Will it increase health insurance premiums, limit consumer choices, and cause other companies to bolt?
Or is it just a bump in the Obamacare road created by a company that didn’t have a solid business plan?
Those are some of the questions swirling around the announcement this week that the nation’s largest insurer has decided to significantly scale back its participation next year in statewide markets operating under the Affordable Care Act (ACA).
UnitedHealth Group (UHC) officials announced Tuesday that they plan to reduce the firm’s participation in the ACA insurance exchanges in 2017.
On Wednesday, Bloomberg News reported that 22 states had confirmed UHC would leave their exchanges next year. Officials in New York and Nevada told Bloomberg News the insurer will stay in their states.
The company currently participates in exchanges in 34 states, covering 795,000 people. UHC had already announced it would leave the exchanges in Arkansas, Georgia, and Michigan.
What is the effect of UHC’s decision? Depends on whom you ask.
“The marketplace should be judged by the choices it offers consumers, not the decisions of any one issuer. That data shows that the future of the marketplace remains strong,” Ben Wakana, press secretary for the Department of Health and Human Services (HHS), said in an email to Healthline.
Dr. Elaina George, a board certified otolaryngologist and author of the book “Big Medicine: The Cost of Corporate Control and How Doctors and Patients Working Together Can Rebuild a Better System,” has another view.
“This is happening and it’s only going to get worse,” George told Healthline.
Why UnitedHealth is Losing Money
UHC’s prime reason for its decision is basic finances.
Company officials said they expect to suffer a combined $1 billion in losses for this year and last year in those exchanges.
They said the losses are partly due to the higher risk associated with customers on those exchanges. That has resulted in higher-than-expected claims.
A report by the Blue Cross Blue Shield Association concluded that new enrollees in individual health plans in 2014 and 2015 had higher rates of hypertension, coronary artery disease, diabetes, hepatitis C, HIV, and depression than those enrolled before Obamacare was on the books.
Those enrollees, the report added, also received “significantly more medical care,” and used “more medical services across all sites of care.”
UHC Chief Executive Officer Stephen Hemsley said the company couldn’t afford to continue to carry this “financial exposure.”
“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,” Hemsley said in a statement. “We continue to remain an advocate for more stable and sustainable approaches to serving this market and those who rely on it for care.”
George said the ACA market system makes it difficult for insurance companies to be profitable.
She said many of the people who sign up through the ACA have existing health problems. In addition, adults in their 20s are remaining on their parents’ health plans and not signing up for their own coverage.
That gives the insurers a “skewed population” of older and less healthy clients.
“Insurance companies are in the business to make money,” she said. “The way they do that is to have a relatively healthy clientele.”
Kurt Mosley, vice president of strategic alliances at the medical consulting firm Merritt Hawkins, said healthy younger people are also deciding to roll the dice and not sign up for insurance coverage.
The penalties under Obamacare for not enrolling are far less than it costs to pay premiums and the younger folks are betting they won’t need major medical treatment.
This denies insurance companies another pool of potentially healthy clients.
However, Mosley added that UHC’s financial problems in the ACA marketplace could also be blamed on the company itself.
He said the firm got into the market later than other insurers and focused on selling only higher priced “silver plans.”
“They stuck their toe in the water and pulled it out, afraid they were going to get frostbite,” Mosley told Healthline. “They got in late and they got in timidly.”
HHS officials back this view.
In an email to Healthline, they noted that UHC enrolled only about 6 percent of people who signed up for insurance through the state exchanges.
They also said UHC plans were not competitively priced in Michigan, Georgia, and Arkansas.
Impacts on Consumers
No matter who’s to blame, there may be consequences for other insurers as well as consumers, including those who have medical coverage through their employers.
An analysis released this week by the Kaiser Family Foundation examined what would happen to state exchanges if UHC pulled out of all of them.
The analysts said UHC now participates in exchanges in 1,855 counties, representing 59 percent of counties nationwide.
In 536 counties, UHC’s withdrawal would leave enrollees with only one choice of insurer. That would affect 1.1 million marketplace participants.
In another 532 counties, UHC’s exit would leave enrollees with two choices of insurers. That would affect 1.8 million marketplace participants.
The analysts noted that UHC offers few low-premium plans. Therefore, they concluded, a UHC exit this year from the marketplace would have raised benchmark silver plans by only 1 percent.
“The effect of a UHC withdrawal nationally would be modest,” the report stated.
However, both Mosley and George said the reduction in the number of insurers could drive up premiums in the state markets.
They added the pressure from those increases could also push up premiums for health plans offered by employers.
“Less choice and less competition usually result in higher premiums,” said Mosley.
He also said there is a possibility some insurers will try to fill the vacancies created by UHC’s exit.
“They’ll jump in if they think they can make money,” he said.
George, on the other hand, doesn’t see that happening.
She said many insurance companies will be leery of getting into markets out of fear other insurers will exit and they’ll be the last option standing with a bunch of expensive claims on their hands.
“They don’t want to be the one left holding the bag,” she said.
HHS officials see a volatile, yet thriving market emerging.
In their email, they said 39 insurers did leave the marketplace this past year, but 40 others joined it.
They said 12.7 million people signed up in these marketplaces last year and nine out of 10 had a choice of three or more insurers for their 2016 coverage.
They added the number of insurers per state has grown from an average of eight in 2014 to 10 in 2016.
"As with any new market, we expect changes and adjustments in the early years with issuers both entering and exiting states,” said Wakana. “The marketplace is a reliable source of coverage for millions of Americans with a robust number of plan choices.”
Can Anything Be Done?
All the figures and opinions do bring up the question of whether anything should be done to improve the situation.
George is a firm believer in returning to more of a free market system. She feels the ACA is hurting healthcare across the board.
“The plan is set up against doctors and patients,” she said.
Mosley suggested a few alterations as the ACA system adjusts to the ever-changing healthcare landscape.
One change would be raising the penalty on people who don’t have health insurance. Right now an individual is charged $695 per year or 2.5 percent of their annual income, whichever is higher. The fee is paid as part of a person’s federal income tax return.
“Right now, the penalty is not that big a deal,” said Mosley.
He also suggested a “grace period” for insurers when new enrollees sign up. This would phase in their existing and initial claims so insurers aren’t hit with them all at once.
Whatever government officials decide to do, Mosley said the marketplace needs to be healthy for the ACA system to survive.
“The state exchanges are the backbone of Obamacare,” he said.