The Implications of UnitedHealth Group's Exit from Health Care Exchanges

UnitedHealth Group confirmed last month that it would stop offering insurance plans through most of the health insurance marketplaces currently operating in 34 states. This follows an announcement last year that the company lost $650 million on marketplace policies in 2015. UnitedHealth Group is the largest health services company in the U.S., serving almost 70 million Americans and insuring almost 45 million, but is a relatively minor player in the healthcare marketplaces, issuing only 795,000 policies through the state-run exchanges.

While the number of UnitedHealth Group policyholders is only a small fraction of the 12 million insured through the exchanges, the company's withdrawal does have larger implications for the industry. Many of the major insurers participating in the exchanges have reported financial losses within at least some regions. Consultancy McKinsey & Company reports that insurers operated at a loss in 41 states in 2014, and reaped profits in only 9 states.  Many smaller insurers have already exited the exchanges; there are currently only 287 insurers operating in the marketplaces, down from 307 in 2015.

The principal reason so many insurers are leaving is the unexpected cost of insuring new policyholders.  Because insurers cannot deny a policy because of pre-existing conditions, the new pool of insured tend to require more health care. Blue Cross Blue Shield reports that marketplace enrollees accounted for 22 percent higher health care expenditures than other enrollees. This is exacerbated by the ability of enrollees to acquire and discontinue policies at will, limiting insurers from offsetting costs. Furthermore, health care costs are escalating rapidly, with inflation in 2014 being the highest since 2007.

While the exit by UnitedHealth Group may appear to be a severe blow to President Obama's health reforms, many industry analysts believe that this is merely an indicator that insurers need to evolve to meet changing market conditions. Insiders point to the modest investment on the part of UnitedHealth Group which only began participating in the exchanges in 2014, and that the company will still remain involved in some states like Georgia, New York and Nevada.

The loss of an insurance choice should not significantly affect many regional, health care markets.  According to the Kaiser Family Foundation, policies should only increase by about one percent in the markets where UnitedHealth Group participated.  Because the group mostly offered high cost plans, the diminished competition should not seriously affect consumer choices in most areas.  The loss of plans from UnitedHealth would increase the number of marketplace enrollees who only have one or two insurers to choose from, from 15 to 30 percent.

On the other hand, there is the possibility that this is the first sign of a "death spiral." The departure of UnitedHealth Group could open the door to other insurers to leave.  Many major insurers have suggested that the economics of the current situation are unsustainable.  They argue that without an influx of healthy, young enrollees or major enrollment rule changes, they will have to exit the marketplaces or raise premiums. While insurers are likely to push for a premium hike in 2017, it remains uncertain if state regulators will allow a substantial increase. 

Article written by:

Robert Moghim, M.D.

CEO, Health Carousel Locum Tenens