Hello, Goodbye—Implications of UnitedHealth`s Potentially Quick ACA Exit
During an annual meeting with investors held in late 2015, Stephen Hemsley, Group CEO, UnitedHealth, shared a downgraded earnings forecast stemming from risks and difficulties associated with the Affordable Care Act (ACA) exchanges—challenges that have the largest US insurer contemplating the possibility of bidding the exchanges adieu as of 2017.
“We had been staying optimistic that this market would improve, but ultimately our own experience worsened,” he said. “Broader marketplace indicators were also not showing participant growth or the improved risk balance we had anticipated and that are essential to sustain this as a market.”
It would not be viable to sustain the eroding level of losses on the company’s exchange products, Mr Hemsley added, so action was taken as the company put a cap on its 2016 involvement while determining to what extent, if any, UnitedHealth Group will continue to engage in this product offering.
HINDSIGHT OBSERVATIONS
Is this a problem specific to UnitedHealth Group, or a more fundamental structural issue with the exchange products overall? From Mr Hemsley’s vantage point only time will tell, but he did offer up a glance at UnitedHealth Group’s experiences to date.
“We sold into markets where we were already strong with lean networks, our product content and pricing were at market levels, and our risk pool for the exchanges is actually better than the market average,” he said. “If our product offerings were too broad it was not a significant factor in our loss experience,” he continued. “And then given the large portion of structural exchange costs that come from insurance taxes, exchange fees, and commissions everyone has to have operating costs as low as possible.”
There isn’t one single factor that led to United Health Group’s struggles and financial losses, and because it’s a more complex issue, there likely won’t be any broadly accepted marketplace conclusion for some time, Mr Hemsley added. The decision for UnitedHealth Group to enter into the exchanges was a bad one, he said, taking accountability for sitting out the first year in order to observe, learn, and see how the marketplace experience would develop.
“In retrospect,” he added, “we should have stayed out longer. It will take more than a season or 2 for this market to develop. We saw it as a market in the early stages of formation that needed to be served, and we were attracted and did not want to miss the growth potential. We did not believe it would form this slowly, be this porous, or become this severe.”
While UnitedHealth Group has pulled back aggressively this year, a final decision has not yet been made for 2017. That call will need to be made in the first half of 2016, and it will be a product-by-product, market-by-market determination. “We will not knowingly lose money on this product line in 2017,” he added.
EXIT IMPACT
If UnitedHealth Group or any other single carrier does wind up leaving the exchange that alone won’t likely make any sort of major impact, noted Kathy Hempstead, director of coverage, The Robert Wood Johnson Foundation (RWJF), but it is worth paying attention to in terms of the bigger picture.
“United is not a huge share of the non-group market,” she explained. “It’s never been a huge focus for them. That being said, the experiences that United is having and has reported having, are probably similar to the experiences other carriers are having, too. I think the carriers are more similar than dissimilar. If it’s a really unfavorable environment for United, other carriers may also find that it’s an unfavorable environment, and that’s not good for the market.”
“I personally think that insurers, including United, would like to see a direct to consumer market be successful and work,” Ms Hempstead said, “and part of what I think is going on is some airing of things that they feel would make the market work better.”
She pointed to a UnitedHealth Group spinoff called Harken Health to illustrate that there seems to remain interest in the market. The small company was started by UnitedHealth Group employees, Ms Hempstead said, and it just started selling plans in 2016 in Cook County, IL, and Atlanta, GA, with a very different kind of approach to the customer experience and the way it’s designing the cost sharing and benefits.
“A lot of people think that selling health insurance directly to consumers is going to be a bigger deal in the future than it is right now, whether that’s in the context of Express Scripts or on the public exchange,” she added. “I think that United is frustrated but obviously still interested in this market.”
DIFFERING PERSPECTIVES
UnitedHealth Group’s announcement has raised plenty of questions and concerns about the feasibility of the insurance exchanges overall, but it has also prompted several competitors to step forth and reassert their own dedication to the Marketplace.
