UnitedHealth Is Still Bleeding Its Most Profitable Members

Late last week, the health-insurance company UnitedHealth Group said its third-quarter profits only fell by 28 percent, and the fact that things weren't worse led to general applause on Wall Street. Its battered shares are even up almost nine percent since its earnings release.

Look inside the numbers, though, and it's clear that the health plan's biggest -- and still largely overlooked -- problem is still getting worse as employers continue to cut back on fully insured health coverage for their workers. And that's a disquieting trend that's only likely to accelerate as the economy's downhill slide picks up speed.

Here's a quick look at UnitedHealth's membership numbers from its press release (click for a larger version):


At first glance, these don't look too bad. The company did see membership slide somewhat over the third quarter, but it's still up almost three percent over the previous year.

Take a closer look, though, at the top line -- what UnitedHealth calls its "commercial risk-based" business, and what the rest of us know as the fully insured health plans it sells primarily to employers. The number of people UnitedHealth insures in such plans is down 3.5 percent over the past year, and a full seven percent since the end of 2006. The big problem? These plans are far more profitable than any other major chunk of UnitedHealth's business -- and they are inexorably disappearing.

The Minneapolis Star-Tribune, UnitedHealth's hometown paper, put it this way:

For several years, health insurers have struggled with what's known as "buy-downs," industry lingo for employers paring medical benefits that they buy for their workers as premiums go up and up.

Now, with the economy heading into a recession, buy-downs may become no-buys as companies shed jobs.

UnitedHealth execs acknowledge the problem, but say they can manage it with clever financial engineering premium increases. Here's CEO Stephen Hemsley:

We are of course addressing enrollment, but our greatest near-term priority is optimizing our product alignment, premium yield and medical cost trend in each market. We are confident profit and growth will quickly follow.

In other words, raise premiums enough and you can make up the losses from the steady elimination of your more important business. Of course, UnitedHealth seems to be overlooking the fact that higher premiums themselves will push even more companies to scale back or drop their health-insurance benefits -- which, of course, is the main problem in the first place. Now, that's long-term thinking in action.

Further reading:

• Coventry Health Suddenly Looks Like a Target -- If Anyone Is Buying
• WellPoint Holds the Line-- For Now
• Humana Presses Its (Medicare) Advantage
• Cigna's Healthcare Business Melting Down, Out of Sight
• Can Aetna Buck the Health-Insurance Headwinds?