Leading insurance company UnitedHealth said on Thursday that it expects to take big losses on its Obamacare health plans, and it’s pulling back on marketing 2016 plans. Low enrollment and high usage cost are among the factors behind the insurer’s warning.
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UnitedHealth’s announcement that it is revising its earnings outlook to account for losses in the individual market sent shockwaves through the industry and raised new questions about the viability of Affordable Care Act exchanges.
The announcements came the day after UnitedHealth cut its earnings forecast and said it might exit the ACA exchanges in 2017.
Individuals who are now employed, filing taxes in 2016, without health insurance, a resident of Pennsylvania, and not offered employer-based health insurance may be eligible for low-priced health insurance through the marketplace.
“We believe UnitedHealth’s commentary that it would only participate in this market in 2017 if it expected to at least break even for the year is indicative of the mindset of many insurers”, Costa said.
The company’s CEO, Stephen Hemsley, said that it could not sustain the losses suffered due to the Government’s Medicare program.
Not all companies may be jumping ship – USA Today reported that privately-held Kaiser Permanente won’t abandon the exchanges and remains ‘strongly committed, ‘ as CEO Bernard Tyson said in a statement.
The Obama Administration is defending enrollment, saying so far that 1.1 million people have a signed up for coverage in the first two weeks of enrollment which they say is a faster pace than a year ago.
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. It now expects earnings of about $6 per share.
Shares of Aetna Inc. climbed 4 percent, or $4.06 to $104.01 in midday trading Friday, while Anthem Inc. stock was up more than 2 percent, or $2.83, to $130.67.
Analysts have said that companies like Molina, which focus largely on Medicaid, may have advantages that are helping them do better in the exchange environment. For many insurers, the balance between healthy and unhealthy customers has been tipped out of their favor, forcing them to raise their premiums to cover the cost of care. Chief Executive Mario Molina said the company wasn’t seeing the issues UnitedHealth flagged. The plans that meet Obamacare requirements are created to be everything to everyone, but they have turned out to be what relatively few people actually want.
They say patients can get stuck with large bills if, for instance, they seek care at a hospital that is part of their insurer’s network and are treated while there by a doctor who is not in the network.
“I think a lot of the commercial plans went into this very aggressively in the first year and have been backpedaling a little bit”, Molina said, noting that while his company’s exchange market share is smaller than the larger carriers, their plans have been profitable.
The Blue Cross-Blue Shield insurer Anthem Inc. also told analysts that it was well positioned for growth in that market once it stabilizes.
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Insurers may start attracting more healthy customers to their exchange business in the coming years because a penalty that the overhaul imposes on those who remain uninsured will grow, Lekraj said. “With an average of 10 issuers per state, up from nine last year and eight the year before, statements from any one insurer are not a sign of any trend”.