“We are pleased to see comments from health insurance companies like Aetna, Anthem, Kaiser Permanente, Molina, and Centene reiterating that they remain committed to their current Marketplace participation,” noted Aaron Albright, director of media relations group with the Centers for Medicare & Medicaid Services (CMS). “This is further indication that statements from one issuer are not reflective of the Marketplace’s overall strength going forward.”
“The future of the Marketplace is strong,” Mr Albright added. “It continues to grow, giving more Americans access to quality, affordable health care, and consumers are benefiting from increased choice and competition.”
In a post dated November 19, Robert Laszewski, president, Health Policy and Strategy Associates, painted a much different picture, however, asserting on his Health Policy and Marketplace Review blog that the ACA insurance company business model does not work, pointing to UnitedHealth Group’s announcement as the latest indicator.
A number of other large publicly traded insurers have noted problems with their exchange business in terms of their third-quarter earnings. Enrollment is less than expected for Anthem Insurance Companies, Inc even though the company is making a profit, Mr Laszewski noted, and Aetna Inc expects to lose money on its exchange business this year. Humana and Cigna have also highlighted challenges.
He also reminded of the insolvencies of 12 of the 23 original ACA co-op insurance companies, stating that almost all of the remaining survivors are losing big. According to Mr Laszewski, this is happening because “nowhere near enough
healthy people are signing up to pay for the sick.” To illustrate, he pointed to a 2015 policy brief by the RWJF and The Urban Institute (UI) regarding the ACA insurance exchange enrollment. According to that report, just over 24 million people were eligible for tax credits for health coverage purchased through the ACA’s health insurance Marketplaces in 2015. As of the beginning of March 2015, 10 million of those eligible for tax credits had selected marketplace plans, representing a selection rate of 41%. By the end of June 2015, 8.6 million had actually enrolled in Marketplace coverage with tax credits, representing an enrollment rate of 35%.
If the Obama administration hits the 10 million that they are estimating will sign-up during the current open enrollment period, based upon the historic number that are subsidy eligible they will have less than 9 million of the 24 million that the RWJF and UI estimated are in the potential exchange subsidy market, explained Mr Laszewski, and a 38% success rate is nowhere near where they will have to be to make these risk pools sustainable for the insurance companies.
POSSIBLE SOLUTIONS
So how can the risk pool be improved? One possibility is to try to bring in people from other markets, explained Ms Hempstead. For example, uniting the small group and the non-group markets could be something that improves the risk pool over the long haul.
Then there are those who are eligible but not enrolling in the non-group market even though they are currently uninsured. “If you look at the data, I think you would find that many of those people would be better risks and would improve the risk pool if they entered,” she added.
“There is a big drop off in the take-up rate above 300% of the poverty level,” Ms Hempstead said. “If the subsidies were more generous and if those products were more affordable for those people, take-up would be better, the risk pool would be better, the carriers would be happier, and everything would be working a lot better.”
Another point of view is that the benefits are too comprehensive, Ms Hempstead said. People are potentially being required to pay for more coverage than they actually want, so attempts to skinny up that coverage could help.
It will also be interesting to see just how much the mandates nudge some of the more reluctant people off the sidelines and into the market this year, she added, referring to the individual shared responsibility payment that will be imposed on those who can afford health insurance but choose not to purchase it.
Part of the solution may also be time and the process of enduring a couple of tough years while allowing the marketplace to organically improve. “As the risk pool gets incrementally better and better, more people will enter, the products will be better priced, and success will build on success,” Ms Hempstead said. “It’s like a campfire that gets a little oxygen and can sort of catch on.”
“Now people are a year older and wiser and they have some new products,” she added. “Let’s play the game again and see how it goes. Hopefully we can find the right combination of subsidy, regulation, and risk so that this is a market that works for the buyer and seller because I think that’s what people really want."
