UnitedHealth Group’s (UHG or United) announcement this week that it will withdraw from the Affordable Care Act (ACA) health insurance marketplaces (marketplace) in most states has many observers of different perspectives wondering what the impact will be on the sustainability of the marketplace.
Is it a signal that other carriers will follow suit, possibly creating instability in the exchange markets and limiting consumer choice? Or is it a simply a development in the market that is a natural shake out as the ACA marketplace matures? When looking at both questions it’s important to look at the nature of UHG’s exchange business and how it fits in the larger picture of UHG’s business and within the national exchange enrollment overall.
UHG’s entered the marketplace in 2014, a year after the initial ramp up of the exchanges and then only in a few states with limited expansion in 2015 and 2016. Its marketplace enrollment is approximately 795,000 members which is approximately 6.1% of the total national marketplace enrollment of approximately 13,000,000 for 2016. Moreover, UHG expects that membership will fall to 650,000 by the end of 2016, making it an even smaller portion of its overall business portfolio that generates annual revenue of over $157 billion. United’s announcement is from a big company with a relatively small amount of the marketplace business. What isn’t small is UHG’s projected losses on its marketplace business of almost $1 billion for 2015 and 2016.
So does the UHG exit signal the unraveling of carrier participation in the marketplace? To us, the exit provides more nuanced signals than a blanket statement regarding the ultimate survival of the marketplace at some distant point in the future. The exit does emphasize an industry problem: the general carrier experience that the members covered under marketplace plans have a much higher risk profile than members covered under employer based on other plans. In fact, the Blue Cross Blue Shield Association published a report in March stating that new marketplace members have a 22% higher utilization rate than members with employer based coverage. According to the National Association of Insurance Commissioners and reported by the Wall Street Journal, carriers overall have a Medical Loss Ratio (defined as percentage of premium an insurer spends on claims and expenses) in the individual market that is over 100% (101.4% to be exact), which is hardly sustainable for any insurer long term. Aetna has predicted losses and Humana is reconsidering whether to remain in the marketplace.
One can point to lots of reasons why these losses are happening – the loopholes in the special enrollment rules that allow individuals to get coverage only when they need it and drop it when they don’t, the lack of scale to balance the increased risk, and the fact that younger, healthier people are choosing not to sign up for marketplace plans in the numbers originally hoped. But maybe the more nuanced signal here is that as the marketplace environment continues to shake out over the next few years that the traditional commercial insurance model doesn’t quite work – that given this new and different population being covered under marketplace plans a different business model is needed and that carriers can be successful if they revolutionize their business approach. In fact all carriers are not suffering losses. Those carriers who have traditionally managed Medicaid covered populations such as Centene and Molina are demonstrating some financial success and are expanding their businesses beyond current geographies. The UHG exit indicates that unless a marketplace participant chooses to completely redefine its business approach to manage a significantly higher risk population within the ACA regulatory structure it won’t succeed. United choose not to do that because its business strategy is headed in a different direction which is a legitimate choice. What seems clear is that the exits from and entrances to the marketplace is likely continue as both existing and new companies decide whether the financial and regulatory constructs of the marketplace fit with their particular business models.