UnitedHealth, Co-op Exits Won't Destroy HIX

The collapse of a dozen health insurance co-ops and UnitedHealth's potential withdrawal will not be a major blow to the exchanges because none has been a big player in this market, research suggests.

Don't mourn for online marketplaces yet.

With the recent failure of 12 out of 23 health insurance cooperatives throughout the country and the possible exit of UnitedHealth Group from the Patient Protection and Affordable Care Act-created exchanges, there has been a lot of speculation lately about the future of the online marketplaces.

But a new report from the Urban Institute suggests that the situation may not be as dire as it appears.

Impact of Fewer Plan Options Overstated
Funded by the Robert Wood Johnson Foundation, the report examines 81 of the most populated regions in the country to find which insurers offer the lowest-cost silver plans, which typically have the highest rates of enrollment among marketplace plans.

While the report's authors note general concerns related to HIX plan affordability and network adequacy, they find that the collapse of the co-ops and UnitedHealth's potential withdrawal will not be a major blow because none have been big players in this market.

"In this brief we look at the experience of co-ops and United, and we argue that they have not been major players in many markets and their exits will not be overly disruptive," the report states.

"Further, we provide evidence that health insurance markets are increasingly dominated by competition among Blue Cross-affiliated insurers, managed-care insurers that previously served the Medicaid population but are entering private markets under the ACA… and provider-sponsored insurers. We conclude that recent revelations regarding United and the co-ops are not significant threats to the marketplaces and the ACA in general."

Key report findings include:

• Of the 81 rating regions studied, co-ops are active in more than a quarter of the regions (22) in 2016; while United operates in roughly 60% of the regions (48).
• Co-ops are the lowest- or second-lowest-cost insurer of 14 out of the 81 rating regions studied. United is the lowest- or second-lowest-cost insurer in 15 out of the 81 regions.
• Blue Cross and Medicaid managed care organizations are among the lowest-cost insurers in 34 and 44 of the 81 regions, respectively.

The report indicates that the absence of these health plan offerings on the exchanges will not be a disaster, as many observers have predicted, because other large insurance companies can fill the gap, says Katherine Hempstead, PhD, director of coverage issues at the Robert Wood Johnson Foundation.

"I think the piece makes a nice point that from the standpoint of sheer supply that the failure of some of the co-ops and a potential withdrawal from United is not catastrophic for the marketplace because in some areas, such as New York and other places, United, for example, didn't have a huge market share and is not one of the lower cost plans."

Instead, Hempstead says, the real concern is whether or not this is a bellwether for the future of the marketplaces.

In November, UnitedHealth, the nation's largest insurance company, reported that it had lost $425 million from health plans sold on the exchanges and had scaled back its marketing efforts for these products in 2016 while it reevaluates their viability. In December, UnitedHealth CEO Stephen Helmsley defended the potential move by saying, "We could not sustain the eroding level of losses on our exchange products."

Anthem—despite reporting better-than-expected-profits on Monday—and Humana have also recently expressed similar concerns regarding financial losses from their exchange products.

"Even if United withdraws, there are going to be other suppliers," Hempstead says. "I think the bigger question is whether these are like canaries in the coal mine. What if we have a situation where, ultimately, no one is willing to supply insurance at a price that people are willing to pay for it in these marketplaces? It brings up the questions of the overall stability of the markets."

Major Players Not Likely to Bail
While the co-ops were not able to course correct in time to retain their HIX offerings, many of the big insurance companies are making modifications that will enhance the chance of long-term viability for their exchange products, Hempstead says. 

"I think the co-ops had problems due to unrealistic pricing and inexperience… They tried to have rock-bottom prices in all the markets and their pricing wasn't all that realistic," she says.

"I think there are adjustments being made that are going to make the marketplaces better for the carriers. They are making adjustments to their products to limit their financial exposure. They are making it a lot harder to get a broad network. Out-of-network benefits are becoming a lot less generous. Fewer plans have out-of-network benefits, and those that do are becoming skimpier. So the carriers are not as exposed to high cost run ups from utilization."

Hempstead also thinks it is unlikely that UnitedHealth will follow through on its threat to exit the exchanges. 

"I feel like all the big carriers are going to want to be competitive in all the major markets, and I do think there is growth potential in the consumer markets," she says.

"I think it is a cry for help. [United is] asking the feds for accommodations… Some of the big carriers are saying to the feds that they need to regulate the marketplaces more tightly, otherwise sellers aren't going to be able to be in there, and I think CMS has heard that message and is making appropriate responses… I would be surprised if United pulls out."

UnitedHealth Never Very Committed to HIX
Even if UnitedHealth does ultimately decide to pull out of the exchanges for 2017, it is unlikely to be a death knell for the marketplaces, says Harry Nelson, founder and managing partner at Los Angeles-based law firm Nelson Hardiman, LLP.

Unlike many other large carriers that have invested heavily in the kinds of population health management capabilities required for success when serving low-income populations, UnitedHealth has taken another approach in recent years, Nelson says.

"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," Nelson says.

"I don't see it as a bellwether. Other plans seem to be much more invested, even if this market turns out to be a loss leader, within limits. It would be a much bigger deal to see one of the big invested plans exit, but I think it's way too early for that."