UnitedHealth Group is the nation's biggest private health insurer, so when its executives started whining last year about how it was losing millions on Affordable Care Act exchange plans and threatened to leave the ACA market as early as 2017, people took notice.
Even Obamacare devotees wondered whether United's experience signaled deeper problems with the ACA exchanges generally. Obamacare's critics gorged on United's words and still do: As recently as last week, the Wall Street Journal's editorial writers lamented that "the ObamaCare money-pit sunk [United's] year-over-year profit margin to 3.7% from 4.3%." They blamed, among other things, the ACA's "bureaucratic nuisance."
We were skeptical of United's complaint about the ACA, arguing that it "may say a lot more about the company than the law." Now there's more evidence for that. Analysts at the Urban Institute's Health Policy Center have taken a close look at the pricing and design of United's Obamacare policies and concluded that the company shot itself in the foot.
In addition, they concluded that United is such a marginal player in the individual exchange market that its departure won't matter very much.
The Urban Institute critique coincides with a broadside fired at the company by Peter Lee, executive director of Covered California, the state's ACA exchange and a distinct Obamacare success story.
"Instead of saying, 'We screwed up,' they said, 'Obamacare is the problem and we may not play anymore,'" Lee told Chad Terhune of California Healthline. "It was giving an excuse to Wall Street and throwing the Affordable Care Act under the bus." The company's words, he added, have "fed this political frenzy that Obamacare doesn't work. It's total spin and unanchored in reality."
United, which specializes in large-group employer health plans, came into the individual exchange market reluctantly — and, as Urban Institute analysts imply, ineptly. The company seldom offered the lowest or second-lowest prices in the markets it did enter, but did offer "a broader-than-average provider network." These two features discouraged enrollment by customers who were younger or in relatively good health, for whom price is the chief concern. But it attracted sicker customers, for whom the widest choice of doctors is paramount.
It's an article of faith among ACA critics that the narrow networks of exchange plans can be a burden on consumers. But the truth is that they're an accepted method of keeping costs under control in the employer-sponsored insurance market as well as the exchanges. That was true long before the ACA was enacted.
In any event, United didn't offer wider networks for some public-spirited reason; they did so because they were incompetent at designing health plans for the individual market. They're blaming the market for their own mistakes, which is a bit like a football team blaming the scoreboard for showing that it's losing 52-0.
Back in December, Covered California's Lee pointed out to me another aspect of United's poor planning: It plunged into markets that had allowed old health plans to be grandfathered. That left the risk pools in those states fragmented, and hurt the profitability of ACA-compliant plans. California didn't do that, and its ACA plans are generally profitable as a result. In any event, grandfathering will end this year.
Richard Mayhew, the crackerjack health insurance expert at balloon-juice.com, describes what United's poorly considered strategy yields in his Midwestern market, where the company competes: "Broad networks are magnets for very sick people. They want access to everything as they already have pre-established relationships. United Healthcare in my region is getting a good proportion of those very sick individuals."
He concludes: "Sucks to be them but this is not a systemic Exchange problem."
Mayhew took a random look at United's pricing, selecting the market in Redding, Calif., where the benchmark silver plan from Blue Shield of California would cost a 40-year-old nonsmoker $367 a month before a tax subsidy. United's competing plan was $79 more a month. The company is not going to get many customers with that differential, and those it does get will be sicker patients attracted by the wider network.
United made little secret of the fact that it tried to structure its individual health plans to keep them small. The company succeeded, but through its poor grasp of the individual market, took on more risk than it expected. The ACA's risk-adjustment mechanisms will reduce its exposure, but not by enough to give it a profit.
Other big insurance companies have observed, like United, that their ACA business isn't yet profitable. But they seem to better understand that a new market will take a few years to shake out. The Urban Institute analysts observe that big national insurers aren't the most important players in the exchanges anyway — the market is dominated by regional "Blue Cross-affiliated insurers, Medicaid insurers, provider-sponsored insurers, and ... local or regional insurers." The lesson bears repeating: United's problem isn't the exchanges themselves, but its own blunt pencils. It should sharpen them, and keep trying.
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