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UnitedHealth's exit won't kill ACA exchanges

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Although UnitedHealth Group Inc.'s withdrawal from public health insurance exchanges in all but a “handful” of states will reduce competition, its exit doesn't spell doom for the future of the Affordable Care Act exchanges.

UnitedHealth said last week that it will exit nearly all of the 34 states where it sold coverage on health insurance exchanges this year amid slow enrollment growth and an unhealthy population that have dented its profit. It said it expects to lose $650 million this year on exchange business, on top of $475 million it lost last year.

The Minnetonka, Minnesota-based insurer will bow out of 2017 exchange offerings that include Arkansas, Connecticut, Georgia, Louisiana, Michigan, Oklahoma and Tennessee.

UnitedHealth will, however, sell plans on exchanges that include Nevada and Virginia next year, the states' insurance departments confirmed.

Limited impact

Even before UnitedHealth's announcement, a Kaiser Family Foundation analysis said the exit of the nation's largest health insurer is unlikely to make waves nationwide, and analysts agreed with that conclusion.

UnitedHealth's departure “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 Corp. in New York.

According to the Kaiser analysis, if UnitedHealth withdrew completely and no insurer replaced it, there would be a “modest” effect on exchange premiums. That is because enrollees tend to sign up for the lowest-cost plans and UnitedHealth's pricing is not the cheapest in most markets.

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

Still, in 29% of counties where United sells exchange plans, its exit would leave behind just one insurer and affect 1.1 million people — primarily in Southern states and rural areas.

“Where competition diminishes in certain areas, that could have a long-term impact, but that's more difficult to quantify,” said Cynthia Cox, Washington-based associate director of health reform and private insurance at Kaiser. “Markets are still able to function” even “in areas that have only one insurer.”

Though most insurers are losing money on the public exchanges, many have said they will stay put.

“We believe that the market offers a potential longer-term opportunity for profitable growth,” a Cigna Corp. spokesman said in an email, adding that the Bloomfield, Connecticut-based insurer plans to expand beyond its current seven states next year.

Anthem Inc. and Aetna Inc. also said they remain committed, though it's unclear if the insurers will expand into new markets.

State-by-state effect

Analysts said UnitedHealth's exit from multiple exchange markets 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's also going to vary based on how competitive United was in that state.”

Most observers expect health insurance premiums to increase next year as health insurers adjust their pricing to respond to the high-risk exchange enrollees.

However, “I don't think the withdrawal of the United alone would have those effects” because of its small exchange market share, said insurance lawyer Kevin Fitzgerald, a partner at law firm Foley & Lardner L.L.P. in Milwaukee.

Still, he said the “inadequate pricing across the board” and sicker exchange population mean rates will go up as insurers try to “recover losses.”

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 last week that Leerink does not “expect mass exodus from the exchanges by other plans” as insurers, such as Aetna and Anthem, are busy closing mergers and have more revenue tied to the individual health insurance market.

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

The Department of Health and Human Services, which oversees the health care reform law and the public exchanges established under the law, said it expects insurers to enter and exit the exchange market.

“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. “Data shows that the future of the marketplace remains strong.”