UnitedHealth's exchange exit threat: What it means

UnitedHealth's announcement that it is revising its earnings outlook to account for losses in the individual market sent shockwaves through the industry and raised new questions about the viability of Affordable Care Act exchanges.

Blaming a "continuing deterioration" in individual exchange product performance, the nation's largest insurer said it will decide in the first half of next year to what extent it will continue to participate in public exchange markets in 2017. It also has pulled back on marketing its ACA exchange products in 2016.

"We cannot sustain these losses; we can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself," CEO Stephen J. Hemsley said on a call with investors and analysts Thursday.

UnitedHealth took a cautious approach and sat out the first year the exchanges were open, and perhaps it should have done the same for the second and third years as well, he later added, saying, "you could fault us for trying too hard to make this work or for hanging on too long."

Such statements caught many industry experts off guard, including Kathy Hempstead, who directs coverage issues for the nonprofit Robert Wood Johnson Foundation. "These comments were designed to get people's attention, and they did," she says in an exclusive interview with FierceHealthPayer.

In fact, UnitedHealth's stock dipped Thursday--as did that of other major insurers. The federal government, however, expressed no doubt in the viability of the exchanges.

"We have full confidence, backed up by data, that the marketplaces will continue to thrive for years ahead and build on the 17.6 million who have already gained coverage through the ACA," a senior administration official told FierceHealthPayer in an email. "With an average of 10 issuers per state, up from nine last year and eight the year before, statements from any one insurer are not a sign of any trend."

Just last month, UnitedHealth issued a third-quarter earnings report that was much more optimistic about the ACA marketplaces, calling them "a strong viable growth market for us."

In response to analysts' questions about what had changed, Hemsley said on the call that a main driver of the pressure was new members who gained individual coverage during special enrollment periods that turned out to be "strong users of services."

"That's certainly something that other carriers so complained about," Hempstead points out, though she said it's unclear if UnitedHealth was in some way uniquely affected by that trend relative to other insurance carriers. Indeed, Aetna told analyst firm UBS that the phenomenon of more individuals coming in and out of exchanges during special enrollment periods "does not bode well for having a balanced long-term risk pool."

The fact that UnitedHealth is exercising "seller's remorse" and scaling back its marketing for 2016 individual exchange products "takes it a little bit beyond just rhetoric and puts a little bit of teeth to this," according to Hempstead. "That said, I would really be surprised if United wanted to exit this market. I think they're hoping that there's going to be some changes so that it works better."

To learn more:
- here's the UBS report

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