UnitedHealth Group CEO Stephen Hemsley, who first hinted at this decision months ago, reiterated concerns about the financial viability of the law's health insurance marketplaces. | AP Photo Insurer’s Obamacare exit raises new concerns over law



UnitedHealth Group’s announcement Tuesday that it would significantly pare back its Obamacare business reinforced growing concerns about the long-term viability of the health care marketplaces heading into a presidential election in which the law is once again a contentious issue.

The nation’s largest insurer, which sold health plans in 34 state exchanges this year, announced Tuesday morning it will pull out of most Obamacare marketplaces in 2017 because of anticipated losses of $650 million on its exchange business this year.


The company’s startling losses cast a spotlight on problems that insurers have been warning about for months: Fewer Americans have signed up for the exchanges than predicted, enrollees have proved to be sicker and more costly than anticipated, and losses are mounting.

UnitedHealth’s exit may be more of a symbolic blow to the law than anything — the company is still profitable, and its exchange business was relatively small. But it poses a fresh headache for the White House ahead of the fall sign-up period for 2017 health plans, the final enrollment season under the Obama administration. The White House is scrambling to set the insurance marketplaces on firm footing before it leaves office.

“It’s a big nothingburger in terms of market impact,” said insurance industry consultant John Gorman, a health official during the Clinton administration. “But symbolically and politically, it’s huge.”

UnitedHealth’s decision creates another public relations problem for Obamacare and lends credence to critics who say the law is inherently unworkable. Republican presidential candidates continue to vow to dismantle Obamacare, and congressional Republicans say they are trying to formulate a replacement plan six years after the law’s passage.

“That’s the latest in a string of Obamacare failures that have led to American families losing their doctors, having few or no insurance options, and facing skyrocketing premiums and deductibles,” Sen. Ted Cruz said in a statement on the UnitedHealth announcement. “Sadly, none of this comes as a surprise.”

Obamacare’s drafters had imagined that by the end of this year, insurers would have adjusted to the law’s new insurance market rules, which most notably require health plans to sell coverage to anyone regardless of health condition. By now, they expected the markets would stabilize after more healthy people purchased coverage and offset the costs of sick people who enrolled right away. But that hasn’t happened.

“We’re only about halfway through the drama of stabilizing these marketplaces,” Gorman said. “We’ve got another two or three years to go, and it’s going to be a bloody two or three years.”

About 12.7 million people signed up for exchange coverage this year, and all indications are that Obamacare is responsible for pushing the nation’s uninsured rate to historic lows. Despite hand-wringing over skyrocketing insurance rates, average premium increases in the exchanges have been relatively modest — the average monthly premium increased by just $4 this year for exchange customers who receive financial assistance, according to the administration.

But the list of troubles for the exchanges remains long. Health plans competing in the overhauled individual market lost more than $3 billion in 2014, the first year of exchange operations, according to financial filings. Profits at Blue Cross Blue Shield plans, which dominate many state exchanges, plummeted 75 percent from 2013 to 2015, according to a report by A.M. Best Co.

More than half of the 23 nonprofit startup health plans seeded with Obamacare loans have collapsed after hemorrhaging red ink. And a pair of federal programs that were supposed to protect insurers from big losses during the first three years of exchange operations have instead exacerbated the turmoil, many health plans complain.

Few analysts are predicting an Obamacare “death spiral,” in which soaring premiums scare away all but the sickest customers and the marketplaces implode, but the path forward is rockier than initially forecast. Analysts at Standard & Poor’s now predict that the Obamacare markets won’t stabilize until 2018, two years later than previously anticipated.

Obama administration officials have stressed that competition in the exchanges has increased in each of the first three years of operations and that the loss of one insurer won’t significantly limit consumers’ options. They point out that more than 90 percent of consumers in some of the largest states where UnitedHealth is competing for Obamacare customers, including Florida and Ohio, could find a cheaper option from other companies in 2016 for the most popular plans.

UnitedHealth said it will sell exchange plans in just “a handful” of states next year. It’s abandoning exchanges in Missouri, North Carolina, Pennsylvania, Tennessee and Washington state, regulators confirmed on Tuesday.

UnitedHealth accounts for just 6 percent of exchange sign-ups nationwide this year, and even a complete withdrawal from the exchanges likely wouldn’t have a huge effect on coverage costs. The most popular exchange plans would have cost just 1 percent more had UnitedHealth completely avoided selling on the exchanges this year, according to a Kaiser Family Foundation analysis.

“United’s exit could matter in select markets, but nationally it’s a blip,” said Kaiser senior vice president Larry Levitt.

No other major insurer has threatened to pull out of the exchanges next year. But many insurers have warned the marketplaces can’t continue at their current pace. Insurers are in the process of filing 2017 rate proposals, and many health plans have suggested they will seek big increases. They’re pleased with some of the policies outlined by the Obama administration in recent months but are pushing for additional fixes to make the marketplaces more stable.

“Long-term stability in the exchanges means that there needs to be action taken now,” said Clare Krusing, spokeswoman for America’s Health Insurance Plans, the industry’s main lobbying group. “It can’t be put off [until] next year or several years down the line.”

After insurers complained, the administration recently tightened enrollment rules to prevent people from signing up for coverage and dropping it when they no longer need care. Mandy Cohen, chief operating officer of the Centers for Medicare & Medicaid Services, which oversees the exchanges, said at a forum last week that the administration is also considering changes to a program that’s designed to protect health plans that attract particularly sick, expensive customers.

“We continue to look for ways on which we can focus on the long-term stability of the program,” Cohen said.

Drawing broad conclusions about the financial health of the exchanges is difficult because in reality they are 51 different marketplaces. By all accounts, the state-run marketplace in California has been a success, with robust enrollment and insurer competition.

But others present a more troubling picture. Enrollment in North Carolina has been among the highest in the country, with more than 600,000 exchange customers. But the state’s dominant carrier, Blue Cross Blue Shield of North Carolina, says it lost roughly $400 million on the first two years of Obamacare business and raised premiums by an average of 30 percent this year.

Despite those price hikes, the company has indicated that it still doesn’t think it’s on a financially sustainable course. The only other companies competing on the state’s exchange this year are Aetna — and UnitedHealth, which is pulling out.

