One of the nation’s largest insurers said Tuesday that it will drastically cut its involvement in Obamacare’s exchanges next year, while analysts expect other insurers to hike their rates to cover mounting losses from taking part in the health care law.
UnitedHealth Group CEO Stephen J. Hemsley said a sicker-than-expected customer base pushed them to lose $1 billion in 2015 and 2016, and they will cut their participation from 34 states this year to just a “handful” next year.
“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,” Mr. Hemsley said during a first-quarter earnings call. “Next year, we will remain in only a handful of states, and we will not carry financial exposure from exchanges into 2017.”
The company issued repeated warnings about its participation, but other insurers, while bemoaning losses, said they would stick with the exchanges, for now.
“We do not expect UnitedHealth’s actions to prompt mass departures from other exchange participants,” financial forecasters at Washington Analysis LLC said Tuesday. “Rather, each insurer will continue to decide on a state-by-state basis the types of plans they will offer, the number of counties, and even whether to play at all.”
Cigna, in company statement Tuesday, said it plans to retain its footprint in seven states and “selectively expand” into other areas in 2017.
The company said it expects to turn a profit in the long run, once it figures out ways to cut costs by collaborating with doctors in accountable care organizations, which allows partners to share in savings if they deliver quality care.
Another large insurer, Aetna declined to comment on its participation ahead of its own earnings statement this week, though in February, CEO Mark Bertolini told investors he planned to work constructively with the administration and Congress to put the law on a “more sustainable path.”
The Affordable Care Act ushered in a series of changes to the individual market. Most notably, insurers could no longer seek out profits by denying sicker customers. The law forced nearly all Americans to buy coverage, balancing out the insurers’ risk, though fines for flouting the “individual mandate” didn’t inflict much pain in Obamacare’s early rounds.
As a result, analysts expect many insurers to increase their premiums in 2017 to cover higher-than-anticipated medical costs, while hoping the market stabilizes in the coming years.
“United already had high-priced products in many markets, so they do not have room to increase rates,” said Caroline Pearson, a senior vice president at Avalere Health, a Washington-based consultancy. “Other companies may have tighter networks and broader enrollment that enables them to be more competitive.”
UnitedHealth is a relatively small player in the marketplace, accounting for 6 percent of Obamacare customers overall, or roughly 795,000 out of about 13 million enrollees.
It may have contributed to its own predicament, analysts said. It took a cautious approach to the exchanges, offering plans in just four states in 2014, 23 states in 2015 and 34 this year, according to an analysis by the Kaiser Family Foundation.
“The fact that United effectively sat out in 2014 put them in a real disadvantage in pricing,” Ms. Pearson said.
Because claims data for the exchange market is not publicly available, she said, the company’s wait-and-see approach left it with no meaningful information for pricing in 2015 and 2016.
Self-inflicted or not, UnitedHealth’s decision to withdraw is fueling Republican attacks on Obamacare, as powerful lawmakers draft a long-awaited replacement plan in a pivotal election year.
“The clock is ticking on this insurance death spiral, where companies are either going to have to pull out of the marketplace or raise their prices significantly,” said Sen. John Barrasso, Wyoming Republican.
The Health and Human Services Department has downplayed the importance of 2017 rate requests that insurers will file with state regulators over the next few months, saying they are not reliable indicators of what people will pay after state regulators rein in rates and shoppers qualify for government subsidies that defray monthly bills.
They also say the Obamacare marketplace is dynamic, and that insurers will both exit and enter the exchanges.
“With millions of Americans insured through the marketplaces, it’s clear that this is a growing business for insurers, and it’s a product consumers want and need,” HHS spokesman Benjamin Wakana said. “The marketplace should be judged by the choices it offers consumers, not the decisions of any one issuer.