Obamacare’s future may rest on insurers’ patience

The fate of Barack Obama’s signature health care law may depend on how long Anthem Inc. and Aetna Inc. are willing to wait before starting to make money off it.

The two insurers are on the hot seat now that UnitedHealth Group Inc. appears unlikely to linger as a seller on the Affordable Care Act’s government-run markets. UnitedHealth, the U.S.’s largest health insurer, said on Nov. 19 that if it can’t turn a profit, in 2017 it may quit the health plan marketplaces where millions of Americans buy coverage.

While UnitedHealth, which operates UnitedHealthcare, has a small share of that market, Anthem and Aetna are two of the biggest players. Like UnitedHealth, neither has had financial success there – Aetna has said it’s losing money, while Anthem is making less than it would like. They’re both working to widen profit margins and have said their strategy is based on the expectation that covering people under the law will become more profitable.

“It looks like it’s more of a United issue, with some flavoring of national issues,” Bill Melville, an analyst who focuses on health insurance exchanges at Decision Resources Group, said by phone. “It’s a wake-up call that there’s been some pretty rough headwinds.”

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There have been other worrying signs. Already 12 of the 23 nonprofit exchanges created to sell insurance under the Affordable Care Act have said they’re closing down, overwhelmed by financial losses.

Peter Costa, an analyst at Wells Fargo & Co., said that he expects Anthem and Aetna to lose money on the exchanges next year, potentially leading them to reconsider their postures.

“We believe UnitedHealth’s commentary that it would only participate in this market in 2017 if it expected to at least break even for the year is indicative of the mindset of many insurers,” Costa said. “We expect that the experience of insurers will either improve in 2017 and beyond, or they will choose to no longer participate in the market.”

David Windley, an analyst at Jefferies, said some insurers could improve their financial results by quitting Obamacare’s marketplaces.

“Exiting the exchange market would likely indicate that the entire marketplace experiment has failed, thus no longer a threat to cannibalize commercial group business, and yield higher” earnings per share, he said in a note Nov. 19.

Representatives for Aetna and Anthem declined to comment, referring to recent comments that they were willing to be patient.

The Obama administration said UnitedHealth’s announcement isn’t a sign of larger problems.

“The reality is we continue to see more people signing up for health insurance and more issuers entering the marketplaces,” Ben Wakana, a spokesman for the Department of Health and Human Services, said in an email.

America’s Health Insurance Plans, which lobbies on behalf of the industry, said that the U.S. needs to do more to improve the marketplaces. UnitedHealth isn’t an AHIP member.

Health plans are particularly upset that the administration paid out claims in a program designed to stabilize the marketplace at less than 13 percent of what insurers requested. The payouts were low because more insurers lost money than made money, though the U.S. has promised to make up the payments in future years. •

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