The chief executive officer of the largest U.S. health insurance company on Thursday told investors that the company’s losses from Obamacare were worsening, showed no signs of improvement, and would be unsustainable beyond 2016.
UnitedHealth Group CEO Stephen J. Hemsley made the comments in a conference call after the insurer warned investors about $425 million in losses primarily due to its participation in Obamacare, even though the company previously expected that the exchanges would have a neutral effect on profits. He even expressed some regret about participating in the program in the first place.
Asked whether the company would be willing to tolerate losses beyond 2016, Hemsley was emphatic: “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 news from UnitedHealth comes at a fragile time for Obamacare, as enrollment stalls in its third year and insurers have been forced to cut premiums and access to providers. Republican presidential candidates have continued to call for the repeal of the law heading into the presidential election year, and the Senate is gearing up to pass a partial repeal by the end of this year.
“In our view, in recent weeks, market performance expectations for exchange products have further declined,” Hemlsey said, pointing toward a combination of weak enrollment trends in the healthcare exchanges and more costs associated with covering disproportionately sicker enrollees.
“Our own emerging claims experience…is worsening as the year-end nears,” he said. “The overall exchange market profile is more negative than we had planned, with new market enrollment growth developing more slowly.”
He said, “These indicators point to an environment that is declining and likely to continue in that direction into next year. We see no data pointing toward improvement.”
The company didn’t participate in the exchanges in 2014, and then dipped its toes in during 2015 and 2016. But Hemsley acknowledged that this may have been a mistake.
“We sat out the first year,” he said. “Perhaps we should have sat out the second year. Perhaps the third. It might take longer for this to evolve.”
He said that the company would determine by the middle of next year to what extent UnitedHealth would participate in Obamacare, if at all. This decision, he said, would be made on a state-by state-basis.
In the meantime, he said the company had taken steps to limit its exposure to the law, by raising premiums, cutting back on marketing, and reducing commissions.
“We saw no indication of anything actually improving,” he said.
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 announcement suggests otherwise. The company also said that it was assuming no federal funds would be available from the risk corridor program. This program was supposed to function so that insurers that did better than expected on the exchanges put money into a pool to be used to compensate those who reported higher than expected losses. The fact that UnitedHealth isn’t counting on any money from the program is an indication that its assuming the losses its seen are an industry-wide trend, and thus money won’t be available.
If UnitedHealth and other insurers decide to exit Obamacare, 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.
