The fate of Barack Obama’s signature health-care law may depend on how long Anthem Inc. and Aetna Inc. are willing to wait before starting to make money off it.
The two insurers are on the hot seat now that UnitedHealth Group Inc. appears unlikely to linger as a seller on the Affordable Care Act’s government-run markets. UnitedHealth, the U.S.’s largest health insurer, said Thursday that if it can’t turn a profit, in 2017 it may quit the health plan marketplaces where millions of Americans buy coverage.
While UnitedHealth has a small share of that market, Anthem and Aetna are two of the biggest players. Like UnitedHealth, neither has had financial success in the market. Aetna has said it’s losing money, while Indianapolis-based Anthem is making less than it would like. They’re both working to widen profit margins and have said their strategy is based on the expectation that covering people under the law will become more profitable.
“It looks like it’s more of a United issue, with some flavoring of national issues,” Bill Melville, an analyst who focuses on health insurance exchanges at Decision Resources Group, said by phone. “It’s a wake-up call that there’s been some pretty rough headwinds.”
Insurers collectively lost $2.5 billion on their Affordable Care Act business in 2014, an average of $163 per customer, according to the consulting firm McKinsey & Co. Just 35 percent of companies selling on the federal and state marketplaces turned a profit, McKinsey said in a report this month.
“The ACA marketplaces are not yet profitable for most insurers,” Larry Levitt, a health insurance specialist at the Menlo Park, California-based Kaiser Family Foundation, said in an e-mail. “It’s going to take enrollment growth, especially among healthy people, to make it an attractive market for insurers. If enrollment stagnates, we could very well see insurers thinking twice about their participation.”
Enrollment is the core problem for insurers. Not enough people have signed up for Affordable Care Act coverage, especially people in relatively good health. Of 24.1 million people estimated to be eligible for a subsidy to buy a plan on the federal healthcare.gov system or on similar state-run marketplaces, just 8.6 million have actually signed up, the Robert Wood Johnson Foundation said in an October report.
There have been other worrying signs. Already 12 of the 23 not-for-profit exchanges created to sell insurance under the ACA have said they’re closing down, overwhelmed by financial losses.
Shares in UnitedHealth, which covers about 28,000 Hoosiers via the Obamacare exchange, shares slumped 5.7 percent, to $110.63 each on Thursday.
Aetna and Anthem shares fell even more, signaling investors are worried their businesses may be deteriorating as well. Anthem closed at $127.86, down 6.9 percent on the day.
Peter Costa, an analyst at Wells Fargo & Co, said Thursday that he expects Anthem and Aetna to lose money on the exchanges next year, potentially leading them to reconsider their postures.
“We believe UnitedHealth’s commentary that it would only participate in this market in 2017 if it expected to at least break even for the year is indicative of the mindset of many insurers,” Costa said. “We expect that the experience of insurers will either improve in 2017 and beyond, or they will choose to no longer participate in the market.”
Representatives for Aetna and Anthem declined to comment, referring to comments made as recently as last week that they were willing to be patient. Aetna said on Nov. 10 that it was working to break even in the exchanges next year.
“It’s way too early to call it quits on the ACA and on the exchanges,” Aetna CEO Mark Bertolini said on an Oct. 29 conference call held to discuss third-quarter financial results. “We view it still as a big opportunity.”
Anthem echoed those remarks. In late October, Chief Financial Officer Wayne DeVeydt said the company is willing to wait a few years for the Obamacare exchange business to improve.
“We are going to need to be patient until this works itself out, which we hope will be by 2017 and 2018,” DeVeydt said. “What we thought would be a tailwind going into 2016 is probably going to be a headwind.”
The Obama administration said UnitedHealth’s announcement isn’t a sign of larger problems.
“The reality is we continue to see more people signing up for health insurance and more issuers entering the marketplaces,” Ben Wakana, a spokesman for the Department of Health and Human Services, said in an e-mail. “Today’s statement by one issuer is not indicative of the marketplace’s strength and viability.”
America’s Health Insurance Plans, which lobbies on behalf of the industry, said Thursday that the U.S. needs to do more to improve the marketplaces. UnitedHealth isn’t an AHIP member.
Health plans are particularly upset that the administration paid out claims in a program designed to stabilize the marketplace at less than 13 percent of what insurers requested. The payouts were low because more insurers lost money than made money, though the U.S. has promised to make up the payments in future years. UnitedHealth, which today cut its 2015 profit forecast, didn’t incorporate payments from the program into its 2015 and 2016 forecast.
“We’ve been very clear with the administration about the serious challenges facing consumers and health plans in this exchange market,” AHIP CEO Marilyn Tavenner said in an e-mailed statement. “When health plans cannot rely on the government to meet its obligations, individuals and families are harmed as a result. The Administration must act to ensure this program works as intended and consumers are protected.”
Another challenge for insurers has been slowing enrollment growth. HHS has said it expects about 10 million people will be enrolled at the end of 2016, compared with 9.1 million at the end of this year.
Other insurers have said they’re doing fine.
Centene Corp. on Thursday reiterated its 2015 profit forecast and said its health insurance marketplace business “continues to perform in line with expectations.” And Kaiser Permanente, which has about 450,000 individual exchange customers across eight states and Washington, D.C., said it’s “strongly committed” to the marketplaces.