UnitedHealth Group chief executive Stephen Hemsley said Tuesday his company shouldn’t have expanded so quickly on government-run health insurance exchanges, saying the new marketplaces are costing the insurer money and still need time to develop.
At an investors meeting in New York, Hemsley added more detail on why the nation’s largest insurer has soured on the exchanges, which were launched two years ago under the federal Affordable Care Act.
UnitedHealth Group this year is competing in government-run marketplaces across more than 20 states, after offering exchange products in just a few states during 2014.
Citing a mix of factors from financial losses to worsening prospects for growth, the Minnetonka-based insurer announced two weeks ago that it might drop out of the exchanges for 2017.
“So, who is to blame? You’re looking at him,” Hemsley told investors. “It was, for us, a bad decision.”
UnitedHealth Group, which reported profits of nearly $4.6 billion in the first nine months of this year, said last month the company would not make as much money as expected during the fourth quarter, or in 2016, due to losses in the exchange business.
The prospect of UnitedHealth Group leaving the exchanges is significant because the federal health law depends on private insurers competing in the marketplaces, which aim to help reduce the nation’s uninsured rate by offering generous tax credits.
If insurers don’t compete, consumers would have fewer choices, premiums could jump and the cost of tax credits could grow.
In 2014, the company decided to go slow with the exchanges, Hemsley said, but picked up the pace in order to capture what it saw as a growth opportunity.
“In retrospect, we should have stayed out longer,” he said. “It will take more than a season or two for this market to develop.”
UnitedHealth Group’s pessimism hasn’t been echoed by all other insurers. While other national players like Aetna and Anthem have cited either losses, or smaller than expected profits, they haven’t threatened to retreat from the exchanges.
“We think it’s way too early to call it quits on the ACA and on the exchanges,” said Mark Bertolini, the Aetna chief executive, during a call with investors in October.
“Since the launch of the insurance exchanges, Anthem has offered more than 1,000 new insurance product choices in 14 states across the country — more than any other healthcare insurer,” said Joseph Swedish, the Anthem chief executive, in a November statement.
Even so, UnitedHealth Group is pointing to broader problems with the federal health law, said Robert Laszewski, a health care consultant in Virginia.
Currently, the exchanges lack a sustainable risk pool, Laszewski said, that has a mix of people who use costly medical care and those who don’t.
The big problem, he said, is that many consumers just don’t want to buy the policies, due in part to steep deductibles and limits on the network of doctors and hospitals that subscribers can use.
“What you’ve got to do is create an incentive for people to want to be insured,” Laszewski said. “You either put more in the subsidies, or you change the benefits so people find them attractive.”
But Gary Claxton of the Kaiser Family Foundation argued it’s “way too early” to say the risk pool on the exchanges is unsustainable.
The pool is not as big as some expected, Claxton said, but he doesn’t see evidence of a financial “death spiral” where healthy people don’t buy coverage leaving only those with costly health problems.
Claxton said he didn’t exactly know what’s driving UnitedHealth Group’s commentary, but noted that one of the only ways insurers can limit costs under the health law is to develop “narrow network” health plans that limit choices of doctors and hospitals.
“They may be saying they don’t know how to do narrow networks — without saying it,” he said. “It’s easier to blame the risk pool than to blame yourself.”
UnitedHealth Group does not sell policies on Minnesota’s MNsure exchange.
In some ways, the company’s commentary does not apply to Minnesota, said Jim Schowalter of the Minnesota Council of Health Plans, a trade group for health insurers. Premiums in the individual market are jumping an average of 41 percent next year in Minnesota, but Schowalter said that’s because prices were too low to begin with — and much lower than elsewhere.
But in other ways, the UnitedHealth Group commentary addresses some problems seen here.
Two weeks ago, Hemsley noted that some customers are buying coverage outside of the open enrollment period, using lots of care and then dropping coverage. Anecdotal evidence suggests similar things are happening in Minnesota, Schowalter said, including employer groups encouraging individuals with health problems to buy coverage in the individual market.
“If people only hop on when people need care,” Schowalter said, “everyone else has to pick up the tab.”
During the first half of next year, UnitedHealth Group will make decisions on a market-by-market basis about whether its UnitedHealthcare division for health insurance will keep selling exchange policies.
For 2016, UnitedHealthcare is selling policies on exchanges that cover an additional 11 states, bringing the total to more than 30.
Currently, about 540,000 people buy coverage from UnitedHealth Group through the exchanges.
“Is this a specific UnitedHealthcare problem, or a more fundamental, structural issue with exchange products overall? I think only time will really tell on this one,” Hemsley said on Tuesday. But he added: “Our risk pool for the exchanges is actually better than the market average.”