann, UnitedHealth\u2019s president and chief financial officer, said then that the company expected the health-law marketplaces \u201cto develop and mature over time into a strong, viable growth market for us.\u201d The exchanges represent a small share of UnitedHealth\u2019s overall insurance enrollment.<\/p>\n
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.<\/p>\n
A recent analysis by McKinsey & Co. found that in 2014, the first year of the exchanges, health insurers lost a total of $2.5 billion, or on average $163 per consumer enrolled, in the individual market.<\/p>\n
There are signs that broad pattern has continued\u2014and in some cases worsened\u2014this 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 companywide results were \u201cbarely break-even\u201d for the first half of 2015. Goldman analysts projected the group would post an aggregate loss for the full year\u2014the first since the late 1980s.<\/p>\n
The analysis said the health-law exchanges appeared to be a \u201ckey driver\u201d for the faltering corporate results, and the medical-loss ratio for the Blue insurers\u2019 individual business was 99% in the first half of 2015\u2014up from 91% at that point in 2014, and 82% for the first six months of 2013.<\/p>\n
Such losses are helping to drive shifts in offerings on the exchanges, where open enrollment is currently under way. Premiums for a type of plan that is closely watched as a signal of consumer costs\u2014the second-lowest-priced insurance product in the law\u2019s \u201csilver\u201d metal tier\u2014are increasing 7.5% on average across the roughly three dozen states that rely on the federal HealthCare.gov marketplace, according to the Obama administration. Some individual increases are far sharper.<\/p>\n
An analysis by the Robert Wood Johnson Foundation found that a number of insurers are cutting preferred-provider-organization plans, which tend to have more open access to health-care providers. Among silver-tier plans on the exchanges, only a third of 2015 PPO offerings remained the same for next year, with the rest either dropped or reduced.<\/p>\n
Write to Anna Wilde Mathews at anna.mathews@wsj.com<\/p>\n","protected":false},"excerpt":{"rendered":"
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