(Bloomberg) — The biggest U.S. health insurer is considering pulling out of the Affordable Care Act as it loses hundreds of millions of dollars on the program, casting a pall over President Barack Obama’s signature domestic policy achievement.
UnitedHealth Group Inc. has scaled back marketing efforts for plans sold to individuals this year and may quit the business entirely in 2017. It’s an abrupt shift from October, when the health insurer said it was planning to sell coverage through the Affordable Care Act in 11 more states next year, bringing its total to 34. The company also cut its 2015 earnings forecast.
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While millions of Americans have gained coverage under the ACA since new government-run marketplaces for the plans opened in late 2013, in UnitedHealth’s case they haven’t been the most profitable. Customers the company has added have tended to use more medical care. UnitedHealth also said Thursday that some people are signing up for coverage, getting care and then dropping their policies.
“We cannot sustain these losses,” Chief Executive Officer Stephen Hemsley told analysts on a conference call. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
UnitedHealth said it expects as much as $500 million in losses on the ACA plans in 2016. The insurer will record $275 million of the costs in the fourth quarter.
While UnitedHealth has been slower than some of its rivals to sell ACA policies, the announcement may indicate that other insurers are struggling, says Sheryl Skolnick, an analyst at Mizuho Securities.
“If one of the largest and presumably, by reputation and experience, the most sophisticated of the health plans out there can’t make money on the exchanges, then one has to question whether the exchange as an institution is a viable enterprise,” Skolnick says.
New enrollment
The Obama administration pointed out that many people are signing up for Affordable Care Act policies. About 1.1 million people have signed up for coverage in the first two weeks of enrollment, which began on Nov. 1.
“The health insurance marketplace is entering its third year and continues to grow, giving millions of Americans access to quality affordable insurance,” Ben Wakana, a spokesman for the Department of Health and Human Services, said by e-mail.
UnitedHealth said it suspended marketing of its individual exchange plans and is cutting or eliminating commissions for brokers who sell the coverage in many markets.
550,000 in public exchanges
UnitedHealth covers fewer than 550,000 people on the ACA exchanges. About 9.9 million people had insurance through the U.S.- and state-run insurance markets as of June 30.
“The company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017,” UnitedHealth said in a statement Thursday announcing the changes.
Last month, UnitedHealth had struck a more optimistic note.
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“I think we’ll see strikingly better performance on the insurance exchange business” next year, Chief Financial Officer David Wichmann told analysts on an Oct. 15 conference call.
Other insurers have struggled to profit from the government-run marketplaces created by the ACA. About a dozen non-profit CO-OP plans created under the Affordable Care Act have failed, after charging too little to cover the cost of patients’ medical care, and because an Obama administration fund designed to stabilize the market paid out just 12.6 percent of what insurers requested. And Anthem last month said some rivals were offering premiums too low to provide the coverage patients require and book a profit.
Patience
Anthem and Aetna have said they’ll be patient as the exchange business develops, and that they expect it to eventually become profitable. Aetna has about 1.1 million individual exchange members and Anthem has 824,000.
“It’s way too early to call it quits on the ACA and on the exchanges,” Aetna CEO Mark Bertolini said on an Oct. 29 conference call. “We view it still as a big opportunity for the company.”
Still, Bertolini said the market “remains challenging,” and Aetna reduced the number of states where it sells coverage to 15 for next year from 17. Cynthia Michener, an Aetna spokeswoman, declined to comment Thursday.
Anthem said in late October that the company may need to wait until 2017 or 2018 for the individual exchange business to improve. Jill Becher, a company spokeswoman, said Thursday that the insurer had nothing to add beyond those remarks.
