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Will UnitedHealth's exit lead exodus from public exchanges?

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UnitedHealth Group Inc.'s withdrawal from public health insurance exchanges in all but a “handful” of states is unlikely to jeopardize the future of the Affordable Care Act exchanges.

A latecomer to the exchange game, UnitedHealth sold plans on exchanges in only four states in 2014 — the first year of the exchanges — before expanding to 23 states in 2015 and 11 more this year.

But during its first-quarter earnings conference call Tuesday with analysts, UnitedHealth said it will quit most states' public health exchanges effective next year amid slow enrollment growth and an unhealthy exchange population that continues to dent the insurer's profit.

UnitedHealth said it expects to lose $650 million on exchange business this year, up from a previous estimate of $525 million.

The Minnetonka, Minnesota-based insurer is bowing out of exchanges in Arkansas, Georgia, Louisiana, Michigan and Oklahoma for the 2017 plan year, a UnitedHealth spokesman confirmed this week.

The United Health spokesman declined to elaborate on other states UnitedHealth would exit. A spokeswoman for the Connecticut Department of Insurance confirmed Wednesday that UnitedHealth would also be leaving the state's exchange.

This year, UnitedHealth sold health coverage through exchanges in 34 states, the most of any health insurer.

Still, even before UnitedHealth's announcement, a Kaiser Family Foundation analysis released Monday said the departure of the nation's largest health insurer is unlikely to make waves nationwide.

Analysts agreed.

UnitedHealth's exit “is going to have an impact here and there,” but it doesn't have a big enough “presence” in each market to drive premiums up everywhere, said James Sung, associate director and insurance credit analyst at Standard & Poor's Financial Services L.L.C. in New York.

According to the Kaiser analysis, if UnitedHealth completely withdrew from the exchanges for 2017 and no insurer replaced it, the effect on premiums nationally would be “modest,” as UnitedHealth does not offer the lowest cost exchange plan in most markets and enrollees tend to sign up for the lowest-cost plans.

UnitedHealth offers the lowest or second-lowest cost silver plan in 35% of the counties where it participated this year, representing about 16% of enrollees overall, according to Kaiser.

The national average monthly premium for the silver plans this year would have been only 1% higher without UnitedHealth, the analysis showed.

Still, a UnitedHealth exit from the exchanges “could be significant in some markets, particularly in rural areas and southern states” where there's less competition among insurers, the analysis states.

Its exit would have the largest effect on premiums in Alabama, Arizona, Iowa, Nebraska and North Carolina, according to the Kaiser analysis.

Analysts agreed that UnitedHealth's move would have varying effects.

“It's going to be hard to make a nationwide blanket statement that this is going to have 'X' impact on premiums,” said Chris Sloan, Washington-based senior manager at consultant Avalere Health. “It's going to vary state to state and vary a lot based on what other competitors there are in the market. It' also going to vary based on how competitive United was in that state.”

Most health insurers have endured exchange business losses, but observers don't expect other major exchange players to follow in UnitedHealth's footsteps and drop out.

Though insurers could evaluate exchange participation on a “market-by-market and product-by-product” basis, Mr. Sung said he doesn't expect others to respond as dramatically as UnitedHealth.

Ana Gupte, New York-based managing director and senior research analyst at Leerink Partners L.L.C., said in a report Wednesday that Leerink does not “expect mass exodus from the exchanges by other plans” as other insurers, such as Aetna Inc. and Anthem Inc., are busy closing mergers and have more revenue tied to the individual health insurance market.

Still, Mr. Sloan said, “It wouldn't surprise me to see other insurers pull out of some states.”

The Department of Health and Human Services says public exchanges are a growing business for insurers and provide a product consumers need.

“The marketplace should be judged by the choices it offers consumers, not the decisions of any one issuer,” an HHS spokesman said in an email. “That data shows that the future of the marketplace remains strong.”