UnitedHealth Group Inc (NYSE: UNH) recently said that the Affordable Care Act is responsible for the firm’s major losses and threatened to leave the exchange if it continues as is.
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Leaders of UnitedHealth had just said last month that they expected the exchanges to mature into a strong growth market. Aetna and Anthem had referred back to earlier comments when asked on Thursday about UnitedHealth’s commentary.
Stephen Hemsley, UnitedHealth chief executive officer, said too many healthy people dropped coverage and noted slower than expected enrollment. UnitedHealth, which today cut its 2015 profit forecast, didn’t incorporate payments from the program into its 2015 and 2016 forecast.
“I think there are a few problems here with finding a sweet spot in where we can make a product that’s affordable for people, and also a product that carriers are able to sell and not able to lose their shirts, frankly”, she said. He lamented that cooperatives have failed and the market data has signaled higher risks and more difficulties while their own claims experience has deteriorated, leading to them taking this proactive step.
The exchanges offer insurance plans to Americans who don’t have coverage through their employer. In October, the U.S. Department of Health and Human Services forecast about 10 million people would have plans in 2016, significantly below industry expectations of 20 million.
Anthem is the second-largest payer on the exchanges, and its shares rose 1.8 percent to $130.15 after falling 9 percent Thursday, according to Reuters.
The Blue Cross-Blue Shield insurer Anthem Inc. also told analysts that it was well positioned for growth in that market once it stabilizes.
In a Securities and Exchange Commission filing Friday, insurance giant Aetna (AET) confirmed that it expects to meet its full-year operating earnings targets, suggesting that the company is not absorbing the kinds of losses that UnitedHealth blamed for its reconsideration of Obamacare. In addition, this announcement was said to be more important for what it implies about the ability of even well-established insurance companies to thrive in marketplaces.
At the same time, UnitedHealth’s concerns may be a “bellwether” that “clearly indicates the commercial environment is less hospitable than it has been in the past”, he said.
UnitedHealth said it will suspend marketing ACA plans to potential customers for 2016, but has already committed to offering coverage for the year. “That said, I would really be surprised if United wanted to exit this market”.
This caused speculation that UnitedHealth’s announcement was at least partially created to put pressure on the federal government to make promised reimbursements to offset losses incurred by qualified insurers in participating in the exchanges.
Addressing one of the regulatory issues late Thursday, the Obama administration reiterated its reinsurance commitments that were supposed to help offset plan losses on high-cost patients for first three years of the Obamacare rollout. However, five years later with enrollment numbers steadily increasing and heated debates over the law dying down, Obamacare is still under threat as several factors continue to weigh on the new healthcare system’s future success. It now expects earnings of about $6 per share.
Economist Len Nichols cautioned, however, that most of the law’s benefit requirements – taken individually – add little to the cost of a plan.
UnitedHealth said the rest of its business continued to perform in line with its expectations.
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Insurance premiums on the exchanges have been rising substantially, making them less affordable for those who do not qualify for federal subsidies for their health insurance.
