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 the public exchanges established by the reform law. USA TODAY
The nation's largest health insurer warned Thursday that it may pull out of the Obamacare exchanges after 2016 – forcing more than a half million people to find other coverage – after low enrollment and high usage cost the company millions of dollars.
The possible move by UnitedHealth Group raises new questions about the viability of President Obama's signature health law and follows the departure of more than half of the non-profit insurance cooperatives this year. If UnitedHealth drops out, consumers would lose one of the lowest-cost plans available in much of the country, and some wonder how smaller insurers could fill the void. .
“If they can’t make money on the exchanges, it seems it would be hard for anyone,” said Katherine Hempstead, who heads the insurance coverage team at the Robert Wood Johnson Foundation.
UnitedHealth (UNH) downgraded its earnings forecast, bemoaning low growth projections for Obamacare enrollment and blaming the federal health care law for giving individuals too much flexibility to change plans. People who purchase insurance through the public exchanges are typically heavy users of their plans, draining insurers' profits, analysts say.
In a sharp reversal of its previously optimistic projections, UnitedHealth suspended marketing of its Obamacare exchange plans for 2016 — which the company has already committed to offer — to limit its exposure to additional losses.
“We see no data pointing to improvement" in the financial performance of public-exchange plans, UnitedHealth CEO Stephen Hemsley said on a conference call, though he added that "we remain hopeful" the market will recover.
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 for medium-benefit plans offered to 40-year-old non-smokers will 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, down from $6.25 to $6.35, and shares of UnitedHealth stock fell 5.7% to close at $110.63.
Other
health care stocks took a hit, too. Tenet Healthcare (THC)
fell 8%, and HCA Holding (HCA)
dropped 6.9%.
Privately-held Kaiser Permanente said Thursday that it won't abandon the ACA exchanges. Kaiser is both a health care provider and insurer and sells plans on the exchanges for eight states plus Washington, D.C.
"At Kaiser Permanente, we remain strongly committed to continuing to participate in the health exchanges," CEO Bernard Tyson said in an emailed statement. "While there have been challenges at times, we believe at the end of the day they are causing healthy disruption, and are forcing the health care industry to respond better to consumer needs."
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 Hemsley said patients are using their plans more than the company had expected and dropping coverage when they're healthy, slamming profits.
The Obama administration argued that the health care marketplace would stabilize after a normal 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 the exchanges' third year, the number of plans offered "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.
"The reality is we continue to see more people signing up for health insurance and more issuers entering the Marketplaces, and at the end of January, we believe we’ll be looking at another successful open enrollment — just like the last two," Wakana said.
"This year, people looking for coverage in the Marketplace continue to have a robust number of plan choices and as the data shows the Marketplace is stable, vibrant and a growing source of coverage for new consumers," he added. "Today’s statement by one issuer is not indicative of the Marketplace’s strength and viability."
Even though UnitedHealth wasn’t a major player yet on the ACA exchanges, the fact that it priced plans conservatively and entered cautiously made its statements more significant, Hempstead said.
More than half of the 23 non-profit insurance co-ops established under the ACA will shutter by the end of this year, but UnitedHealth is the largest single insurance carrier in the United States. United’s comments about the health of exchange-plan holders also run 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."
An exit could, however, affect prices on the exchanges. For 2016, UnitedHealth sells one of the two lowest-cost silver plans available to more than 40% of the counties in the 38 states that use the federal Healthcare.gov exchange, Levitt said.
The Obama administration’s low predictions for 2016 enrollment may also have "spooked the insurance industry a bit," Levitt said. "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. Insurers’ participation in the exchanges is optional.
USA TODAY reporter Matt Krantz contributed to this story.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.