The impact of UnitedHealthcare’s exit
Exchange Administration Depends on Large InsurersOn Tuesday, April 19, UnitedHealth Group announced it will withdraw from all but a “handful” of the Affordable Care Act insurance exchanges in 2017. UnitedHealth is the nation’s largest health insurer and a leader in administration of government-based health plans. Its absence in the exchanges will certainly have repercussions in the healthcare industry, but will be felt most keenly by the consumers who have come to rely on the exchange plans.
To earn buy-in from providers, the Affordable Care Act had to promise coverage for uninsured patients who may otherwise have posed a bad debt scenario. The insurance mandate was put in place to enforce that coverage and surfaced in the form of the healthcare exchanges. The problem is that the government needs the experience and efficiency of the large insurers to operate the exchanges. UnitedHealth and Blue Cross Blue Shield in particular have made a core business out of administering government plans on both the federal and state level.
Last year, some Blue Cross plans opted out of exchange coverage. Now, UnitedHealth, arguably the largest administrator of government-based plans, is dramatically reducing their role and offerings. This all but ensures choices for consumers on the exchanges are going to be reduced, and in some geographical areas, it may become hard to even find and enroll in an exchange at all. A diminished consumer experience is going to be a hurdle that must be overcome if the exchange program is to grow.
The Domino Effect
A major fear rising from UnitedHealth’s decision is that, because of its role as an industry leader, its withdrawal from the exchanges sends the message to other large insurers that the exchanges may not be a business worth pursuing. It could very well start a domino effect of other large carriers relinquishing their exchange administrations or staying out of the exchange business altogether.
The big concern is seeing companies as large and seasoned as UnitedHealth and Blue Cross walking away. These are some of the best in the business at health insurance administration, and if they have a hard time making exchanges financially viable, it will be hard for anyone to make it work.
Jumping Ship in an Unsustainable Risk Pool
Before UnitedHealth announced its withdrawal from most state exchanges, it spent five years attempting to get the cost of administering the exchanges under control to stay in the ACA program. These cost-control measures included increasing premiums or deductibles, narrowing provider networks, and offering fewer choices in plan design. Even after trying all of that, UnitedHealth’s decision is a strong signal that they are still finding that they cannot make the exchanges profitable.
One of the major reasons the costs of operating an exchange plan are so high is that the risk pool is incredibly unbalanced. Most of the enrollees are the sickest of the sick, and the exchange plans do not typically attract the healthy people needed to offset the cost to care for them. The exchanges have largely failed to gain the participation of young people, who are generally healthy and good for risk models. At the same time, the prohibition on rating a consumer based on pre-existing conditions means that patients with chronic conditions or long-term illnesses, who were unable to receive coverage before the implementation of the ACA, are now able to benefit from coverage through the exchanges. Many previously uninsurable people can now get health insurance, which is a good benefit. The imbalance comes from the exchanges not attracting the healthy half of the risk pool to compensate for these newly insured patients who are driving up costs.
On top of that, ACA legislation sets forth mandated coverage requirements for insurers, which means that any insurer operating an insurance product on the exchange is forced to comply with a predetermined benefits package. This one-size-fits-all model denies insurers the ability to offer more affordable plan options to consumers by letting them purchase the plan most tailored to their needs. Together, the inflexibility in exchange plan offerings and the unbalanced risk pool drive up the cost of exchange participation.
Consequences of Reduced Consumer Choice
Fewer insurers participating in the exchanges may also lead to fewer available plan designs and a narrowed provider network. If more plans follow UnitedHealth and drop out of exchange administration, the reduced competition between plans means prices go up on the consumer side. Access to care may also be affected if the remaining plans choose to limit their provider networks in an attempt to control costs. With fewer plans available to patients who depend on the exchanges, those plans that remain can take steps to improve their own profitability at the expense of the consumer, simply because of the lack of competition.
It remains to be seen what the full impact of UnitedHealth’s decision to leave so many state exchanges will be. However, reduced competition within the exchange will certainly impact the vulnerable populations who depend on that coverage. The exchanges were created to increase access to care and make health insurance affordable for the patients who need it most. If the dominoes fall and more insurers follow UnitedHealth out of the exchanges, the insurers may find their health plans offer just the opposite.