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I Don't Care that UnitedHealth is Ditching Obamacare 

I Don't Care that UnitedHealth is Ditching Obamacare 

[On 6/13/2016, this piece ran on Forbes]

Last week, UnitedHealth announced it will pull out of most Obamacare exchanges in 2017 because of anticipated losses of $650 million on its exchange business this year. (Let’s not feel too sorry for United, since they brought in $11 billion in profits in 2015).

So, what should we make of this announcement? Just because United hasn’t been successful in the individual market, doesn’t mean the Affordable Care Act (ACA) has failed. Even as the CEO of a company fighting to provide health care and coverage to self-employed Americans, I don’t care that UnitedHealth is exiting the exchanges. Here’s why.

It’s not bad for consumers, yet.  

United’s exit is more symbolic (and political) than it is likely to have a deep market pricing impact. United’s share of all exchange plans is a paltry 6 percent. A significant decrease in competition would prove negative for consumers over the long haul, but we know United’s pullout will have little effect on national health plan pricing and selection for 2017. (There are a few places—like small counties in Arizona—where United’s pullout will have an immediate effect of leaving only one insurer vying for consumers.) 

United hasn’t figured out an exchange model that works.

The individual marketplace is still the Wild West. United tried to apply their ‘old-school’ group market approach to the brand new individual market. They had relatively little experience in the post-ACA individual markets when they started selling plans in Obamacare exchanges. They started a year later than most carriers and offered plans with broad networks of doctors and hospitals, attracting sicker patients. Their platinum plans were so unprofitable that United withdrew them from the exchanges in the middle of last year’s Open Enrollment.

But wasn’t the ACA supposed to make it possible for sick Americans to get coverage?

Yes! In order for carriers to be protected by government-mandated Risk Adjustments between carriers, they have to know how many members have conditions, every single year. Effectively, carriers with high-risk enrollees receive funds from the carriers with low-risk enrollees.

United should have been able to get credit for the sick population they enrolled. But they could only have done this if they had built the systems to “code” someone as Type 2 Diabetic, for example—which typically requires getting that enrollee to a medical professional each year. Because United did not adapt well to the individual market, they didn't manage risk and patient conditions well enough to be profitable. United’s premiums weren’t high enough to profit from their risky patient pool, so United blamed the ACA for their failure.

“Instead of saying, ‘We screwed up,’ United said, ‘Obamacare is the problem and we may not play anymore,'” said Peter Lee, Covered California’s executive director. “It was giving an excuse to Wall Street and throwing the Affordable Care Act under the bus.”

But United’s latest moves indicate they won’t be out the marketplace forever. They've been investing in the creation of new insurance companies like Harken Health, and a number of former UnitedHealth executives founded carrier Bright Health. Both upstarts are re-imagining plan models that will thrive in the individual market.

What kind of health plans work on the individual exchange?

Centene, an insurer based in St. Louis, Mo., has achieved profit margins at the high end of their targets for the exchanges. Centene CEO Michael Neidorff attributed this success to porting over its Medicaid business model and plan structures, offering individual market customers narrower networks of doctors and hospitals. It’s working and they’re doubling down on their exchange business. Additionally, Centene’s plans have attracted a younger, healthier patient pool by offering lower premiums in exchange for reduced care choices.

Similarly, in place of PPOs, we’ve seen the introduction of EPO plans – plans with tighter, HMO-like networks – be successful in the individual market. New Mexico Health Connections, which generated a profit in Q1, replaced their PPO plans with plan designs that better control costs in 2016. While over 50 percent of co-op plans have failed, remaining co-ops like Health Connections have found success in a tightened plan structure.

In addition to adjusting benefits and plan design, successful insurers also “get credit” under the ACA’s Risk Adjustment program by identifying members who suffer from conditions. The best of breed then manage the health outcomes of those members. Many carriers are trained to do this for employer groups, but the practice is much harder in the individual market. Each year, all members are treated like a new population in the eyes of Risk Sharing programs, and typically 50 percent of members churn out of plans annually, which makes long-term care challenging.

United will have to innovate and provide plans with tighter networks that manage care effectively. It makes sense for United to retrench and come back with a product that’s financially sustainable. They're too big a ship to turn in an instant, so leaving the exchanges is probably a better option for them. And it opens an opportunity for upstarts to give it a go. Large carriers like United haven’t traditionally invested in the consumer navigation required to make narrow networks usable by consumers, nor have they understood the consumer engagement that will improve risk adjustment and access to care for enrollees.

They’ll be back.

Some of UnitedHealth’s competitors, including Aetna and Anthem, remain more optimistic about the future of the ACA—and expect narrow profits in 2016 that they can build on for a strong future in the exchanges. Aetna CEO Mark T. Bertolini recently told investors that he views the ACA marketplaces as a “good investment.”

Ultimately, what we want is pricing stability and selection on the exchanges for consumers. UnitedHealth’s exit will moderately reduce consumer choice, but the long-term impact won't be apocalyptic to the ACA or consumer selection. 

In the coming year, we’ll see other large carriers shift their plan dynamics, as they figure out what it takes to be successful in the new individual market. Those who succeed will learn to tighten networks and efficiently care for sicker members. 

And United will be back.

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