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Biggest U.S. Health Insurer Says It May Abandon Public Exchanges

UnitedHealth, the nation’s largest health insurer, chopped its earnings forecast and said it is questioning its future in public insurance exchanges.

UnitedHealth, the nation’s largest health insurer, chopped its 2015 earnings forecast and indicated it is questioning its future in public insurance exchanges, a key component in the nation's health care overhaul popularly known as Obamacare.

The company said Thursday that it would pull back on the marketing of its exchange business a few weeks after open enrollment for that coverage began nationwide. It also said that it will decide in the first half of next year "to what extent it can continue to serve the public exchange markets in 2017."

"We cannot sustain these losses," CEO Stephen Hemsley said Thursday. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."

Hemsley told investors Thursday that the company doesn't intend to take further losses from this business in 2017.

State-based health insurance exchanges opened a few years ago after passage of the Affordable Care Act in 2010, offering a way for customers to buy individual health insurance, many with help from income-based tax credits.

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The exchanges offered a potential growth boom for insurers but also risk because UnitedHealth and others had little sense of the health needs of new customers. They also didn't know whether the new business would attract enough healthy customers to balance the expected enrollment of sicker customers who had not been able to find coverage before.

UnitedHealth's unexpected announcement Thursday is sure to raise more concerns about the sustainability of the overhaul's public insurance exchanges.

With less than a year before the U.S. presidential election, Goldman Sachs analyst Matthew Borsch wrote that the health of the exchanges "may ultimately have significant policy and political implications."

For UnitedHealth, it marks a dramatic shift after the Minneapolis company said just last month that it was expanding into 11 more exchanges next year. UnitedHealth initially sold coverage on only four exchanges before expanding to 24 this year.

Chief Financial Officer David Wichmann told analysts in October that the company expected its exchange business to be "strikingly better" in 2016 and that the exchanges will mature into a strong growth market.

The company still plans to expand into more exchanges, but medical claims have come in higher than expected on the exchanges overall, and its business in particular has deteriorated.

UnitedHealth doesn't detail the performance of its exchange business, but the insurer did say Thursday that it was cutting its forecast in part to account for the advanced recognition of $275 million in losses it expects next year. The company now expects now forecasts 2015 earnings of about $6 per share, down from its previous forecast for $6.25 to $6.35 per share.

UnitedHealth had raised that forecast twice so far this year before reaffirming it last month.

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Analysts expect earnings of $6.31 per share, on average, according to FactSet.

UnitedHealth hasn't been alone in endorsing the exchange business, which amounts to a small slice of income for major insurers. Aetna Inc. CEO Mark Bertolini told analysts last month that the nation's third-largest insurer still sees the exchange business as a big opportunity and it was "way too early to call it quits."

The Blue Cross-Blue Shield insurer Anthem Inc. also told analysts that it was well positioned for growth in that market once it stabilizes.

But insurers also have struggled to entice healthy customers to buy high-deductible insurance commonly sold on the exchanges. The plans require patients to first pay deductibles that can top several thousand dollars before most coverage begins.

Several nonprofit health insurance cooperatives established to compete with insurers on the exchanges announced earlier this year that they would fold. Those plans also have been hurt by lower-than-expect payments from overhaul programs designed to support the insurers while they learn how to price coverage on the exchanges.

UnitedHealth Group Inc. shares were down $5.55, or 4.75 percent, to $111.70, nearly two hours after trading opened Thursday. Shares of insurers Anthem and Aetna also were down.