UnitedHealth Future In Public Insurance Exchange Questionable

(AP) -- The nation's largest health insurer is questioning its future in public insurance exchanges, the latest signal of major concerns about the online marketplaces that have helped the Affordable Care Act extend coverage to millions of people.

UnitedHealth Group said Thursday that it will scale back marketing for plans it sells on the exchanges and decide next year whether it will even stay in that business in 2017. It also cut its 2015 earnings forecast.

The announcements come a few weeks after several smaller, nonprofit insurance cooperatives said they would stop selling coverage on the state-based exchanges.

Insurers are struggling to attract enough healthy customers into their still-new exchange coverage to balance sicker patients who signed up for coverage quicker because they use a lot of health care. Until that happens, the exchanges won't be a viable, long-term market for these companies, Morningstar analyst Vishnu Lekraj said.

"The market still needs to mature, he said. "That's the lesson here."

But the exchanges also aren't on the verge of collapse either. Enrollment for 2016 coverage started Nov. 1, and more than 1 million people signed up or renewed coverage in the first two weeks, according to the Obama administration.

The average number of insurers participating in the exchanges has climbed to 10 per state, up from nine last year and eight for 2014, according to the U.S. Department of Health and Human Services.

UnitedHealth rivals Aetna and Anthem — which reaffirmed its 2015 earnings forecast last week — both said last month that they still see potential in the business. Aetna CEO Mark Bertolini told analysts it was "way too early to call it quits."

But UnitedHealth also endorsed its exchange business in October, when it said it would expand into 11 more exchanges next year after growing from four to 24 in 2015. Chief Financial Officer David Wichmann told analysts then that the company expected its exchange business to be "strikingly better" in 2016 and that the exchanges will mature into a strong growth market.

Since then, the insurer says financial hits from that business have come into clearer focus. The insurer has been hurt in particular by customers who signed up for coverage outside the open enrollment window and use more health care in general than those who bought coverage during open enrollment.

UnitedHealth expects to book an operating loss of slightly more than $700 million this year, largely from its exchange business. That includes advanced recognition of $275 million in losses it anticipates from next year, when it also expects to lose an additional $200 million to $225 million that it cannot record in advanced recognition.

CEO Stephen Hemsley told investors Thursday that the company doesn't intend to take further losses in 2017.

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

UnitedHealth covers around 500,000 people through the public exchanges. That's a small slice of the insurer's total enrollment, which exceeds 46 million, and Hemsley emphasized Thursday that the company's overall business remains strong.

Still, its exchange losses have been deep enough to force the company to cut a forecast it had already raised twice this year. UnitedHealth now expects 2015 earnings of about $6 per share, down from its previous forecast for $6.25 to $6.35 per share.

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

Hemsley told analysts that the company would have earned more than $6.40 per share this year if it had done no business on the exchanges. He also said the company's forecast for 2016 earnings ranging from $7.10 to $7.30 per share would have been higher.

Insurers may start attracting more healthy customers to their exchange business in the coming years because a penalty that the overhaul imposes on those who remain uninsured will grow, Lekraj said. Most of those prospective customers will buy coverage with help from income-based tax credits.

The performance of insurers also is expected to improve as they learn more about the customers they serve in this new business and how to set premiums or the price of coverage.

Still, UnitedHealth's unexpected announcement Thursday is sure to stoke concerns about the long-term sustainability of the exchanges, especially since some financial programs designed to support insurers as they learn how to price their business will draw to a close.

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."

Shares of the big health insurers all started tumbling Thursday before markets opened and after UnitedHealth delivered its update. UnitedHealth wound up dropping 5.6 percent, or $6.57, to close at $110.68. Indianapolis-based Anthem Inc. sank nearly 7 percent, or $9.50, to $127.86. Hartford, Connecticut-based Aetna Inc. dropped 6.5 percent, or $6.91, to $99.95.

(© Copyright 2015 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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