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June 3, 2016
When UnitedHealthcare (UHC) announced its plan to stop offering health insurance policies in the marketplaces (or “exchanges”) established by the Affordable Care Act (“ACA” or “Obamacare”), it renewed speculation about whether the ACA could survive. If the ACA fails, what does that mean for the 12.7 million people insured under the Act?
The concern is understandable. UnitedHealthCare is the largest health insurer in the United States. And, during UHC’s short time in the ACA exchanges, it lost more than $1 billion. Some experts reasoned that UHC’s expensive failure would scare other insurers into leaving the marketplace, leaving people without health insurance coverage and unable to comply with the ACA’s coverage mandates.
Realistically, UHC’s departure will have only a small impact on the marketplaces. Although UHC is a giant among health insurers, it is a small player in the exchanges. UHC insured fewer than 800,000 people through the ACA at its peak. For those consumers, UHC leaving the marketplaces will be inconvenient because it will force them to find a new policy during open enrollment with, perhaps, a small premium increase.
This is not to say that UHC’s departure doesn’t suggest some risk to the ACA’s long-term health. But, to understand the real risk, you need to understand how competition works within and is essential to the ACA marketplaces.
ACA allows qualifying individuals and employers to shop for health insurance coverage through either a State-Based Marketplace (a health insurance marketplace operated by the consumer’s own state rather than the federal government) or a Federally Facilitated Marketplace (run either by the federal government or by the state in partnership with the federal government).
Qualifying individuals can purchase a health policy through an exchange to meet the ACA’s “individual mandate” and to avoid a tax penalty. Qualifying employers can shop for either single, defined plan coverage (a single plan option) or plans that give employees a choice of providers in a specified coverage tier (an employee choice option). Employers’ coverage options through the ACA pool risk, reduce administrative costs and may be eligible for a small business tax credit of up to 50% of the total premium cost.
The ACA exchanges depend on a balanced supply and demand to preserve policy choice and to keep premium costs down. Competitive pricing, coverage protections and avoidance of penalties drive consumers to the marketplaces. Consumers ready to purchase coverage drive health insurers to the marketplaces. But, many consumers and too few health insurers throw the supply-demand balance out of whack, undermining the ACA’s chief value exchanges for both consumers and insurers.
But, wait. Didn’t I just tell you that UHC’s departure from the marketplace wouldn’t really matter? How could it not matter if the exchanges need a balance of consumers and insurers? UHC’s departure from the exchanges certainly reads like bad news for the ACA – huge insurer, massive financial losses, one less coverage option in many markets. But, UHC’s failure in the exchanges wasn’t because of the structure of the ACA or the exchanges. The problem was UHC.
First, UHC joined the exchanges much later than its competitors. For example, UHC did not join the Georgia exchange until 2015, a full year after it was established. Aetna, AmBetter, BlueCross/BlueShield of Georgia, Cigna, Harken (a UnitedHealth Group subsidiary), Humana and Kaiser all had a one-year head start. UHC enrolled fewer than 1,000 people in Georgia in 2015 and about the same number this year. By comparison, total enrollment in Georgia exchange policies is about 588,000.
Second, UHC seldom offered consumers competitively priced policy options. Other carriers offered policies with low premiums if consumers accepted restricted provider choices, higher deductibles, and higher co-pays. This is because those policies alleviated the majority of exchange consumers’ biggest concern: cost. Instead, UHC offered policies with higher premiums and large provider networks. As a result, the consumers UHC attracted were higher risk consumers – the older or very ill consumers who valued provider network reach over premium savings. In fact, UHC was so good at attracting these higher-risk insureds, it lost nearly $1 billion even after it received risk adjustment payments under the ACA.
In some marketplaces, UHC’s departure will significantly reduce competition. Kaiser Family Foundation’s recent study found that UHC leaving the exchange markets overall would result in several markets with only one or two health insurers offering coverage through an exchange. This lack of competition could lead to premium increases that undermine the ACA’s purpose. Again, though, context is important. While loss of competitive choice is concerning, the markets most impacted are in geographically small regions where provider choices were already limited.
A bigger concern for the future of the ACA than any one carrier’s participation in the exchanges is diminishing competition in the health insurance industry as a whole. Four of the eight largest health insurers in the United States are poised to become two: Aetna may acquire Humana, and Anthem and Cigna are pending merger. The result is reduced competition not only in the ACA marketplace but in the health insurance marketplace industry-wide, leading to higher premiums, reduced quality of care and lower consumer satisfaction.