United Health will carry through on its threat made last year to dump Obamacare offerings because it is bleeding cash on the health care exchanges.

Yesterday, United Health announced it will “remain in only a handful of states”. Currently the company offers plans in 34 states.

Please consider United Health Dumps Out of Obamacare Exchanges.

U.S. health insurer UnitedHealth said Tuesday it would largely exit the Obamacare individual insurance market in 2017, citing expectations for mounting losses from the program.

UnitedHealth is the largest U.S. health insurer and one of the biggest sellers of plans on the exchanges, which were created as part of President Barack Obama’s national healthcare law. UnitedHealth sells these plans in 34 states this year, up from 25 states last year.

“Next year, we will remain in only a handful of states,” UnitedHealth CEO Stephen Hemsley said in prepared remarks as part of the company’s first-quarter earnings report.

The company warned investors late last year that it was losing money on the new plans and might exit the market. On Tuesday, the company raised its 2016 expectation for losses on the exchanges by $125 million to $650 million.

The government said in February that more than 12 million people had signed up for Obamacare-related insurance through HealthCare.govor a state-based exchange as of Jan. 31. Previous government expectations had been for more than 20 million people.

Death of Obamacare?

The debate is on: Will Nation’s Top Health Insurer Kill Obamacare?

Ipsita Smolinski, managing director and health care analyst at Capitol Street, told CNBC on Thursday that exchange participation collectively cost insurers $2.5 billion last year.

In its third quarter conference call last month, Anthem lowered its guidance for profits next year below analysts’ expectations, citing lower-than-expected enrollments through the exchanges, among other things.

Aetna CEO Mark Bertolini was likewise cautionary on the company’s earnings call last month.

“The individual business remains challenging, especially in light of the continued administrative changes for this new and developing membership pool,” he said, adding that Aetna would participate in 15 state exchanges next year, two fewer than this year.

Comments like that make clear that “the vast majority of public exchange insurance products are clearly not yielding a required level of return based on results reported by the large managed-care players,” Morningstar analyst Vishnu Lekraj said in a research note.

Those comments and that article are from November 2015. United Health has since decided it has had enough. Others still complain.

Obamacare Death Spiral

On April 15, I wrote Obamacare Death Spiral: Insurers to Drop Plans Unless Premiums Rocket, “Something’s Got to Give”

Insurers say they are losing money on their ObamaCare plans at a rapid rate, and some have begun to talk about dropping out of the marketplaces altogether.

“Something has to give,” said Larry Levitt, an expert on the health law at the Kaiser Family Foundation. “Either insurers will drop out or insurers will raise premiums.”

While analysts expect the market to stabilize once premiums rise and more young, healthy people sign up, some observers have not ruled out the possibility of a collapse of the market, known in insurance parlance as a “death spiral.”

The Blue Cross Blue Shield Association released a widely publicized report last month that said new enrollees under ObamaCare had 22 percent higher medical costs than people who received coverage from employers.

And a report from McKinsey & Company found that in the individual market, which includes the ObamaCare marketplaces, insurers lost money in 41 states in 2014, and were only profitable in 9 states.

“Absolutely No Risk of Obamacare Marketplace Collapse”

Dr. Mandy Cohen, the chief operating officer of the Centers for Medicare and Medicaid Services (CMS), said in an interview that there is “absolutely not” a risk of a death spiral or collapse in the ObamaCare marketplaces.

I commented ….

The smart money bet is generally against those touting “absolutely no risk”.

My personal choice: death-spiral narrowly averted by massive premium hikes, consumer unfriendly rule changes, and worsening coverage.

United Health has about 500,000 members with Obamacare plans, making it the fourth-largest insurer on the exchanges.

Questions of the Day

  • If United Health dumps 500,000 Obamacare plans because they are losing money, what companies will pick up those insureds? At what cost? With what rise in premiums?
  • What companies will be next to dump Obamacare?
  • The BLS reported healthcare costs only rose 3.6% last year. (Please see Diving Into the CPI: What’s in Your Basket?). How much did your costs go up? How much less coverage did you get in the process?
  • Is there really “absolutely no risk” of a collapse in the Obamacare marketplace?

One of those questions has a known answer, and you know which question I mean.

Mike “Mish” Shedlock