PPACA’s future may rest on patience of Aetna, Anthem

(Bloomberg) — The fate of the Patient Protection and Affordable Care Act (PPACA) – Obamacare – may depend on how long Anthem Inc. (NYSE:ANTM) and Aetna Inc. (NYSE:AET) are willing to wait before starting to make money off it.

See also: PPACA earnings messages: Anthem, Assurant and more, Moda shrinks, Aetna rises, analysts watch and Humana may slash individual health operations

The two insurers are on the hot seat now that UnitedHealth Group Inc. (NYSE:UNH) appears unlikely to linger as a seller on the PPACA public exchange system. UnitedHealth, the largest U.S. health insurer, said Thursday that if it can’t turn a profit, in 2017 it may quit the health plan marketplaces where millions of Americans buy coverage.

While UnitedHealth has a small share of that market, Anthem and Aetna are two of the biggest players. Like UnitedHealth, neither has had financial success there — Aetna has said it’s losing money, while Anthem is making less than it would like. They’re both working to widen profit margins and have said their strategy is based on the expectation that covering people under the law will become more profitable.

“It looks like it’s more of a United issue, with some flavoring of national issues,” Bill Melville, an analyst who focuses on health insurance exchanges at Decision Resources Group, said by phone. “It’s a wake-up call that there’s been some pretty rough headwinds.”

Worrying signs

There have been other worrying signs. Already 12 of the 23 nonprofit, member-owned Consumer Oriented and Operated Plan (CO-OP) carriers created to sell insurance under PPACA have said they’re closing down, overwhelmed by financial losses.

UnitedHealth’s shares slumped 5.7 percent to $110.63 on Thursday. Aetna and Anthem fell more, signaling investors are worried their businesses may be deteriorating as well. Aetna recovered some ground in early trading on Friday after the insurer said it hasn’t seen any deterioration in its individual business through the end of October.

Peter Costa, an analyst at Wells Fargo & Co, said Thursday that he expects Anthem and Aetna to lose money on the exchanges next year, potentially leading them to reconsider their postures.

“We believe UnitedHealth’s commentary that it would only participate in this market in 2017 if it expected to at least break even for the year is indicative of the mindset of many insurers,” Costa said. “We expect that the experience of insurers will either improve in 2017 and beyond, or they will choose to no longer participate in the market.”

David Windley, an analyst at Jefferies, said some insurers could improve their financial results by leaving the PPACA exchange system.

“Exiting the exchange market would likely indicate that the entire marketplace experiment has failed, thus no longer a threat to cannibalize commercial group business, and yield higher” earnings per share, he said in a note late Thursday.

Representatives for Aetna and Anthem declined to comment, referring to comments made as recently as last week that they were willing to be patient. Aetna had said on Nov. 10 that it was working to break even in the exchanges next year, and on Friday said its individual business is performing “in line with its projections” through the end of October.

‘Too early’