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UnitedHealth to avoid 2016 public exchange plan sales

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UnitedHealth Group Inc. (NYSE:UNH) is responding to heavy losses on 2015 health insurance exchange plan coverage, and a sense of a lack of momentum in the public exchange program, by taking immediate steps to keep its 2016 exchange plan enrollment as low as possible, the company said today.

Stephen Hemsley, UnitedHealth’s chief executive officer, said the company is suspending marketing in most Patient Protection and Affordable Care Act (PPACA) exchange markets and reducing agent and broker commissions in most markets.

Earlier in the year, the company announced it would eliminate some individual health insurance products in 2016 and increase the cost of the remaining products. ”The actions should temper any growth in 2016,” Hemsley said during a conference call with securities analysts. UnitedHealth organized the call to discuss a move to reduce its earnings forecasts for the fourth quarter of 2015 and for 2016 to reflect anticipated individual health business losses.

For 2017, “we are evaluating the viability of the insurance exchange product category for us, Hemsley said.

The company will look at public exchanges on a market-by-market basis and will decide if it will participate in any of them, and where, by mid-2016, Hemsley said.

“Participation in exchanges is not essential to our overall benefits offerings,” Hemsley said. He noted that other UnitedHealth operations, including its Medicare and Medicaid plan operations, are doing well.

Hemsley said UnitedHealth will lose $440 million on individual health in 2015 and is reducing its earnings forecast by $425 million, to reflect $75 million in spending on a new Medicaid plan and $275 million in projected 2016 PPACA-compliant individual health losses it expects to record in 2016. The company also expects to record another $200 million to $225 million in 2016 losses in 2016.

The individual health operating losses and charges may cut UnitedHealth’s 2015 earnings 26 cents per share, to $6 per share, Hemsley said.

UnitedHealth’s rush to highlight a retreat from the exchange program wo weeks after the start of the open enrollment period for 2016 raises new questions about the viability of the PPACA individual health market regulatory system.

Assurant Inc. (NYSE:AIZ) began to pull out of the 2016 exchange market in April and is in the process of closing its health insurance business. Humana Inc. (NYSE:HUM) announced earlier this month that it will cut back on individual health sales in 2016 and is thinking about the possibility of getting out of the individual health market in 2017.

See also: Assurant puts health, benefits units up for sale and Humana may slash individual health operations

Anthem Inc. (NYSE:ANTM), Aetna Inc. (NYSE:AET) and Humana Inc. (NYSE:HUM) continue to be major exchange plan providers, but their executives have sounded less enthusiastic about the exchange program.

See also: PPACA earnings messages: Anthem, Assurant and more

Managers of some of the struggling nonprofit, member-owned Consumer Operated and Oriented Plan (CO-OP) carriers created with PPACA startup loans have suggested that executives at the big carriers were rooting for their failure. But Hemsley said UnitedHealth sees the CO-OPs’ problems as a sign of problems with the entire PPACA exchange system, not a reason to celebrate.

See also: CO-OP exec: ‘The long knives came out’ [With video]

UnitedHealth mostly stayed outside of the PPACA exchange market in 2014. It began selling exchange coverage in many states for the 2015 coverage year, and it’s now selling 2016 exchange coverage in 34 markets.

The company has about 540,000 enrollees in PPACA exchange plan coverage, 160,000 in PPACA-compliant off-exchange individual coverage, and 500,000 in individual policies that have been in effect since before January 2014, when the major PPACA commercial health insurance market changes took effect.

Executives said they expect 2016 exchange plan enrollment to be comparable to 2015 exchange plan enrollment, in spite of the lack of marketing support.

Dan Schumacher, UnitedHealth’s chief financial officer, said that most of what the company was saying about the outlook for PPACA-compliant exchange coverage also applies to PPACA-compliant off-exchange individual coverage. 

UnitedHealth executives sounded only mildly disappointed in the performance of the company’s individual health business when they talked about third-quarter earnings.

See also: Health margin squeeze nips UnitedHealth

Analysts on the call today asked the UnitedHealth executives why they now sound so much grimmer about the state of the individual health business.

Hemsley said the company’s view has changed, in part, because projections suggest that overall exchange growth will be much slower than the company had originally expected. The soft HealthCare.gov sign-up figures for the second week of the open enrollment period confirmed what the company was already thinking about exchange system performance in 2016, he said.

UnitedHealth was hoping exchange program managers would find ways to keep people from using the PPACA ban on medical underwriting as an invitation to be “free riders,” or wait until they got sick to sign up and pay for coverage.

Instead, Hemsley said, the company has seen many individuals using the PPACA special enrollment period (SEP) system to enroll outside of the regular open enrollment period when they see they have significant needs for health care. “These have been strong users of services,” he said.

Schumacher said that about 20 percent of its PPACA-compliant individual health enrollees have been SEP enrollees, and that, due to enrollee attrition, SEP enrollees will make up about 30 percent of its PPACA-compliant individual health enrollees at the end of the year. The SEP enrollees who come in through the exchange use about 20 percent more care than other exchange enrollees, he said.

Off-exchange SEP enrollees use about as much care as other PPACA-compliant individual health enrollees, possibly because of UnitedHealth’s efforts to verify whether the SEP applicants qualify for SEPs, Schumacher said.

The older individual health policies sold under the pre-PPACA rules have been performing in line with the company’s expectations, executives said.

Hemsley said that UnitedHealth hopes the exchange system will evolve to become a viable market, and that the company will consider continuing to participate if the system works better.

But, when the company was reviewing its individual health business recently, the feeling was “the trends were not going to improve,” Hemsley said.

Marilyn Tavenner, the president of America’s Health Insurance Plans (AHIP), who helped run the PPACA public exchange system earlier this year, when she was administrator of the Centers for Medicare & Medicaid Services (CMS), said in a statement that AHIP has been very clear with the Obama administration about the serious challenges facing consumers and health plans in the public exchange market, including the failure of the PPACA risk corridors program.

“Most recently, nearly 800,000 Americans have faced coverage disruptions as a result of the significant and unexpected shortfall with the risk corridors program,” Tavenner said in the statement. “When health plans cannot rely on the government to meet its obligations, individuals and families are harmed as a result. The administration must act to ensure this program works as intended and consumers are protected.” 

Standard & Poor’s Ratings Services said in a bulletin that the UnitedHealth individual health problems would not affect the ratings it has assigned the company. S&P said that it still expects UnitedHealth to have pretax operating income equal to about 7 percent to 8 percent of revenue in 2015 and 2016.