Observers are downplaying UnitedHealth's departure from the health insurance exchange market, saying the insurer has never been as heavily invested there as other large payers. But a health economist says "the math doesn't make sense," and suggests others will follow.
News this week that UnitedHealth is withdrawing from Kentucky's Obamacare marketplace came as no surprise.
Speculation that UnitedHealth, the nation's largest insurance company, might quit the health insurance exchange market started last November when UnitedHealth Group CEO said the company was reevaluating the long-term viability of its public exchange products.
On an earnings call last week, UnitedHealth Group CEO Stephen J. Hemsley announced that the insurance giant will pull out of most health insurance exchange markets for 2017 despite "strong revenue gains" across the enterprise that brought its first quarter 2016 revenues to $44.5 billion.
At that time, the company reported it had lost $425 million from health plans sold on the exchanges and said it was reconsidering its HIX strategy.
Next year, the insurer will quit at least 26 states.
In December, Hemsley defended the potential move by saying, "We could not sustain the eroding level of losses on our exchange products."
HIX Departure Comes Amid Revenue Growth
UnitedHealth's Q1 earnings grew 17% year over year to $1.81 per share, Hemsley reported on the call. Yet, the insurer has reached the decision to discontinue its PPACA exchange offerings in most states, he said.
"As you know, we have been evaluating public exchanges on a state-by-state basis. We have maintained our regular public dialog with you since November about the individual exchange market and how our own experience and performance have been unfavorable in these markets," he said.
"The smaller overall market size and shorter-term higher risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustained basis. Next year we will remain in only a handful of states, and we will not carry financial exposure from exchanges into 2017. We continue to remain an advocate for more stable and sustainable approaches to serving this market and those who rely on it for care."
Some Industry Observers Downplay Impact
While this news is not shocking, it has caused a flurry of discussion among industry analysts about what it means for the future of the public exchanges.
The day before the earnings call, Kaiser Family Foundation released an analysis of the impact on various markets, which concluded that 29% of counties where UnitedHealth participates will be left with only one insurer offering exchange products. Additionally, another 29% of counties will now have two exchange insurers. Rural areas and southern states are likely to be hit the hardest.
The analysis doesn't initially sound like good news, but it goes on to say that the overall impact will be limited because UnitedHealth has not generally offered low-cost premiums and only represents 16% of all Marketplace enrollees. "As a result, the effect of a United withdrawal nationally would be modest," the report states.
Other industry onlookers have also downplayed UnitedHealth's HIX departure, saying the insurer has never been as invested in the public exchanges as other big players, such as Blue Cross Blue Shield, Anthem, and Aetna.
Unlike many other large carriers that have invested heavily in the kinds of population health management capabilities required for success in the public exchange arena, UnitedHealth has focused instead on other business lines, including its Optum division, which offers consulting services, population health and IT services, and pharmacy benefit management services.
"United, among all of the national payers, has pursued a different strategy from the start and was the least invested of the big plans in the exchange population and the least willing to take risk. I don't see it as a bellwether," says Harry Nelson, founder and managing partner at Los Angeles-based law firm Nelson Hardiman, LLP.
Not surprisingly, the Department of Health and Human Services also issued a statement minimizing the significance of UnitedHealth's decision.
"We have full confidence, based on data, that the marketplaces will continue to thrive for years ahead. The number of issuers per state has grown year-over-year," HHS spokesman Benjamin Wakana said in a statement. "The marketplace should be judged by the choices it offers consumers, not the decisions of any one issuer."
Others Say It's a Death Knell
But other observers believe UnitedHealth's withdrawal bodes ill for the future of the marketplaces.
"When a big player like United says they can't make it, there is a very simple reason. Insurance is all about pricing risk appropriately. The ACA has constrained the ability of insurers to price risk accurately," says R. Lawrence Van Horn, associate professor of management and executive director of health affairs at the Owen Graduate School of Management at Vanderbilt University in Nashville.
"That is a central tenet of being successful. It's not at all surprising to see that insurers are going to exit the market."
Because ACA regulations dictate that the highest risk health plan member can be charged no one more than 4.5 times for premiums as compared to the lowest risk health plan member, the economics are untenable, Van Horn says.
"The reality is that if you compare a strapping 22-year-old young man who is the model of fitness and health to a 64-year-old man who is morbidly obese, has comorbidities, and is diabetic, the expected cost difference is a lot more than 4.5 times," he says.
"But by law, insurers can't charge one person more than 4.5 times another. If insurers have to make enough money to cover a sick person, then they have to charge premiums that are really high to a healthy person."
Van Horn says he expects to see other big players exit the health insurance exchanges unless significant changes are implemented by the federal government.
"The math doesn't make sense. You can only ignore the economics and the math for so long. For the public exchanges to exist, there have to be fundamental changes to the mathematical underpinnings upon which they are predicated," he says. "Unless we do that, they won't continue to exist. You can't charge people unfair prices for products and expect them to buy them."
Rene Letourneau is a contributing writer at HealthLeaders Media.