The largest insurer in the U.S. expects to lose more money in Obamacare because enrollees were sicker this year than in previous years, a new development as other insurers plan to raise rates next year.
UnitedHealth said in an earnings call Tuesday that it has generated more losses from its Obamacare business in the second quarter of this year. It has lost about $200 million this quarter and expects to lose $600 million by the end of the year.
The company said the latest losses are because of the Obamacare population getting sicker over the past year.
“The reality is the severity of chronic conditions inside the population actually increased on a year-over-year basis,” said Daniel Schumacher, chief financial officer for United, on the earnings call. He said the prevalence of people with conditions such as hepatitis C, diabetes and HIV have increased from 2015, but he did not specify by how much.
Losing money in Obamacare’s exchanges is not new for UnitedHealth, which has said it plans to leave a majority of the 30-plus markets where it offers Obamacare plans next year.
The explanation is unique, though, as some experts believe the Obamacare enrollee population is becoming healthier.
When Obamacare was implemented in 2014, insurers generally “underestimated how costly this population was going to be,” said Katherine Hempstead, who covers health insurance issues for the Robert Wood Johnson Foundation. As a result, Obamacare insurers set prices too low, which resulted in higher claims costs, eating into any potential for profit.
A new study from the nonpartisan Commonwealth Fund found that a majority of Obamacare insurers lost money in 2014, the first year the exchanges operated.
The report released Tuesday found that two-thirds of insurers failed to turn any profits in 2014, but a majority of those insurers also didn’t make any money in 2013. Commonwealth found that insurers underestimated their spending on new enrollees by 2 percent.
A taxpayer-funded reinsurance program did help mitigate losses. The program gives insurers money to adjust to a new market, as insurers had no idea who was going to sign up for Obamacare in 2014. However, the reinsurance program expires after next year.
Hempstead said that preliminary data from 2015 showed that the Obamacare population was healthier.
“There have been some reports that in 2015, it was better than 2014 because you see who is the first in line to sign up is the sickest guy, and the next year you get some other people who are not as sick,” she said.
She estimated that UnitedHealth had some bad luck and declined to say that the Obamacare population is getting sicker as a whole.
It is “not right to say that a whole cohort were sicker in 2016 than in 2105,” Hempstead said. “It could be the case United got burned and got sicker people in 2016 than what they had in 2015.”
With insurer profits falling, the Obama administration has made moves to help them. Those measures include eliminating some of the special enrollment periods that enable people to sign up for Obamacare year-round, which leads to higher costs for insurers.
Sicker enrollees means higher medical costs, which mean higher claims for insurers such as UnitedHealth. For instance, treating HIV and hepatitis C requires high-cost specialty drugs.
A study from pharmacy benefits manager Express Scripts released last month found that specialty drugs accounted for a greater proportion of pharmacy spending in exchange plans.
Since March 31, 2014, total spending on specialty medications rose 24 percent for the Obamacare exchange population, the report said.
Pharmacy costs are also higher for health exchange plans compared to those off the exchange.
In overall drug spending, health exchange plans cost 16 percent per member per month more than regular health plans, Express Scripts’ report said.
It appears that the Obamacare marketplace is correcting discrepancies in 2014 by raising prices.
California’s insurance exchange this week announced that Obamacare plan premiums would rise by about 13 percent. Another study from the nonpartisan Kaiser Family Foundation found that rates for silver plans, Obamacare’s mid-level category, are expected to rise by 11 percent in 2017.
