Updated: 3:15 p.m. | Posted: 1:50 p.m.
Minnetonka-based UnitedHealth Group says it's taking a financial beating on health plans sold through state and federal exchanges created as part of the federal Affordable Care Act and it may need to cut its losses.
Not enough people are buying exchange plans and those who are use more health services than expected, UnitedHealth CEO Stephen Hemsley told investment analysts Thursday.
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UnitedHealth, he added, must decide by the middle of next year about the viability of continuing to sell policies in public exchanges, which were created as part of the federal law known as Obamacare. Hemsley believes the plans could slash as much as $575 million from the bottom line this year and next.
"We cannot sustain these losses," he said. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."
Hemsley's comments are a dramatic change from just last month, when UnitedHealth, the nation's largest health insurer, said it saw the exchanges to be a good growth area.
There are no signs the situation is improving so the company is scaling back efforts to boost sales on exchanges, including marketing and agent commissions, the CEO said.
Although UnitedHealth is nation's largest health insurer by revenue, it is a relatively small player on the government health plan marketplaces. Hemsley says the company is taking a hard line about the future, and refusing to subsidize a market that is not sustaining itself.
"We are evaluating the viability of the insurance exchange product category for us and will determine during the first half of 2016 the extent to which we can continue to serve the public exchange markets in 2017," Hemsley said.
Thrivent Asset Management Analyst David Heupel says investors never welcome a projected drop in earnings, but exchanges are only a small portion of UnitedHealth's portfolio. He says investors would likely cheer if the company abandoned exchanges altogether.
Heupel says what may be more significant than UnitedHealth's loss is the judgement that being on exchanges is a losing proposition with no sign of sustainability in sight.
"It could shape how this product will develop over the next several years and certainly highlights the fact that, I think, some things need to change for the viability of these exchanges to really continue," Heupel said.
University of Minnesota Health Policy and Management Professor Jean Abraham says UnitedHealth's frank assessment of doing business on public exchanges will attract policy makers' attention.
"A very important national insurer in the United States has now publicly stated that they're very concerned about the long-term feasibility of their participation on the exchanges," Abraham said.
Abraham says that could spur policy makers to take a hard look at what could be done to make exchanges more viable. But UnitedHealth's judgment also gives the Affordable Care Act's many critics more ammunition in their effort to scuttle it.