When UnitedHealth (UNH), the nation's largest health insurer, announced earlier this month that it would exit the Affordable Care Act exchange business in all but three states, the obvious question was, who's next? After all, if the nation's biggest health carrier can't make the Obamacare exchanges profitable, who can? UnitedHealth announced it expects to lose $650 million on its ACA business in 2016, although its first-quarter earnings beat analyst expectations, thanks to the company's highly profitable consulting and technology businesses.
For now, at least, the UnitedHealth announcement has not set off a succession of me-too moves. In a conference call with analysts Thursday after reporting first-quarter results, Aetna CEO Mark Bertolini reiterated his support of the company's Obamacare efforts, saying the company is on track to meet its goals for improving operating margins in these programs. Bertolini also said the company is committed to working with the administration and lawmakers to improve the exchange program.
Like UnitedHealth, Aetna's latest earnings beat analyst expectations, even though net income dropped 7 percent. The company also boosted profit projections for the full year. In the call Bertolini said Aetna also is on track to close its merger with rival insurer Humana in the second half, pending approval in only six more states. Humana will report first quarter earnings May 4.
Meanwhile, Anthem (ANTM), the second-largest U.S. health insurer, announced first-quarter earnings Wednesday, which, like the others, beat analyst expectations, even though net income fell, in this case, 18.7 percent. In its post-release conference call, Anthem said it's sticking with the 14 state health exchanges it's now in and expects to make a small profit from them this year. "We believe we are well-positioned for continued growth in exchange [enrollment] as this market stabilizes," Anthem CEO Joseph Swedish said.
Anthem awaits government approval to acquire rival insurer Cigna. That company has also expressed confidence in the ACA, saying it plans to expand its exchange business in 2017. (Cigna will announce earnings May 6.)
Smaller insurers that have traditionally operated in the Medicaid market have done well in the exchanges, said Sabrina Corlette, senior research professor at the Georgetown University Center on Health Insurance reforms. Centene (CNC) is one example. During a conference call Tuesday announcing Centene's better-than-expected earnings, CEO Michael Neidorff said, "Centene's exchange experience continues to be favorable." While he didn't break down numbers, he added: "We are achieving margins at the higher end of our targeted range."
So why couldn't UnitedHealth make the exchanges work?
The giant insurer focuses mainly on group health insurance offered through employers. So, UnitedHealth often offers exchange plans with broader networks but also higher premiums. The bulk of exchange patients, however, are lower-income, receive premium subsidies and choose one of the two lowest-premium plans offered.
"In a very short time, consumers have become very savvy about finding and switching to the least expensive plans," said Corlette. In fact, 43 percent of returning customers switched plans in the 2016 open-enrollment period, according to the Department of Health and Human Services.
UnitedHealth's higher premium plans may have failed to attract enough healthy consumers to make them profitable. At the same time, higher-cost patients with many health needs may have gravitated to UnitedHealth's broader networks.
What seems to work best for doing business in the exchanges is a strategy of offering smaller networks of providers, including primary care physicians and specialists, to keep costs low. While this often results in lower premiums, it can also mean consumers have trouble finding their doctors in a plan's network, or they may not have access to the specialists they need. This is especially true in areas where only one or two insurers are participating in an exchange, said Corlette.
According to a study from the Kaiser Family Foundation, if UnitedHealth pulled out of all states, 11 percent of exchange enrollees would have only one insurer choice compared to 2 percent currently. In addition, some experts predict that if Anthem's acquisition of Cigna and the merger between Aetna and Humana go through, it will mean further consolidation in the exchange business and potentially fewer choices for consumers.
Finally, no matter how many insurers participate in the exchanges, consumers can expect to see premium increases in 2017. Several insurers have set the stage for major price hikes in the wake of losses. One reason, explained Corlette, is that many insurers priced their plans too low when the exchanges started in 2014. "For the first couple of years, insurers were blind in figuring out their pricing strategy because there was no data. It really was a guessing game."
Now consumers are left to guess which insurers will stay in the exchanges -- and how much they'll charge.