November 20, 2015 by Tony Novak
Yesterday the nation’s largest healthcare company UnitedHealthcare (UHC) made a surprise announcement that it backing away from the health insurance exchange system because that business is unprofitable. It’s shares immediately dropped almost 6% in value. Looking forward, what does this mean to consumers? What does it mean to shareholders? What does it mean to employees (my wife is a UHC employee)?
We should be clear that this means that the Healthcare.gov insurance exchange system will fail. There is no way around it. This massively expensive experiment will be shut down. It may be months before government admits this, but the economic indicators are clear at this point. Almost all of the companies offering coverage on the exchange are losing money on these policies, governments refuse to allow premiums to rise to a level that will cover the claims costs and the federal government now refuses to pay the shortfall through a risk adjustment mechanism. All of us know that money-losing businesses eventually close.
For consumers who need coverage for 2016, this is especially bad news. In many parts of the country UHC was the obvious choice when shopping for health insurance. It’s decision to halt marketing these plans means that people like me can no longer endorse them to consumers. This creates an immediate crisis for those who need to sign up for coverage. Additionally, since most other insurance companies have already announced that they are losing money on exchange policies, it is safe to presume that they will now feel shareholder pressure to follow UHC’s lead to exit this market.
I expect that the portion of individuals purchasing non-compliant policies outside of the insurance exchange will increase. I also predict that we see legislation or a change in administrative policy to ease up on the penalties for those who do not have Obamacare coverage.
UHC shareholders should have applauded the company’s decision to ditch a small money-losing business segment. But they did not. We can only speculate that shareholders realize that it will be tougher to make money in the health insurance business than they realized.
Those UHC employees who work in Medicaid and Medicare segments are unaffected. Likewise those who work in the large group insurance field should feel secure. But those who work in the small group and individual insurance divisions should probably have their resume out very soon.
It the end it makes sense to realize that there are only two ways to solve the healthcare crisis that has dogged the U.S. for decades: increase what we pay into the system or lower what we pay out for care. The Affordable Care Act relied almost exclusively on raising premiums through government subsidies and new taxes placed on people and businesses who did not pay the higher insurance premiums. Little has been done to reduce what we pay for health care.
It is far too easy for people who study and write about healthcare system to say ‘told you so‘. The ‘designed to fail’ theorists are having their day in the sun. Yet the facts were quite clear since the early days of ACA that the exchange system would fail based on simple economics. The only factors we did not know was the extent government would go to subsidize the money-losing scheme to keep it afloat and how long insurers would continue to hope that they would. Now is seems that the answer is ‘not too much longer’.