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5 reasons why UnitedHealth wants to quit PPACA

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On November 19, 2015, UnitedHealth, in a conference call for investors, announced it may abandon the law’s insurance exchange marketplaces in 2017 after suffering $425 million in losses on these policies.

UnitedHealth sells policies on about half of the PPACA exchanges.

UnitedHealth’s departure would not be devastating, as it insures about 5 percent of the roughly 10 million Americans with exchange marketplace plans.

However, the impact could be dramatic in a handful of states where UnitedHealth dominates PPACA coverage, and the company’s bad economic experience may foreshadow similar problems for other insurers.

Here are 5 major reasons for UnitedHealth’s problems, all but one of which are not unique to United.

Editor’s Note: In-depth coverage of these issues (and more) can be found at Tax Facts Onlinewhich provides a comprehensive guide to advising clients on tax and financial issues.


1. Partial year insureds

One of the chief problems cited by UnitedHealth was persons who sign up for coverage after the annual open enrollment period, quickly incur claims, and then drop coverage without having paid much in the way of premiums.

Read: Insurers complain of PPACA special enrollment abuse

This problem is more acute for people joining during a special enrollment period that is available in certain circumstances, such as childbirth, marriage, or loss of existing coverage.

At the Credit Suisse Healthcare Conference in Arizona, Aetna Inc. CFO Shawn Guertin described his company’s similar experience:  “There’s a lot more people … coming in [during] the special enrollment period … and then staying for only a few months and then dropping [coverage] and obviously getting service along the way.”


2. Healthier individuals lacking on exchanges

Another problems described by UnitedHealth is that enrollees are disproportionately older, less healthy, and more expensive.

That’s been an industrywide problem under PPACA, which has seen less than 30 percent of signups go to the 18-34 age group, 10 percent less than what’s needed.

Many younger and healthier Americans don’t think the cost of coverage is worth it, given their modest health care needs.

Similarly, PPACA’s individual mandate penalty won’t take full effect until next year, and so it has still made financial sense for some people to go without insurance.


3. Transitional policy allowing pre-PPACA policies to continue

After much criticism that PPACA didn’t deliver on the President’s promise that if you like your insurance you can keep it, the administration allowed renewals of pre-PPACA individual policies until 2017.

Prior to PPACA’s consumer protections, people with individual coverage tended to be healthier because insurers could discriminate against sicker customers.

As a result, healthier people were more likely to continue pre-PPACA policies rather than go to the exchange.


4. Very low risk corridor payments

These risk corridor payments were to go to insurers with bad claims experience to ease the transition to the exchanges. 

But the payments have been only 12.6 percent of what was promised, leaving a $2.5 billion shortfall.  Whether they will ever be made is not clear.

On Nov. 19, 2015 the administration stated that it will still try to get the payments made.

The guidance specifically said that the shortfall represents an “obligation of the United States government for which full payment is required.” However, in 2015 Congress limited the ability of CMS to make these payments.


5. UnitedHealth’s pricing

UnitedHealth is selling one of the two lowest-cost silver plans, the most popular plans, in more than 40 percent of its PPACA markets.

Editor’s Note: In-depth coverage of these issues (and more) can be found at Tax Facts Onlinewhich provides a comprehensive guide to advising clients on tax and financial issues.