UnitedHealth Group, the largest insurance company in the U.S., on Thursday slashed its earnings outlook, citing new problems related to Obamacare, and told investors it may exit the program's exchanges.
"In recent weeks, growth expectations for individual exchange participation have tempered industrywide, co-operatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated," Stephen J. Hemsley, chief executive officer of UnitedHealth Group, said in a press release.
The release added that, "UnitedHealthcare has pulled back on its marketing efforts for individual exchange products in 2016. 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."
The company said it expects "earnings pressure" of $425 million, which "is driven by projected losses on individual exchange-compliant products related to the 2015 and 2016 policy years."
Insurers have had trouble signing up young and healthy individuals on the Obamacare exchanges, which is necessary to offset the costs of covering older and sicker enrollees. This has forced insurers to hike premiums, raise deductibles, and slash the number of doctors and hospitals offered on its plans. Meanwhile, the Obama administration has cut its enrollment expectations for 2016 to about half of what they were when the the legislation became law.
In a conference call with investors, Hemsley offered a sober assessment of the exchanges' future viability. He said that claims data have been getting worse as time has gone on, and there's no evidence pointing toward improvement.
Asked about whether the company could sustain losses past 2016, he was blunt: "No. We cannot sustain these losses. We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."
The year 2017 is significant for insurers, because that's the year when several programs designed to mitigate risk for insurers through federal backstops go away. The hope was that those programs would act as training wheels for Obamacare in its first few years of implementation, but after that, the insurers were supposed to be able to thrive on their own. UnitedHealth's statement suggests otherwise.
If UnitedHealth and other insurers decide to exit, remaining insurers will be forced to take on even more high-risk enrollees, prompting them to either raise rates further or exit themselves. That in turn would deprive individuals of choices and remove competition, a key purpose of the exchanges.
Shares of health insurance companies tanked on the news in morning trading.
The Department of Health and Human Services downplayed the significance of the UnitedHealth announcement, noting that participation of insurers has grown from 2014 through 2016.
"The reality is we continue to see more people signing up for health insurance and more issuers entering the Marketplaces, and at the end of January, we believe we'll be looking at another successful open enrollment– just like the last two," HHS spokesman Benjamin Wakana wrote in an emailed statement to the Washington Examiner. "This year, people looking for coverage in the Marketplace continue to have a robust number of plan choices and as the data shows the Marketplace is stable, vibrant and a growing source of coverage for new consumers. Today's statement by one issuer is not indicative of the Marketplace's strength and viability."
Several prominent Republicans who provided statements to the Examiner said that the news vindicates opponents warnings about the law and is a reminder of why it needs to be repealed.
"This is the latest piece of evidence — after massive premium increases and the co-op failures — that Obamacare cannot survive," said Republican presidential candidate Jeb Bush. "I'm the only one in the field with a detailed replacement that lowers costs, offers patients better options and takes power out of Washington."
AshLee Strong, spokeswoman for House Speaker Rep. Paul Ryan, R-Wis., said, "This is just another example of Obamacare collapsing under its own weight and why Republicans are working to repeal this awful law and replace it with patient-centered reforms."
House Budget Committee Chairman Rep. Tom Price, R-Ga., said: "These sorts of stories are becoming all too familiar. Already we've learned that over fifty percent of Obamacare's taxpayer funded co-ops have failed. Behind every one of these stories are individuals, families and job creators being harmed by this disastrous law with higher premiums and out-of-pocket expenses, and lower quality care. Obamacare, at its core, is unworkable. It's why we need to repeal the law and replace it with patient-centered solutions that put patients, families and doctors in charge, not Washington DC."
Note: This story has been updated since its initial release.