After two years offering uninsured Americans subsidized products on public exchanges, health insurance companies have been hard-pressed to find financial success in this segment of the Affordable Care Act with losses reaching billions of dollars for the industry.
The financial performance has come into view in the last two weeks following release of 2015 annual and fourth-quarter earnings.
Other Blue Cross and Blue Shield plans, some nonprofits and others owned by policyholders, are also reporting hundreds of millions in losses on health plans they sell on public exchanges. For example, Blue Cross and Blue Shield of North Carolina has reported losses of more than $400 million through last year and Health Care Service Corp., which owns five Blue Cross plans including those in Illinois and Texas, lost more than $240 million in 2014 and remained unprofitable in its public exchange business last year. Health Care Service has yet to disclose 2015 financials for its nearly 2 million members in its individual business that includes Obamacare enrollment, a company spokesman said.
For insurers, the problem has largely been a major increase in medical expenses from these new patients, who were previously uninsured. From an actuarial standpoint, the health plans say they didn’t know what they would be getting and therefore needed more healthy people to buy premiums to cover the costs of the sick. So far, medical expenses are getting the upper hand. For example, Anthem’s fourth-quarter “benefit expense ratio” was 87% compared to 84.5% in the year-ago period.
But insurers, for the most part, see 2016 as a potential breakout year as they get a handle on pricing and narrow provider networks to better control costs.
Anthem CEO Joe Swedish, who has complained rivals have underpriced their products to get enrollment in the first two years, looks for the public exchange business to rebound following two years of pricing he’s described as “unsustainable.” Analysts say Anthem might even have stronger offerings following its acquisition of
Inside Obamacare: The Fix For America’s Ailing Health Care System explores the ways the Affordable Care Act will impact your health care.
“We expect membership declines of approximately 300,000 in our individual business, as we aren't experiencing the overall market growth on the public exchange that we projected when we laid our five-year plan, and unsustainable pricing in some markets is hurting our historic market share,” Swedish told analysts last week.
Individual policies including those subsidized from the health law are generally less than 10% of any health insurer's business. And insurers are still reaping record profits and revenue from expanded health coverage like the health law's Medicaid expansion.
But a mix of premium increases and cost controls has Swedish convinced Anthem will make money on the public exchange business this year and in 2017. Aetna, too, is predicting a better financial performance this year. UnitedHealth, on the other hand, is a much smaller player on the exchanges and will wait until the middle of this year before committing to 2017.
Individual policies include plans including those subsidized from the health law are generally less than 10% of any health insurer's business. And publicly traded insurers are still reaping record profits and revenue from expanded health coverage like the health law's Medicaid expansion. But the individual business generally is less than 10% of their total business.
Though the financial woes of insurers mean the uninsured will have to shop around to avoid a double-digit percentage premium increase, at least one new report says patients will still have ample choices even if UnitedHealth pulls out next year. The Urban Institute last week issued a report saying the impact of a UnitedHealth departure, along with the collapse of half of the cooperatives that sold coverage on public exchanges, has been “overstated.”
In more than 80 markets analyzed by the Institute, neither United nor the co-ops were offering the lowest-priced plans among the popular “silver” plan offering.
“Ordering insurers by the lowest premium silver plan each offers, co-ops are the lowest- or second-lowest-cost insurer in 14 of the 81 rating regions studied,” The Institute, which is funded by the Robert Wood Johnson Foundation, said. “United is the lowest cost or second-lowest-cost insurer in 15 of the 81 regions studied.”
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