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Big insurers remain upbeat about fledgling ACA exchanges

October 29, 2015

Slipping enrollment and struggling competitors have done little to shake the faith that the nation's biggest health insurers have placed in the Affordable Care Act's public insurance exchanges.

Aetna Inc. executives said Thursday that the exchanges, a key tenant in the overhaul's push to cover millions of uninsured people, remain a good market, even though the insurer's enrollment in them fell 11 percent, to about 814,000 people, in the third quarter.

Leaders of the Blue Cross-Blue Shield insurer Anthem Inc. have voiced a similar sentiment, and UnitedHealth Group Inc. said earlier this month that it will expand into 11 more exchanges next year.

"We think it's way too early to call it quits on the ACA and on the exchanges," Aetna Chairman and CEO Mark Bertolini told analysts on Thursday. "We view it still as a big opportunity for the company."

Not-for-profit health insurance cooperatives in South Carolina, Tennessee and several other states have announced recently that they will fold for 2016, leaving many consumers with fewer choices when open enrollment begins Nov. 1. In addition to that, federal officials have said they expect only a slight overall increase in enrollment next year.

But for-profit insurers remain resolute in part because they have deeper pockets that allow them to wait out early losses while the exchanges develop. They also think the potential in this new market makes the wait worthwhile.

Indianapolis-based Anthem's exchange enrollment shrank by 69,000 people, to 824,000 customers, in the third quarter, but the insurer will still sell coverage for 2016 on exchanges in 14 states.

"Over time, we believe we are well positioned for growth as this market stabilizes to a more sustainable level," Anthem CEO Joseph Swedish told analysts on Wednesday.

Anthem Inc. says there remain competitors in the government-run marketplace offering premiums that aren’t enough to profitably provide the coverage patients will require. Prices in some areas probably will have to climb in 2017 and even 2018 to reach levels that make sense, according to Chief Financial Officer Wayne Deveydt. Meantime, Anthem will sacrifice market share to keep its plans profitable, he said.

“When you have fewer national enrollees and you have price points that we don’t believe are sustainable, we’ve just made a conscious decision we’re not going to chase it,” Deveydt told analysts on a conference call on Wednesday. “We are going to need to be patient until this works itself out.”

Deveydt’s remarks spotlight a problem for the Patient Protection and Affordable Care Act’s marketplaces as the third annual sign-up period begins Sunday. Set prices too low to lure customers, and losses can mount. Some smaller firms already have closed, and some bigger insurers have withdrawn from markets,  such as Aetna, which will offer coverage in two fewer states this year.

Minneapolis-based UnitedHealth is expanding to 35 exchanges from 24, and Aetna will offer coverage in 15 exchanges.

Aetna Chief Financial Officer Shawn Guertin said Thursday that the Hartford, Connecticut, insurer knew from the start that this exchange business would be "sort of a longer-term proposition."

Insurers normally want to see a couple years of claims data in order to figure out how to price their coverage properly. But they essentially started from scratch for the 2014 debut of exchange coverage because many of their customers had been uninsured.

Companies that incurred higher-than-expected costs in these initial years were supposed to get help from a program funded by other insurers that had lower-than-expected expenses. But that program will fall far short of satisfying requests for help, and some of the co-ops cited that as a factor in their decision to fold.

Aetna, the nation's third-largest insurer, lost money last year on the exchange business, and it is losing money this year too. But that business only amounts to about 6 percent of its operating revenue, and exchange enrollment makes up only 3 percent of its customer base of more than 23 million people.

Insurers expect the exchange business to improve as they learn more about how to price it. UnitedHealth, for instance, said it expects a better performance from its exchange business next year, partially due to double-digit price hikes.

Aetna's Guertin said the exchange business also will benefit from the addition of customers who were allowed by the Obama administration to temporarily keep older coverage that did not comply with the overhaul. That kept them off the exchanges initially.

Bertolini expects the exchange markets to stabilize because the government, over time, has improved other programs like Medicare Advantage by continually shaping or adjusting it. He'd like to see that done for the exchanges, but he said the political environment in Washington doesn't currently allow for that type of compromise.

"We think that that will change in the future and that will get a much more stable marketplace," he said.

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