ACA Exchanges Getting Even Worse for UnitedHealth

By Christopher Snowbeck

July 19--New government-run health exchanges became an even bigger source of losses in the second quarter for Minnetonka-based UnitedHealth Group.

The nation's largest health insurer said Tuesday that it saw higher medical costs once again on the exchanges, prompting the insurer to increase projected losses for the year by $200 million.

UnitedHealth already expected to lose $650 million on the business, where the insurer currently sells health plans to individuals and families through exchanges in 34 states.

The online marketplaces were launched under the federal Affordable Care Act, and United previously announced a major pullback.

"That effort is on track -- and we do not expect any meaningful financial exposure on 2017 business from the three or fewer exchange markets where we currently plan to remain," said Stephen Hemsley, the UnitedHealth Group chief executive, during a call with investors on Tuesday.

Despite the exchange business, United saw its profit jump during the second quarter to $1.76 billion profit, up 11 percent from $1.59 billion a year ago.

Adjusted earnings per share came in at $1.96, well above analysts' projections of $1.89 per share. The company increased the low end of its earnings guidance for the rest of the year.

A growing number of health insurers have reported losses on the exchanges due to surprisingly high medical costs. No national insurer has announced as broad a pullback, however, as UnitedHealth Group.

The company has never sold on Minnesota's MNsure exchange, but Eagan-based Blue Cross and Blue Shield of Minnesota announced last month that it will pull many products from MNsure and the broader individual market due to losses, as well. Blue Cross says it will continue to sell to individuals and families HMO products that include smaller networks of doctors and hospitals.

During the second quarter, about one-third of the additional exchange losses at United HealthGroup stemmed from a higher volume of customers, said Dan Schumacher, the chief financial officer at UnitedHealthcare, the company's health benefits business. United expected there would be greater attrition during the quarter, Schumacher said, and fewer new customers.

Instead, United had about 820,000 people in exchange products at the end of the second quarter, up by about 25,000 people from the end of the first quarter.

The bigger driver of losses in the quarter was high use of medical care.

"The reality is the severity of chronic conditions inside the population actually increased on a year-over-year basis," Schumacher said. "If you look at the prevalence of chronic disease, things like HIV and hepatitis C, diabetes, COPD, those are examples of things where the prevalence was high to begin with in 2015, and that has increased into 2016."

The earnings release was the latest of several public messages from United on the troubled financial health of the exchange business.

In late 2015, the insurer said there was evidence that many people with costly health problems signing up for coverage during special enrollment periods, as opposed to the annual open enrollment period. In the wake of the commentary from United and other insurers, the federal government tightened some rules about who can buy coverage during special enrollment periods.

Last month, United sued a dialysis clinic operator suggesting that money through a nonprofit was wrongly steering kidney disease patients from Medicaid health plans into United's policies for individuals and families.

The company also has cited as a problem the lack of growth in the exchange markets. The negative commentary has contrasted with messages from some other health insurers that have posted profits on the exchanges, or announced plans for growth.

Twitter: @chrissnowbeck

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