The Department of Health and Human Services (HHS) insisted Tuesday that the individual health insurance markets under the Affordable Care Act (ACA) have a strong future, despite a warning from one of the nation’s biggest insurers that it may drop out of the markets due to unsustainable losses.
United Health Group (UNH) made the announcement Thursday, saying that the pool of customers that have enrolled through the marketplaces is older and sicker than anticipated. The lack of new healthy customers has led to higher costs than originally projected.
“The Company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017,” UNH said in a statement.
While UNH is the country’s largest insurer overall, it has had a relatively small role in the individual markets, covering about 500,000 of the 9.9 million total customers there. If UNH actually does leave and insurers that control a bigger piece of the individual market follow its lead, the viability of the system could be in question. There is no indication they intend to do that, though.
“We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself,” UNH Chief Executive Officer Stephen Hemsley reportedly told investors on a November 19 conference call.
HHS remains confident, though, noting statements from several other big insurers that their business on the health exchanges has been in line with their expectations and they are still committed to the program.
“This is further indication that statements from one issuer are not reflective of the Marketplace’s overall strength going forward,” HHS said in a statement.
Taken with reports of co-ops failing, premiums rising, and enrollment projections being cut, critics of the ACA, also known as Obamacare, have argued these developments are proof the whole program is in a “death spiral.”
Some experts say such pessimism is unwarranted at this point.
“It’s important to understand that UnitedHealth Group…has never been a big player in what we call the individual or non-group market,” said Sabrina Corlette, a research professor at the Georgetown University Health Policy Institute.
Before and after the ACA took effect, the company was hesitant to offer plans on the individual markets. When it did, it was sometimes one of the higher-priced options, Corlette said.
“It’s never been my sense that this is a market that they’ve embraced with any sort of enthusiasm.”
The individual marketplaces have presented “a very challenging environment for insurers,” though.
According to Corlette, the ACA has required a fundamental shift in the way health insurance companies do business from avoiding risk to managing risk, since they can no longer exclude sick patients with pre-existing conditions. The individual exchanges have not been very profitable for anybody at this point and the big insurers have struggled with them.
For the companies that are patient, though, she said the markets could become an opportunity for growth if they eventually stabilize and the risk pools balance out. How long insurers are willing to wait for that to happen is an open question.
“I don’t think any of these companies want to see losses year after year after year,” Corlette said.
The UNH news comes after several of the non-profit co-ops established under the ACA to compete with for-profit insurers failed and some customers seeking insurance for 2016 found higher prices and deductibles than they expected. Also, the government has decreased its projection for new enrollees, in part because fewer people than expected have lost employer-provided coverage since the ACA was implemented.
Some of the challenges currently facing the ACA were predictable when it was passed five years ago, Corlette said, adding that patient advocates expressed doubts at the time about the affordability of insurance under the law.
“A number of the insurance companies are complaining that the population they are seeing is sicker than they expected,” she said, and they have faced difficulties adapting to the law.
Some of the problems may also be temporary. According to Corlette, mitigating factors could make the individual markets more profitable in the coming years.
As the penalty for failure to sign up for health insurance rises, the cost of not complying with the individual mandate could motivate healthy people to seek out insurance on the exchanges. Also, a provision that allowed people to keep some pre-ACA plans is expiring. Those consumers are often healthy people who did not need comprehensive coverage, so the risk pool could widen if they then transition into the marketplace.
“I would not write anybody’s death certificate yet,” Corlette said.
Other health care analysts agree that UNH leaving the individual exchanges would be more of a symbolic loss than a fatal blow to the program.
“United Health isn’t yet a big ACA player and came late to the party. But their concerns show why enrollment growth is so important,” tweeted Larry Levitt of the Kaiser Family Foundation.
“No–emphatically no–Obamacare is nowhere close to collapsing,” wrote Wendell Potter on healthinsurance.org. “In many regards, it is a big success, much to the chagrin of the law’s critics.”
