UnitedHealth Group on Thursday said it expects to lose up to US$500 million next year from its participation in exchanges providing insurance under the Affordable Care Act, known as Obamacare.
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Premiums charged on the exchanges by insurers were initially set without real-world insight into how much healthcare Obamacare members would demand, and results at Aetna and Anthem could suggest that while those markets remain a drag on profitability, experience from participating more widely than UnitedHealth Group in the first open enrollment may have allowed it to price its products more appropriately than UnitedHealth Group this year.
“We can not sustain these losses”. The health insurer will lower its earnings-per-share outlook to $6 per share, down from its earlier forecast of $6.25 to $6.35 per share.
The company’s total 2015 earnings-per-share forecast was lowered to $6, down from as high as $6.35 previously.
A survey by HealthPocket.com found that the majority of Americans consider premiums of $100 or less to be affordable, but Obamacare plans typically exceed that figure, something that many believe is contributing to the number of people who choose to forego insurance and instead pay penalty fees. “And that’s something that still needs to be worked out”.
After their shares took hits Thursday from the UnitedHealth comments, other major insurers in the ACA marketplaces reported that they were generally satisfied with the business.
The health insurance stocks rallied Friday. UnitedHealth employs about 4,400 in the Hartford area. Cigna has not said how many customers it has on the exchanges. It has about 4,200 local workers.
Aetna and Anthem said their individual insurance businesses, which include the plans created by President Barack Obama’s national healthcare reform law, had performed in line with projections through October. And Aetna Chief Financial Officer Shawn Guertin told investors last week that the company’s Obamacare plans were unprofitable in 2015.
Leerink analyst Ana Gupte noted United’s peers are also finding it challenging to be profitable on the exchanges, but they have priced plans more conservatively, and already incorporated that into their guidance. CI also lost 6.5%, 6.9% and 7.3%, respectively, reflecting the same concerns.
Shares of all three tumbled Thursday after UnitedHealth’s announcement.
“Well, if United can’t figure out how to make money in this market, it’s hard to think any other carrier is going to be different”, she said. “At the end of the day, you have to have people willing to sell insurance”.
From technology glitches to embroiled battles in Congress, the Affordable Care Act has been put through the ringer since its inception. One reason insurers have faced losses is because those who have bought insurance during the exchanges’ infancies tend to be sicker and thus more expensive. “It’s not as strong as had been originally expected”.
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U.S. Department of Health & Human Services press secretary Ben Wakana said in an email that a “statement by one issuer is not indicative of the marketplace’s strength and viability”. Those lower-premium plans that Obama described as worthless because they didn’t pay out anything were no worse than the plans that replaced them and don’t pay out anything until a consumer has racked up $2,000 or more in medical bills.
