UnitedHealth Group Inc. (Minnetonka MN), the nation’s largest health insurer, told investors it continued to lose hundreds of millions of dollars selling individual policies under the federal healthcare law.
The company said it planned to pull out of a majority of states where it offered coverage and would offer policies on the public exchanges in “only a handful of states” for 2017.
UnitedHealth, which was a late and apparently reluctant participant in the public exchanges, surprised investors last year when it announced its sizable losses, now estimated at more than a combined $1 billion for 2015 and 2016, because of its poor performance in the public exchanges.
Policy analysts have been watching UnitedHealth closely as an indicator of whether the new individual market developed under Obamacare is sustainable. Addressing investors, CEO Stephen J. Hemsley continued to offer a pessimistic view:
“The smaller overall market size and shorter-term, higher-risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustainable basis,” he said.
UnitedHealth estimated its losses from the exchanges would be $650 million this year. UnitedHealth reported overall earnings from operations of $3 billion on revenue of $44.5 billion for the first quarter of 2016, versus earnings of $2.6 billion on revenue of $35.8 billion last year.
The company would not specify which states it planned to exit. It appears to be staying in Virginia and Nevada next year, but it is not known what other states remain attractive.
A small unit of UnitedHealth, which offers exchange plans that feature a primary care clinic, is being tested in some states, including Georgia, where United says it is pulling out.
Despite the concerns over United’s decision, just how much of its struggles are because of a lackluster embrace of the market and small presence is unclear. The company has 795,000 people in its Obamacare plans, a small fraction of the roughly 13 million people who have signed up for 2016.
Without large numbers of customers, insurers are unable to demand low prices from hospitals and doctors. They also cannot balance the high cost of very sick patients with the low expense of more healthy customers.
The number of insurance carriers for every state has increased every year, Ben Wakana, a spokesman for the Health and Human Services Department, which oversees the exchanges, said:
“With millions of Americans insured through the marketplaces, it’s clear that this is a growing business for insurers,” he said.
UnitedHealth closed the week up 5% at $134.13.
Monday, April 25, 2016 / Vol. 24 / No. 16