UnitedHealth Group says financial losses on new government-run health insurance exchanges aren't sustainable, and could prompt the nation's largest insurer to withdraw from the new markets in 2017.
The exchanges launched in 2013 under the federal Affordable Care Act, and UnitedHealth said on Thursday that losses on the business mean the company will make less money than anticipated this year.
"We cannot sustain these losses," said Stephen Hemsley, the UnitedHealth Group chief executive, during a conference call with investors. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."
UnitedHealth has been a relatively modest player on the exchanges, and doesn't sell policies on Minnesota's MNsure marketplace. But its soured outlook is significant because the controversial law depends on private insurers competing on the exchanges, 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.
But that scenario isn't playing out nationally for 2016, said Cynthia Cox, a researcher with the Kaiser Family Foundation. Most health insurers haven't dropped out, consumers are finding a similar number of choices and despite double-digit increases in Minnesota, premiums nationally are up modestly.
"Generally, insurers have been on board with the ACA," she said. "So, this is a change in tone."
UnitedHealth Group's negative prognosis on Thursday was a sharp contrast with its relatively rosy outlook just one month ago, when it described growth on exchanges for 11 states next year.
On Thursday, Hemsley said his company's view has grown more pessimistic as the insurer has seen more individuals buying policies, obtaining costly care and dropping coverage. As United sees a spike in claims, growth projections for the exchanges have been lowered.
"These indicators point to an environment that is declining and likely to continue in that direction into next year — and we see no data pointing toward improvement," Hemsley said in a conference call.
"We are evaluating the viability of the insurance exchange product category for us and will determine during the first half of 2016 the extent to which we can continue to serve the public exchange markets in 2017," he said.
Other insurers have pointed to problems in the exchange market, but UnitedHealth Group's commentary is the most negative thus far, said Thomas Carroll, an analyst with Stifel, an investment firm.
The U.S. Department of Health and Human Services, which operates exchanges in more than 30 states, pushed back against the critique.
"The reality is we continue to see more people signing up for health insurance and more issuers entering the [exchanges]," said spokesman Ben Wakana in a statement.
Sabrina Corlette, a research professor at the Center on Health Insurance Reform at Georgetown University, said that while UnitedHealth Group's take doesn't spell doom for exchanges, it points to problems.
"What's becoming very clear is that enrollment needs to grow, and that the risk profile of people signing up for the [exchanges] needs to improve," she said. "There's no question the market is experiencing some volatility right now."
On Thursday, Hemsley said that UnitedHealthcare, the company's division for health insurance products, has pulled back its marketing efforts for individual market products being sold through exchanges for 2016. Currently, UnitedHealth Group has about 550,000 customers through health insurance exchanges in 23 states.
When the exchanges were launched in 2014, UnitedHealth Group offered products in only a few of the marketplaces, but grew the business considerably this year.
The company trimmed its projection for fourth quarter earnings and scaled back its earnings outlook. Its shares dropped 5 percent.
Christopher Snowbeck • 612-673-4744
Twitter: @chrissnowbeck
