UnitedHealth May Leave Obamacare Exchanges Soon

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Obamacare suffers yet another major blow on Thursday. In what may be a sign of things to come, one of the largest health insurance firms in America warned that it may leave the Obamacare exchanges within two years. This shocking announcement from UnitedHealth stunned many and analysts fear the ramifications will ripple through the broader marketplace.

At a shareholder meeting Thursday, UnitedHealthcare management said it might not be able to continue on with its plans on the government healthcare exchanges past 2016. The company explained it was considering taking this step due to a deteriorating financial outlook.

Statement from UnitedHealth CEO

“In recent weeks, growth expectations for individual exchange participation have tempered industrywide,” noted Stephen Hemsley, the CEO of the UnitedHealth Group.

“Co-operatives have failed and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated, so we are taking this proactive step,” he explained.

Details on UnitedHealth’s potential pullback from Obamacare

The November 19th statement from UnitedHealth said the firm would be “evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.”

The insurer also guided that its fourth quarter revenues will be $425 million less than originally anticipated, a negative impact of 26 cents in earnings per share. The firm also noted it has “pulled back” on marketing plans for next year.

Chris Rigg, a healthcare sector analyst with Susquehanna Financial Group, said that “this is more of an industry issue,” and if the exchanges don’t stabilize, he would expect UnitedHealth to “exit this business line.”

The announcement from major player UnitedHealth echoes what other health insurers have been saying about their exchange business, but the firm was far more upfront about its rapid deterioration in performance and raising concerns about future viability.

Of note, UnitedHealth had a very different message today than it did in its Oct. 15 earnings call, when the firm guided for “strikingly better” results on the exchanges in 2016 because of significant price increases.

The industry’s struggles can be seen in the costs of the products currently on offer in the marketplaces. Many of these plans, which will take effect in 2016, have dramatically higher premiums in order to cover the increasing medical costs of enrollees (much higher than most companies originally projected). Insurers are also offering more limited choices in terms of health-care providers. Keep in mind that over half of the 23 startup cooperative insurers created under Obamacare are slated to shut down in the coming months.

Analysts react

Stifel states:

This morning United (UNH) unexpectedly lowered its 2015 outlook while establishing its initial 2016 EPS guidance a couple weeks ahead of its annual investor day – the venue where UNH typically establishes guidance. The revision was driven by losses on the company’s ACA exchange business. Impacting 2015 EPS is continued deterioration of exchange book, as well as a pull-forward of expected losses in 2016 via a premium deficiency reserve.


On its 3Q15 call, ANTM cited HIX losses as a weight on 2016 earnings. At a recent investor meeting that we hosted with AET, management spent considerable time explaining risk-pool deterioration in HIX  In its 3Q earnings report HUM upped its forecasted HIX losses to $1.25/share in 2015 (vs initial expectations of break-even). 20% expected attrition of intra-year HIX enrollment is driving a deterioration of the risk pool (higher MLR) as healthier members drop coverage. In addition, intra-year enrollment of sicker members is occurring without rigorous CMS auditing of qualifying life events.

Goldman Sachs

The attached exhibit shows the extent of current individual market (incl. ACA exchange) revenue exposure among the largest managed care companies (UNH, ANTM, HUM, AET).

Beyond United Health, ANTM/AET/HUM also have extensive exposure to the ACA exchanges though it is unclear if they will recognize additional downside impact in the near term. We expect negative impact across the managed care space from this unexpected news from bellwether UNH. On an even broader level, the UNH news will intensify the concern over
sustainability of the ACA exchanges which may ultimately have significant policy and political implications. There may be some spillover impact to the provider sector (particularly hospitals), given the concerns on exchange sustainability.

managed-care UnitedHealth


Management noted that its guidance revision reflects a continuing deterioration in individual exchange-compliant products due to both lower than expected membership growth, and worse than expected claims experience. The company noted that it has pulled back on its marketing efforts for individual exchange products in 2016 and is evaluating the viability of the market to determine the extent to which it will continue to participate in 2017. The company previously indicated that it was entering 11 new public exchange markets in 2016.


This announcement raises the question of whether or not the deterioration has worsened for allplayers in recent weeks. If that is the case, players with wider exchange exposure (such as Anthem (ANTM-NYSE, $137.30, Market Perform)) could have downside to our EPS estimates.

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