ObamaCare has turned into a bait-and-switch scheme leaving many insurers in the red rather than with a windfall of profitable new patients. Perhaps that’s why the nation’s biggest healthcare provider is seriously considering pulling out of ObamaCare, a move that would force more than a half million customers off their plans.
United Healthcare Group announced this week that low enrollments and high usage costs by a risk pool that is far sicker than expected has cost them millions and they are contemplating dropping out of ObamaCare plans. Effective immediately, however, they have stopped marketing their 2016 ObamaCare plans just three weeks into open enrollment. This is a reversal from UnitedHealth’s previous projections and strategy to expand into 11 states.
This is a major blow to ObamaCare because the company offers some of the lowest priced plans. Although UnitedHealth provides coverage for about 6 percent of the 9 million people enrolled in ObamaCare (565,000 customers), this could be a bellwether of similar moves from other insurers such as rivals Anthem and Aetna who provide coverage for about 1.6 million people combined. As some experts note, if the biggest healthcare company can’t make ObamaCare work, you know that others must be struggling even more.
UnitedHealth revealed that expect $500 million in losses on ObamaCare plans in 2016. ObamaCare customers tend to be sicker and demand more services, but enough healthy and young Americans have not signed up to offset those costs. Enrollment has been slow so far for 2016 and they don't see enough improvement on the horizon.
Bloomberg Business explains :
“We cannot sustain these losses,” Chief Executive Officer Stephen Hemsley told analysts on a conference call. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
UnitedHealth said it expects as much as $500 million in losses on the Obamacare plans in 2016. The insurer will record $275 million of the costs in the fourth quarter. United also said Thursday it’s booking $350 million in losses tied to the 2015 performance of its ACA plans.
Insurance markets rely on premiums paid by healthy people to subsidize the medical costs of the sick. If an insurer sets premiums that are too low or attracts customers that are too sick, it can suffer losses. That can be a particular risk in new markets that an insurer may not be as familiar with.
While UnitedHealth has been slower than some of its rivals to sell Obamacare policies, the announcement may indicate that other insurers are struggling, said Sheryl Skolnick, an analyst at Mizuho Securities.
The Obama Administration is defending enrollment, saying so far that 1.1 million people have a signed up for coverage in the first two weeks of enrollment which they say is a faster pace than last year. However, we don't know if those are new enrollments or renewals as well as whether those signing up are healthy versus sick.
It’s no surprise. As we’ve reported, Americans are finding that ObamaCare plans are still too expensive – even with generous taxpayer subsidies.
This news joins the growing flops that the Administration must struggle with about ObamaCare. Half of the nonprofit co-ops have failed, ObamaCare customers are facing double-digit premium increases, and high deductibles, which in many instances makes their policies useless.
UnitedHealth’s news has California on edge according to the L.A. Times as the company’s expansion there may be in jeopardy:
UnitedHealth just joined the Covered California exchange this month after sitting out the first two years. The company sought permission in January to sell statewide, but California officials limited the insurer to several smaller markets for 2016.
Peter Lee, executive director of Covered California, said he spoke with UnitedHealth officials Thursday and remains confident about the company’s continued expansion in the state.
"We have every indication they are all in for 2016 and 2017," Lee said in an interview…
A spokesman for UnitedHealth said no decision has been made on its future participation in Covered California. “We will make an assessment of 2017 markets in the first quarter of 2016,” spokesman Tyler Mason said.
Although the U.S. historically had one of the best medical systems in the world, reforms were needed. Unfortunately, the Affordable Care Act made things worse for more Americans. As ObamaCare collapses of its own weight, it appears that we're going to have a second shot at reform soon. Let's hope that this time a patient-centered, free market-based plan will deliver a better deal to the public.