Is UnitedHealthcare Leaving a ‘Death Spiral’ for Exchanges?

December 03, 2015 - The insurer UnitedHealthcare has recently announced that it would consider moving away from the Affordable Care Act’s health insurance exchanges due to significant profit losses. The actions of this large health payer could be an indication of how other insurers will position themselves in the coming years with regard to the health insurance exchanges.

If there are significant losses and little financial gains, more payers may consider leaving the health insurance exchanges as well. The chief executive officer of UnitedHealth Group stated in a company press release that “in recent weeks, growth expectations for individual exchange participation have tempered industrywide, co-operatives have failed, and market data has signaled higher risks and more difficulties.”

“UnitedHealthcare has pulled back on its marketing efforts for individual exchange products in 2016. The Company is 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,” according to the press release.

In an opinion piece, Merrill Matthews, a resident scholar at the Institute for Policy Innovation, wrote about the impact that UnitedHealthcare’s move away from the health insurance exchanges could do for the future of the Affordable Care Act. Matthews also spoke with HealthPayerIntelligence.com about how UnitedHealthcare’s actions will affect other health insurers.

HealthPayerIntelligence.com: If UnitedHealthcare leaves the health insurance exchanges, how do you think this will affect the actions of other insurers?

Merrill Matthews: “I think that’s the question everybody’s asking right now. What it would indicate is that UnitedHealthcare doesn’t feel like it can stay profitable in that group of business and it would indicate that others might be struggling as well.”

“Several insurers came out and said that they’re still committed to being here, but it might indicate the death spiral that we’re concerned about in the exchanges. There’s been a long-running concern that what the exchanges will ultimately be is the place where the people who are the sickest and need subsidies from the federal government will reside.”

“The question comes about – would even some of those people be able to buy cheaper insurance, even considering the subsidies, outside of the exchange if a death spiral initiates. If so, does that ultimately make the exchanges unworkable?”

HealthPayerIntelligence.com: Has the Affordable Care Act’s health insurance exchange led to greater access to care? Has it brought lower healthcare costs?

Merrill Matthews: “When it comes to whether or not it has created greater access to care, the answer to that is a qualified yes, but qualified only because there are subsidies there that help people who have trouble paying for health insurance get it.”

“The other provision in the law is the guarantee that requires insurers to accept anyone regardless of health condition, but you don’t have to have the exchange to do that. The exchange is merely meant to be a marketplace. I would say a qualified yes, but neither the subsidies nor the guaranteed issue have to have the exchange in order to work.”

“You could have health insurance subsidies and you could have guaranteed issue outside of the exchange and you would still be able to make those provisions work without the exchanges.”

“The exchange has done very little to really improve access and, if it weren’t for the subsidies, I would say they’ve done nothing to improve access.”

“The exchange, whether its state-created or the federal one, just acts as a portal where people can look at policies and compare them. We had those portals before the federal health insurance exchange came about.”

“My guess is that we will continue to have exchanges (i.e., portals) even if Obamacare were to be repealed. I think repeal is unlikely but if it were, you would still have a portal where various health insurers could list their products and people could go online in one simple place and look at the various policy options. There were private exchanges before Obamacare passed, so I would call it a minimal aspect [to ACA].”

“I would argue that the exchanges had zero impact on the cost of health insurance premiums. The exchange is simply a place that you go and look at the available health insurance options and determine what works best.”

“To the extent that insurers are trying to compete for business, it’s not because of the exchange. They’re doing their best to figure out what it will cost them to provide insurance for various people for the next year, and they certainly keep an eye on competitors’ premiums. I don’t think the exchange had any impact on the cost of health insurance.”

“People do receive subsidies on the exchanges, and this lowers the cost that somebody has to pay out-of-pocket, so they may think the exchanges are lowering the cost of health insurance, but that doesn’t change the actual cost. It just obscures the cost to me as a consumer.”

HealthPayerIntelligence.com: What policies and healthcare reforms within the Affordable Care Act are bringing cost savings?

Merrill Matthews: “There are elements in the Affordable Care Act that are having a downward pressure on healthcare cost, but it’s completely unintentional from the people who wrote the legislation.”

“People are moving to high-deductible health insurance policies because those are the only ones really affordable under the Affordable Care Act. The health insurance profession has long known that high deductibles help control healthcare spending.”

“The more people pay out of their own pocket for healthcare, the less upward pressure you have on healthcare costs because people are making their own choices and looking for value for their healthcare dollar when they’re spending their own money.”

“What the Affordable Care Act was intended to do was to bring everyone in to a relatively low deductible, low co-pay health insurance policy that was going to cover the vast majority of their expenses. What we have are very high-deductible policies that are forcing people to pay for an awful lot of care out of pocket that they used to pay for with health insurance.”

“That forces them to ask the questions like, ‘Doctor, I have a $6,000 deductible and I’m paying for this out-of-pocket until I hit my deductible, so would a generic drug be as good as a brand name drug?’”

“That approach puts downward pressure on healthcare costs. The irony is that those who passed this legislation hated high-deductible policies. But the trend towards high-deductibles will lower healthcare spending because people are spending so much money out-of-pocket for it.  But this was completely unintentional on the part of the crafters of the Affordable Care Act.”

HealthPayerIntelligence.com: What steps can the federal government take to prevent health insurance companies from dropping out of the exchanges?

Merrill Matthews: “The biggest factor keeping the exchanges alive is the fact that subsidies are there. If I remember right, about 85 percent of the people in the exchanges get subsidies. I think you will see that other 15 percent begin to migrate outside of the exchanges because I think the exchanges are going to become very expensive in the near future.”

“I’m not sure what they can do because everything they’ve done is set up to fail. They’ve got a pool in which people can enter the pool regardless of how sick they are and they can’t charge someone more for entering the pool as a sick person. That’s the definition of a pool that’s going to self-destruct.”

“The only thing that will save that is the subsidies. As long as the subsidies are there, you will have certain people going in. Roughly, I think about 7 million people are getting subsidies under the Affordable Care Act. That certainly makes for a huge pool.”

“But the structure of it is designed to fail. The subsidies keep people in. If Republicans are able to create some more affordable options outside of the exchanges that would still still be deemed qualified coverage and could accelerate the exchange demise.”

“It would allow health insurers to offer some bare-bones policies and other options that might be attractive to people, and somebody within the exchange could find it more affordable to choose a policy outside of it.”

“Republicans might be able to create some alternatives simply by giving people other options that are more affordable, which could exacerbate the exchange’s demise. If the premiums keep going up in the exchanges, it wouldn’t take much to be able to offer a good policy outside of the exchange.”