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UnitedHealth public exchange losses fuel secession rumblings

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UnitedHealth Group Inc., which has threatened to exit the public health insurance exchange business, recorded a $475 million loss from policies sold on the exchanges in 2015, more than $300 million greater than the losses the insurer projected just two months before.

But despite the significant hit to United's earnings and more losses expected for 2016, many insurance experts — and United's rival health insurers — still see promise in the exchange business.

Minnetonka, Minnesota-based United on Tuesday reported losses of $720 million on the public exchange, including $245 million set aside for 2016 losses.

In November, United said it expected losses of $425 million from the exchanges for 2015, including $275 million “related to the advance recognition of 2016 losses.”

Even so, while net income for the fourth quarter fell 17.2% from the prior year, United netted $1.25 billion for the quarter, partially aided by gains in the insurer's Optum Inc. health care services subsidiary.

Citing weak 2015 enrollment in the exchanges' policies and high medical costs from those who did enroll, United is mulling a complete exit from the exchanges by 2017 — a move that has observers questioning the future of the public health exchanges altogether.

But industry experts say that for a giant and diversified company like United, the losses are a drop in the bucket.

“United is a huge health insurer, and the exchanges remain a relatively small market, so there are very few insurers in which the exchange is going to be make or break for their whole book of business,” said Caroline Pearson, Ann Arbor, Michigan-based senior vice president and health reform practice leader at health care consultant Avalere Health.

Health care co-ops are an exception, she said, and 12 of the 23 established by the Affordable Care Act have closed their doors.

It's also important to note that because United began selling policies on the public exchanges a year later than most insurers, they've had “fewer medical claims on which to base their premiums,” and so may have underpriced their plans, she said.

“I do not think we're seeing the beginning of the fall of the market,” Ms. Pearson said. “We are seeing a correction that may cause rates to go up to cover the costs.”

According to Neal Freedman, New York-based insurance industry analyst with Standard and Poor's Corp., United is less affected by the losses due to its “massive revenue base because of the diversity of products and because of the things that Optum (Inc.)'s doing.”

Indeed, United posted revenues for the full year of $157.11 billion.

A Blue Cross Blue Shield Association regional insurer would be more affected by the exchanges' weak enrollment in 2015 and costly population because a greater percentage of their book of business would come from the exchanges, according to an S&P article published Dec. 14 that Mr. Freedman co-authored.

Other players committed

United could also be using its size and voice for political leverage to influence changes to the exchange market.

“They are kind of, at least for a while, the marquis provider,” Mr. Freedman said, adding that United knows it wields influence.

While United has been vocal about its exchange losses, other insurers remain committed.

On Jan. 12 at the J.P. Morgan Healthcare Conference in San Francisco, Aetna Inc. CEO Mark Bertolini said it is “too early to give up on this process,” and that the losses are “not breaking the bank,” Reuters reported.

Anthem Inc. President and CEO Joseph Swedish said in a Nov. 20 statement that the insurer remains committed to “continuing our dialogue with policymakers and regulators regarding how we can improve the stability of the individual market.”

The future of the exchanges rests on whether the insurers can adapt to the market, experts say, and it could take longer than expected.

“Any insurance market can be profitable,” Ms. Pearson said. “It's just about needing to price the products correctly to cover expenses.”