Insights

United Healthcare Potential Exit

Last month, United Healthcare (UHC) made an announcement that shocked the industry — it may leave the Health Insurance Marketplace if it can't become profitable by 2017. The company stated it expects to lose $490 million next year due to its participation in the Affordable Care Act (ACA) market. Standing by its comments, UHC pointed to "structural" problems with the ACA as the factor behind its unprofitability. Adding to the deterrent of the Marketplace business, the company stated it will stop paying broker commissions for Marketplace policies as well as individual plans not sold on the Marketplace. UHC's announcement is troubling, especially with recent news of the failing co-ops — 12 of the 23 co-ops have already closed their doors, and even the most profitable, such as Maine's Community Health Options who announced profits in 2014, have lost money this year.

So what are the structural problems, and should plans and consumers on the Marketplace be worried?

One major issue is, of course, the risk adjustment and risk corridor programs under the ACA. With Congress unwilling to increase funds for the program, health plans faced a huge hit in 2015, recouping only 13% of requested funds through the risk corridor program. Congress remains firm on its decision not to further fund this part of the ACA, which means the Centers for Medicare & Medicaid Services (CMS) will have to find alternate means if it wishes to assist plans with their losses next year.

Another big change the ACA brought is the inability to initially properly price for the incoming consumers. Insurers set rates without any risk factors or data on the incoming policyholders and did not anticipate the sicker populations who would flood the market. This issue will likely linger — with 12 of the co-ops folding, the big question in 2016 is, where will these consumers who made the companies unprofitable sign up?  At the same time, there is still a large population of healthy, young individuals unwilling to sign up for the health plans despite the mandate. It remains to be seen whether the tax penalty of 2016 will be enough to steer individuals during the next open enrollment period.

The lack of flexibility in benefit design is also a consideration of health plans. Many see the current rules as a pill too large to swallow all at once — the sudden requirement for plans to accept all consumers with pre-existing conditions, remove lifetime maximums, and pay no less than 60% of medical costs may have been more than plans could handle in altering their benefit designs. Another issue is the grandfathering of plans not compliant with the ACA due to the famous line, "If you like your plan, you can keep it." California chose not to comply with this grandfathering requirement, leading to a higher number of healthy and risk-averse people already covered on catastrophic plans to sign up under the ACA. Other states, on the other hand, gained only the people who could now sign up because there was a prohibition of pre-existing conditions, leaving people with catastrophic plans and their squeaky-clean claims history to the individual market.

At the same time, the flexible open enrollment periods also created a disincentive for healthy people to sign up, while allowing individuals who are suddenly faced with medical claims to quickly jump onto a plan through loopholes in the rules. CMS is dialing back on one of these enrollment period loopholes this year by announcing there will not be an open enrollment period extension during tax season for those who learn of the steep penalty when filing.

Do these problems and UHC's warning mean the demise of ACA?

It is important to remember the Marketplace, as well as the individual market, is simply not the primary business of UHC. While several months ago UHC announced it may expand its Marketplace presence in more states, this announcement they may do the opposite and pull out of the Marketplace could mean the exit of co-ops and the imminent mergers have made UHC re-focus on its main bread and butter business instead — the group market. Most of UHC's profits come from group sales of employer-sponsored health plans. UHC started out its participation in the ACA in only a handful of states, with conservative premium offerings, and only cautiously increased their market last year. This approach means UHC has a small risk pool, and dipping their toes in the Marketplace water could have hurt them in the long run. At the same time, despite the cautious entrance into the Marketplace, start-up costs to create these new plan offerings were no doubt substantial, and the small population who did choose UHC likely did so for the brand recognition — in other words, consumers who knew they would incur more claims and needed better plans. At the same time, with the mergers going through next year, the Marketplace is not going to be UHC's game―their focus will be group plans, while Humana and Aetna will likely dominate the Medicare Advantage space; Cigna and Anthem and the blues, the individual market.

At the same time, CIGNA and Aetna, while acknowledging they also did not profit from the Marketplace, stated it's way too early to call for an exit from the Marketplace. And the program was not without its winners in 2014. Looking at companies who had to share their profits in the risk corridor program in 2014, for example, plans in California were big winners — namely Blue Shield of CA, Kaiser, and Anthem Blue Cross. This could be due in part to the number of young individuals in urban areas who did sign up for coverage in California, marking the success of the Covered California campaign, as well as not setting premiums as aggressively as possible in the past year.

What we do know is, this open enrollment period is crucial for CMS. While CMS already announced they anticipate low enrollment numbers, it is vital to the success of the ACA that these numbers include the healthier and younger individuals who have yet to sign up for a plan and are not deterred by the tax penalty.

Resources

As CMS expectations regarding risk adjustment continue to evolve, health plan, ACOs, and capitated health systems must design and flawlessly implement a strategic, mixed model that incorporates a meaningful percentage of retrospective, concurrent, and prospective initiatives, plus drives data integration with care management. Visit our website to learn more >>

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by GHG Advisors