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During the first half of 2016, UnitedHealth Group will determine to what extent it can to participate in the public exchange markets in 2017. Here's what this means for the industry.
UnitedHealth Group is expressing hesitancy over whether it will continue to participate in Affordable Care Act (ACA) exchanges due to significant revenue losses. That's according to a recent statement from the company, which notes an estimated $425 million reduction in earnings in the fourth quarter of 2015 "driven by 2015 and 2016 individual exchange product pressure."
"In recent weeks, growth expectations for individual exchange participation have tempered industry-wide, co-operatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated, so we are taking this proactive step," Stephen J. Hemsley, chief executive officer of UnitedHealth Group, said in the statement. "We continue to be pleased with the growth and overall performance of our company outside of the individual exchange products and look forward to strong, positive and broad-based earnings growth across our enterprise in 2016."
The company says it has pulled back on its marketing efforts for individual exchange products in 2016, and is evaluating the viability of the insurance exchange product segment. During the first half of 2016, it says it will determine to what extent it can to participate in the public exchange markets in 2017.
James R. Smith, FACHE, senior vice president, The Camden Group, says the announcement is both surprising and not surprising. Surprising, he says, because UnitedHealth has a huge stake in finding a way to be successful and profitable in this new market. Not surprising, he says, because many people still do not understand the subsidies or choose to ignore them, thus, it is understandable that UnitedHealth has encountered difficulty.
"Many believe those who do not enroll [in exchange plans] tend to be healthier than those who do," he says. "Thus, the risk profile of those who have signed up may be higher than anticipated leading to the losses. The other reason they may have losses is that their strategy is to build market share by lower prices and it has succeeded too well, and they now must reposition their product and prices by market."
Jon Kingsdale, PhD, managing director, Wakely Consulting Group, says that while the UnitedHealth Group statement is noteworthy, it is not terribly surprising to him. "Marketplaces are local markets where 'price is king,'" he says. "United is a national player with little competitive advantage in this local segment. Specifically, it lacks the local provider relationships and market share that [is advantageous] to Blues plans, Medicaid managed care, and nonprofit HMOs in this segment. Also, the intense price competition in marketplaces generally makes them less attractive to for-profits than to local nonprofits."
Jonathan Rickert, chief executive officer and cofounder, Array Health, says the concerns about the public exchange marketplaces being expressed by UnitedHealth are echoed by many of Array's insurer customers. "Because of these problems, there is growing interest by insurers in going directly to the consumer market through their own private exchanges," he says. "This approach allows insurers to properly price their individual products with the option to also sell ACA-qualified health plans. Private exchanges also give insurers the opportunity to offer voluntary products, such as life, long-term disability, accident etc."
Smith says other health plans may make similar statements to the statement issued by UnitedHealth in coming months. The year 2017 in particular, he says, will be "pivotal," as reinsurance and risk corridor protections provided by the ACA change.
"It will add more risk for insuring the public exchange populations," says Smith. In addition the federal subsidy for these programs has been decreased or eliminated due to budget cuts leaving only the health plan contribution. These changes result in lower reimbursement for high cost members, in some cases, far below what was budgeted and what is needed by insurers."
Still, Smith predicts that in the near term, most insurers will stay in the exchanges and try to make them work. "They will raise prices and push to decrease the cost of care and administer these programs."
Don Hall, principal, Delta Sigma LLC, agrees that other plans may make similar statements to UnitedHealth in the coming months. "Most of these plans are trying to put pressure on the administration to loosen some of the regulations, allowing them to reduce their risk," he says.
Hall, who is a former health plan chief executive officer and a member of the Managed Healthcare Executive Editorial Advisory Board, adds that other plans have expressed concerns that their exchange products are not as profitable as they would like. On the other hand, he says, insurers such as Aetna and Anthem have said they are doing fine.
Rickert says the financial concerns among payers participating in the exchanges vary by state. "While insurers may not make comments similar to Mr. Hemsley, many are reconsidering their approach the public exchanges," he says.
UnitedHealth represents only 5% of marketplace enrollment nationally, but if the company does stop participating in exchanges, the impact will vary state to state, says Kingsdale.
"For example, in both Colorado and Massachusetts, they are only one of about 10 issuers, and they are not the price leader in either state, so it may be a non-event there. In Rhode Island, they are the second largest health plan, so that counts," says Kingsdale. "What happens there? Well, it could relieve some price pressure on the two other issuers in HealthSourceRI-or it could make room for yet another local plan that is not yet on the exchange (such as Tufts Health Plan) to jump in. Unlike group insurance, entry is pretty easy."
Smith notes that UnitedHealth is not in all markets with exchanges products, just as its competitors, Aetna, Humana and Blue Cross Blue Shield, are not. "While their [potential exit from ACA exchanges] could hurt either the individual or small group markets, the companies themselves will look to find a better place in the market to succeed."
Rickert predicts that if UnitedHealth Group does stop participating in exchanges in 2017, many regional insurers will reevaluate their participation in public exchanges.
Smith says executives should note that the current mix, premium paid, costs of care, and benefits for members is having a large impact on overall profitability of health plans. "A key lesson learned is to pick your markets and high performing networks well, or suffer loss of profitability and membership growth," he says.
Hall says executives should take note of two changes that need to happen for the exchanges to thrive. "First, healthier people need to purchase through the exchanges in greater numbers than they're doing," he says. "Second, plans have to offer more value for the premium dollar."
Rickert stresses that executives should keep in mind that there are several ways to reach individual consumers. "A balanced approach across the public exchanges, private multi-carrier exchanges and insurer-led exchanges is key," he says. "Some insurers may have relied too much on the public exchange channel and will be moving toward a greater mix of direct and indirect approaches."