UnitedHealth Group, in a surprising announcement, said this morning it has revised its profit expectations for the rest of the year due to what it called a “deterioration” of its individual commercial insurance offerings on government-run exchanges under the Affordable Care Act and offered no commitment it would stay in the business beyond next year.
The nation’s largest health insurer said it was “evaluating the viability of the insurance exchange product segment,” pulling back on its marketing efforts for individual exchange products for next year and “will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.” The insurer sells individual plans on public exchanges in 24 states and covers more than a half million Americans in these plans.
UnitedHealth had been among the more cautious in offering coverage to individuals on the exchanges, entering only a handful of markets in 2014, the first year such coverage became available. The company expanded for this year and only recently said it would expand its offerings in nearly a dozen more states for 2016. But this morning, it said the business has deteriorated and it expects a reduction in earnings for the fourth quarter of this year of $425 million, or 26 cents per share “driven by 2015 and 2016 exchange product pressure.”
Just last month, UnitedHealth president and chief financial officer David Wichmann touted growth for the individual commercial business, saying “we continue to expect exchanges to develop and mature over time into a strong viable growth market for us.”
But UnitedHealth and other insurers need more Americans to come into the public exchanges because the patients that are signing up for coverage are sicker, making a “higher overall risk pool,” insurance executives say. It’s a key reason many Americans are seeing rate increases of 10 percent or more across the country on public exchanges.
UnitedHealth lowered its earnings forecast for this year to $6 per share from a projection of $6.25 to $6.35 that was made just one month ago.
“In recent weeks, growth expectations for individual exchange participation have tempered industrywide, co-operatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated, so we are taking this proactive step,” Stephen Hemsley, chief executive officer of UnitedHealth Group said in a statement.
UnitedHealth remains commited to the Medicaid business for poor Americans, which is another key part of the health law. Medicaid remains a strong growth business for insurers.
“We continue to be pleased with the growth and overall performance of our company outside of the individual exchange products and look forward to strong, positive and broad based earnings growth across our enterprise in 2016,” Hemsley added.
UnitedHealth is the latest company to retreat from certain aspects of the exchange business. Humana (HUM) said it was terminating plans that would result in more than 100,000 individual insured customers to switch to different plans for 2016. Aetna (AET) has also said it was leaving two markets but entering another.
UnitedHealth Group said it expects net earnings of “$7.10 to $7.30 per share in 2016″ and plans to offer a more detailed outlook in December.
This article was written by Bruce Japsen from Forbes and was legally licensed through the NewsCred publisher network.