ACA is in trouble and could be on course for a death spiral

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23. UnitedHealth warns it may exit Obamacare plans

http://www.usatoday.com/story/money/2015/11/19/unitedhealth-group-earnings-downgrade-obamacare-affordable-care-act/76040322/


Insurance giant UnitedHealth Group dealt a blow to the Affordable Care Act on Thursday when it warned that it may stop offering insurance plans to individuals through public exchanges established by the reform law.

In a surprise, UnitedHealth (UNH) downgraded its earnings forecast in a sign that ACA, commonly referred to as Obamacare, is taking a toll on the company’s bottom line.

People who purchase insurance through the public exchanges are typically heavy users of their plans, draining insurers' profits.

“The company is evaluating 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,” UnitedHealth said in a statement.

The move comes amid indications that insurers are absorbing steeper costs than they expected from plans offered to individuals through the public exchanges, which are purchased online.

The average premium increase for medium-benefit plans offered to 40-year-old non-smokers is set to rise 10.1% in 2016, according to the Kaiser Family Foundation.

UnitedHealth warned investors that it would reap $425 million less in revenue during the fourth quarter than it had previously expected, translating into 26 cents in earnings per share, in losses attributed to a worse outlook for the quarter and all of 2016.

The company lowered its full-year 2015 earnings-per-share forecast to $6, and shares of UnitedHealth stock fell 4% to $112.65 in early trading.

S&P Capital IQ analyst Jeffrey Loo said in a research note that he was "a bit surprised" by the revelation because UnitedHealth had previously "indicated optimism" about the exchanges.

But UnitedHealth blamed “a continuing deterioration” in the financial prospects of health care plans provided to individuals who purchase insurance through exchanges established by Obamacare.

“In recent weeks, growth expectations for individual exchange participation have tempered industrywide, co-operatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated, so we are taking this proactive step,” UnitedHealth CEO Stephen J. Hemsley said in a statement.

The Obama administration argued that the health care marketplace would stabilize after a period of changes in the early years following the law's implementation. An average of 10 insurers per state are offering plans for 2016, up from nine in 2015 and eight in 2014.

In its third year, the number of plans offered through the exchanges "continues to grow, giving millions of Americans access to quality affordable insurance," Ben Wakana, a spokesman for the U.S. Department of Health and Human Services, said in an emailed statement.

Even though UnitedHealth wasn’t a major player yet on the ACA exchanges, the fact it priced plans conservatively and entered cautiously made its statements more significant, said Katherine Hempstead, who heads the insurance coverage team at the Robert Wood Johnson Foundation.

“If they can’t make money on the exchanges, it seems it would be hard for anyone,” Hempstead said.

More than half of the 23 non-profit insurance co-ops established under the ACA are shuttering by the end of this year, but UnitedHealth is the largest single insurance carrier in the U.S. United’s comments about the health of exchange-plan holders also runs counter to what was expected. Experts including Hempstead assumed the sickest people would get insurance first and then the “risk pool” would improve as more healthy people bought plans.

While UnitedHealth’s statement is significant, Kaiser Family Foundation senior vice president Larry Levitt said it "matters more for what it says about what industry as a whole thinks about Obamacare."

"If they exited (the exchanges), it wouldn’t matter that much to the functioning of the ACA, but it would show why increasing enrollment is so important," Levitt said. "This market is not yet profitable for insurers but it could become profitable if enrollment grows."

The Obama Administration’s low predictions for 2016 enrollment may also have "spooked the insurance industry a bit," Levitt says. "More enrollees (means) more business for insurers and that more healthy people are coming into the market."

UnitedHealth executives told investors in a conference call that insurance holders who sign up after the open enrollment period are particularly expensive. Those patients, who are able to obtain coverage after a life event such as losing a job or having a child, have been among the most active users of the insurance plans.

Obamacare established a network of federal and state exchanges through which individuals who do not have insurance through their employer can obtain coverage — often with federal tax credits and subsidies.