(Bloomberg) — UnitedHealth Group Inc. will offer coverage in just a dozen of the Affordable Care Act’s new insurance exchanges, in the latest sign big insurers see little gain from quickly plunging into the new markets.

The country’s largest health insurer is taking a conservative approach to the online markets set to open in states Oct. 1, Chief Executive Officer Stephen Hemsley told investors last week at the Sanford C. Bernstein & Co. conference in New York. The company’s plans reflect its concern that the first wave of newly insured customers under the law may be the costliest, Hemsley says.

UnitedHealth will “watch and see” how the exchanges evolve and expects the first enrollees will have “a pent-up appetite” for medical care, Hemsley says. “We are approaching them with some degree of caution because of that.”

The approach offers another hurdle for state and U.S. officials trying to meet the technical challenges involved in the exchanges, where millions of uninsured may seek coverage under the ACA. While local insurers and Blue Cross plans will fill the gap in most states, the for-profit companies would have provided added choice, says Sarah James, a Wedbush Securities analyst in Los Angeles.

The insurers’ reluctance has become clearer as states release details for the marketplaces at the heart of the 2010 law. UnitedHealth, Cigna Corp. and Aetna Inc. were absent from the list last week when California announced the companies chosen to sell in its exchange. All three decided not to bid.

‘Wait and see’

The conservatism “has probably been the biggest surprise” as the health law moves toward Jan. 1, when many of its major provisions are scheduled to start, says Milton Johnson, chief financial officer at HCA Holdings Inc., the biggest U.S. hospital chain. “It’s a new marketplace, a new risk pool, new regulations, and I think many of the payers have decided to just wait and see.”

That may suit investors, who don’t want companies overwhelmed by sick customers with uncertain costs, James says. Through Thursday, the S&P index of the five biggest carriers, including UnitedHealth, had gained 24% so far this year, compared with a 16% rise for the S&P 500.

UnitedHealth, based in Minnetonka, Minnesota, fell less than 1% to $64.20 at 9:33 a.m. in New York on Friday. Through yesterday, its shares gained 19% for the year.

‘Backing off’

“The industry is backing off,” James says. “They’d much rather wait and observe the environment for the first year or two.”

The Obama administration says the exchanges will offer more choice for consumers. In 45 states, two insurers now cover more than half the market for people who buy their own coverage, according to a White House memo. Next year, 75% of exchanges run by the U.S. government will have at least one additional carrier to compete for consumers, the administration says in the memo.

Aetna, the third-biggest insurer by enrollment, plans to sell in about 14 states and reserved the right to withdraw from markets where hospitals or regulators demand “unreasonable rates,” the Hartford,  Connecticut-based insurer said last month. Cigna, based in Bloomfield, Connecticut, will be in five states, Matthew Asensio, a spokesman, said by telephone.

Hemsley, the UnitedHealth CEO, said in January that the company expected to sell in 10 to 25 of the new marketplaces, though he stressed the number might change. He told investors yesterday that he’s wary of the exchanges’ high-cost membership.

Risk pools

“There will be opportunities to come back in and serve those markets as those risk pools mature,” he said.

Projections for the exchanges have been shrinking. The Congressional Budget Office on May 14 lowered its estimate for their enrollment for the second time this year, to 24 million people by 2023. The websites will be open to people who don’t get coverage through work as well as businesses with fewer than 50 employees.

The exchanges will arrive along with new rules banning insurers from denying coverage to customers who have medical problems. Carriers now expect those who show up in the first year to be a sicker group with more medical claims, according to Wedbush’s James.

The industry also seems to be losing the negotiating battle with doctors and hospitals, with reimbursements in exchange plans ending up higher than what insurers had initially sought. HCA, the Nashville, Tennessee-based hospital chain, is winning exchange rates closer to its current commercial business rather than the lower payments it gets from the U.S. Medicare program, Johnson, its CFO, said in an interview.

Regulatory questions

Add the uncertainty of regulations that haven’t been completed in many states, and insurers have decided it’s safer on the sidelines for now, says Brian Wright, a Monness Crespi Hardt & Co. analyst in New York.

“They’re picking and choosing the markets where they are very strong in the individual and small-group market and where they have enough membership to have leverage with providers,” he says.

The exception among the biggest for-profit plans has been WellPoint Inc., the Indianapolis-based insurer that is the leading carrier for small businesses and those who buy coverage outside of work. The company was one of 13 insurers named by California May 23 to sell in its new market and has said it plans to participate in all 14 states where it operates now.

Still, Chief Executive Officer Joseph Swedish told investors at a May 20 conference that the exchanges were developing more slowly than projected.

“While we believe there are some advantages to be gained by being at the forefront of the exchange opportunities,” he said, “we view this process as a marathon, not a sprint.”



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