Start-up Harken Health to exit exchanges in Atlanta, Chicago as part of market shift

Harken Health, the start-up health insurer from UnitedHealthcare, is shifting focus after suffering big losses in the individual market.

The Minnetonka-based health insurer said in a regulatory filing last month that it expects to shed 24,000 of its roughly 33,000 enrollees by dropping out next year from government-run health insurance exchanges in Chicago and Atlanta.

In addition, Harken said it will focus on the employer market, where the health plan covered fewer than 200 people.

Company officials would not grant an interview to discuss their plans, but analysts say several health insurance start-ups have struggled to make the business profitable under the federal Affordable Care Act (ACA).

"So far, most of the start-ups, if not all, have shown net losses," said Deep Banerjee, an analyst with S&P Global Ratings.

UnitedHealthcare launched Harken Health for 2016 with an innovative approach to health insurance. Beyond selling coverage, Harken offered subscribers unlimited access to primary care, with no copays, so long as people sought treatment at one of Harken's health centers.

More than just clinics, the health centers offer sessions with health coaches plus free classes ranging from nutrition and tai chi to yoga.

The shift in focus comes after Harken announced in August that it was abandoning plans for expansion into the South Florida market. In September, the Star Tribune reported that Harken had changed CEOs and received a cash infusion of $60 million from UnitedHealthcare.

"As the company looks toward 2017, it will be focused on bringing the innovative model of pairing health insurance with access to relationship-based care to more employer groups in the markets currently served," Harken said in a regulatory filing.

The health law created government-run exchange websites for all states where individuals can buy coverage. While Harken is leaving the exchanges in Chicago and Atlanta, it will continue to sell to individuals in the off-exchange market in those areas.

The individual market has changed in several ways under the ACA. The health law eliminated preexisting condition exclusions that previously blocked some from buying in the market. It directly promoted competition by funding nonprofit health insurance cooperatives in some states.

The ACA provides tax credits to help people at certain income levels purchase coverage, thereby growing the market. Finally, the exchanges have created a space for newcomers to challenge established players.

The individual market, however, has been a sea of red ink for many health insurers — start-ups and major players alike.

Of the roughly two dozen co-ops created under the health law, most have failed. UnitedHealthcare last year signaled a major retreat from the individual market exchanges due to losses. Other regional and national insurers announced pullbacks, too, even as some carriers seem to be finding success in the new market.

Neither UnitedHealthcare nor Harken Health tried competing on the MNsure exchange in Minnesota, where regulators say the state's individual market was on the brink of collapse this summer due to financial losses.

During the first three quarters of 2016, Harken Health earned $110.5 million in premiums in the individual market while incurring $182.9 million in claims for health care services, according to the insurer's third quarter regulatory filing.

"That's just a big money drain," said Scott Harrington, chairman of the health care management department at the Wharton School at the University of Pennsylvania.

"In many markets, the risk pool has been less healthy and older than what was expected," Harrington said. "That has driven up costs in relation to the premiums that were charged, and there have been a lot of entities — whether start-ups or not — which have lost money and are pulling back."

Funding for health insurance tech start-ups more than doubled between 2014 and 2015 to more than $1.2 billion, according to CB Insights, a New York-based research firm that tracks the venture capital industry. One of the recipients was New York-based Oscar, a start-up health insurer that has made headlines for its fundraising success and millennial-focused marketing.

In November, the Wall Street Journal reported on the insurer's struggles to profit under the ACA, saying part of Oscar's plan for the future involves selling small business coverage in California and New York. Currently, the insurer sells only in the individual market.

Banerjee said he could not comment on exactly what's driving the strategy change at Harken. But he said it makes sense for start-ups to look beyond the individual market, where growth could be limited or eliminated with expected health law changes by Republicans at the federal level.

The small group market makes sense as a nearby target, Banerjee said, since it's not the focus of most publicly traded health insurers.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck