United Healthcare and the Exchanges; what’s the real story?

There’s been a lot of focus on United Healthcare’s announcement that its Exchange business is not doing well – and is likely to lose somewhere around $200 million this year.

As a result, UHG revised financial expectations for 2015, “reflecting a continuing deterioration in individual exchange-compliant product performance.”

CEO Stephen Hemsley said their mistake was getting into the Exchanges too soon, before things had a chance to settle down.  UHG did not exactly jump into the Exchanges, in fact their Exchange enrollment is a rather modest 540k members out of UHG’s 47.4 million total enrollment.  That’s just over 1 percent.

And, in some states, such as Illinois, things are looking pretty good.

Early on, UHG was quite cautious about the Exchanges.  In 2014 UHG only participated in the individual market in one state where it paid into the risk corridor program (so it’s operations were profitable). Results were solid in the small group market as well; UHG participated in several marketplaces and overall lost less than $1,000 through the risk corridor underpayments – while paying into the program in several states.

There are two main considerations here; UHG-specific and Exchanges in general

My view: UHG is a national player that is not particularly well-positioned in many local markets and therefore has a tough time competing with the Blues. There are two key dimensions to this.

First, the Blues have better brand awareness than UHG on a national basis, and individual plans likely have even stronger consumer recognition in many local markets.  While UHG is a huge player nationally, health care, like politics, is local. And no one does local better than the Blues.

Second, the Blues – provider relationship tends to be more collegial and less adversarial than the UHG – provider relationship.  According to athenahealth’s PayerView, UHG’s commercial offerings rank 53rd out of all health plans reviewed, well behind many Blues plans.  In fairness, UHG is strong in some markets, but overall Blues have better relationships with providers.

The latter point is also pertinent to the Exchange issue.

Payers’ success in the brave new world of health care will be driven by close cooperation between payers, providers, and members.  Data sharing, management of potentially-expensive members’ health, and cooperation in marketing are all essential, and that’s where the Blues’ decades-long local relationships will pay off. Things can and often do get contentious, even when Blues are involved (see New Jersey…), and when they do the stronger and longer the underlying relationship, the more chance things will work out.

There’s another dimension to this; some critics including colleague and mentor Bob Laszewski have noted the impact of adverse selection on UHG’s results.  Simply put, too many less healthy folks have enrolled to date, and not enough healthy ones.  This will change over time as penalties for non-participation increase; 2016’s is $695 per person.

Yes, health insurance plans are too expensive.  Yes, deductibles and member cost-sharing is too expensive for many. The inevitable result of the individual mandate combined with standardized benefit plans is narrow networks, lower health care prices, and aggressively managed member health.

It’s going to be messy and painful.

It’s also necessary to reform an industry that accounts for 18% of our GDP while delivering a product that is often low quality.

6 thoughts on “United Healthcare and the Exchanges; what’s the real story?

  1. or did UHG announce their withdrawal to try and assure that the promised, but underfunded, risk corridors be fully funded, since this money is designated to make good payer losses for going on the exchanges?
    Would they be happy to stay in, if assured the taxpayer will cover the losses?

    • Reg – thanks for the note. A clarification; the risk payment was intended to be funded by insurer gains over the entire projected lifespan of the program. however, that was changed in the 2015 Cromnibus bill which changed that to more of a “PAYGO” process. As a result, each year the program had to balance.

      That was never the intention, and in fact the CBO projected the program would have resulted in an $8 billion profit for the Treasury. Alas, now that a bunch of co-ops are dead, killed off by a failure to deliver on what was promised them, there’s a lot less choice going forward. Which means we will be stuck with the plans that got us into this mess in the first place.

      If the risk corridors were fully funded, the Co-Oops would still be in business.

  2. There is a part of me that beleives that this is a ploy by UHC to throw a monkey wrench in the works of the ongoing Mergers by Anthem and Cigna, and Aetna with Humana. In some markets you cold lose 3 players for 2017?

  3. It has been my lunchtime hobby to look at plans. The UHC article mentions IL BCBS excluding its largest and best PPO plan from the exchange. Interesting thing is if you look at the options for IL in 2016 as compared to 2015 a lot of other insurers have dropped out. Only Coventry and Land of Lincoln remains along with BCBS – Blue Choice. Also, if you look at their networks they are limited and lack providers in major specialties. Also, the Blue Choice plan lacks major specialties and well known hospitals. Not good for IL and those that have to buy through the exchange. This is not a narrow network move. Limited choice in carriers with lacking networks for specialist – meaning 1 cardiologist in a 30 mile radius in the Chicago suburbs. Anyone else seeing the same trends in other states?

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