Insurance giant shakes ACA tree

Dan Gorenstein Nov 19, 2015
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Insurance giant shakes ACA tree

Dan Gorenstein Nov 19, 2015
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Here we go again: another round of ‘Is this the beginning of the end for Obamacare?’ It’s not a Supreme Court case this time, but an earnings call from the nation’s largest health insurer, UnitedHealth Group.

On Thursday morning, the company said it projects to lose $425 million selling plans on the Affordable Care Act exchanges, and executives said they are considering whether to pull out of those markets down the road.

That news has shocked many in the industry and has reignited partisan debate about the long-term viability of the law. To ACA opponents, UnitedHealth’s announcement is further proof that insurance sold on the exchanges attracts too many sick and expensive consumers.

The argument goes: premiums will just get higher and higher, and insurers’ losses will mount.

“I mean, I’m hearing some people saying ‘Oh, my God, death spiral,’” said Jonathan Gruber, an MIT economist and architect of the ACA. “That’s absolutely wrong.”  

Even if UnitedHealth does pull out, other major carriers, including Aetna and Anthem. have said in recent weeks they are in — for now.

Kaiser Permanente CEO Bernard Tyson said the company remains “strongly committed to continuing to participate in the health exchanges.”

“While there have been challenges at times, we believe at the end of the day [the exchanges] are causing healthy disruption, and are forcing the health care industry to respond better to consumer needs,” he said. 

Insurers expect several new regulations to drive healthier consumers onto the exchanges over the next few years. A stiffer penalty for not carrying insurance begins January 1, and certain grandfathered non-ACA compliant plans will be phased out.

For any company getting cold feet, executives run the risk of losing out on a marketplace with more than 10 million consumers.

Leemore Dafny at Northwestern’s Kellogg School of Management said just because UnitedHealth took a hit doesn’t mean all insurers will take a bath.

“In the early stages of any marketplace, companies are figuring it out and there are winners and there are losers, and United is signaling, ‘Hey, we are one of those who lost,’” she said.

While the company’s announcement may sound like sour grapes to some, it highlights what the industry consider a major problem.

When the ACA was established, the government created a financial safety net to support insurers as they entered the exchange business. Whether it’s co-ops closing or the nation’s largest insurer struggling, Clare Krusing — who’s with the trade group America’s Health Insurance Plans (AHIP)  — said the net isn’t as strong as it needs to be.

“And the result of that is instability, coverage disruption and serious challenges to the affordable coverage consumers depend on,” she said.

Insurers would like to see more federal dollars go to cover some of their losses. In return, it’s more likely insurers will stay in the exchanges, creating the price competition we all want.

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