“United pulling out of Obamacare might signal something even more troubling: that the marketplaces aren’t a good business decision for other large carriers,” said Sarah Kliff of Vox. “Right now, that doesn’t seem to be the case.”
“Yes, the Obamacare exchanges are proving to be as dysfunctional as many conservatives had anticipated,” wrote Reihan Salam on Slate. “But until Republicans can make a convincing case that they will do a better job of meeting the needs of Americans with pre-existing conditions, Obamacare is here to stay.”
Some liberal commentators have a more upbeat assessment of the ACA’s progress.
“Obamacare has hit a few rough patches lately,” wrote economist Paul Krugman in the New York Times. “But they’re much less significant than a lot of the reporting, let alone the right-wing reaction, would have you believe. Health reform is still a huge success story.”
Krugman characterized the 11% average increase in premiums for 2016 as a “slight disappointment,” noting that increases in the two previous years were smaller than expected.
However, Peter Pitts, president and co-founder of the Center for Medicine in the Public Interest, cautioned that UNH’s announcement may be “an early indicator” of things to come.
“It is an indicator that these types of insurance designs are not profitable,” he said. He called the need for healthy customers to balance out the risk and reduce the cost of coverage “the cardinal flaw in the whole ACA concept.”
Any insurance business is built on a model where premiums of people who buy policies and do not use them help cover the costs of services for people who do use them. If the people who need to use the insurance are all there is, the system falls apart.
“I think there’s disappointment on the provider and participant levels,” Pitts said of the current state of the individual exchanges.
He could not speculate about whether UNH is serious about dropping out of the marketplaces, but if the company’s projection of $500 million in losses in 2016 is accurate, it would make sense for them to stop offering the individual plans.
“Public companies do not pursue programs that cost the company hundreds of millions of dollars in losses,” Pitts said. “For that, rocket science is not required.”
He said he anticipated many of the challenges the ACA is facing now back before it was passed in 2010. The reliance on healthy young people to buy insurance they do not want is one of the underlying problems he saw, and the effects of that are being seen in rising premiums and companies leaving the exchanges.
“It’s fair to say that the foundational design flaws are becoming evident, and the question now is what you do about it,” Pitts said. He argued that these problems with the law need to be fixed before the situation becomes a crisis.
Others see a bleaker future for the law.
“For anyone involved with the Affordable Care Act, yesterday was a big day,” wrote Robert Laszewski, a health policy and strategy consultant, Friday. “It’s the day any vestige of the notion that the Obamacare insurance exchanges have a chance of being successful in their current form lost whatever credibility was remaining.”
“These problems aren’t incidental to Obamacare,” said Sally Pipes of the Pacific Research Institute on Forbes.com. “They’re the inevitable result of the law’s central premise–that lawmakers and government bureaucrats can make better decisions about small businesses’ health care than millions of businesses themselves can.”
“This may be the year of the health care law’s collapse,” wrote Rep. John Barrasso (R-WY) in an op-ed days before the UNH report, citing rising premiums and the failure of the co-ops.
The public seems skeptical of the Obama administration’s position that the law is working. According to a recent Kaiser Family Foundation poll, 45% of respondents view the ACA negatively and 38% have a favorable opinion. 30% support a full repeal, 12% want to scale it back, and 26% want to expand it. The opinions largely break down along party lines.
Democratic presidential candidate Martin O’Malley unveiled his plan for health care reform Tuesday with new measures aimed at controlling costs.
Front-runner Hillary Clinton has her own plan that would make some changes to the system.
The other Democratic candidate, Bernie Sanders, has endorsed a national single-payer system, but the exact details of how that would be paid for are unclear.
Republican candidates have proposed complete overhauls of the system that begin with the repeal of the ACA.
Pitts believes it will be hard for politicians to sell a repeal plan that takes insurance away from those the ACA has helped, but he said it is difficult to determine exactly how many people have benefited from it. At the same time, he worries about the consequences for the public if the law’s apparent shortcomings are not addressed in some way.
“Nobody should go down with the ship. Least of all, patients.”