If United is losing money, what about big insurers who charge less?

Earlier this week, United Healthcare, the nation’s largest health insurers, told its shareholders that it would be pulling back on efforts to market its Obamacare plans for 2016 and might pull out of the market in 2017.   Eternal optimists about Obamacare have been quick to note that United, although a large insurer generally, “only” covers about 540,000 people on the Exchange.  This is about 6% of those who enrolled in 2015.  In fact, however, United’s announcement should be a cause for great concern, not just for the half million plus,  but for a large number of people purchasing coverage from other insurers who likewise may become intolerant of continued financial losses.  To quote Katherine Hempstead,who heads the insurance coverage team at the Robert Wood Johnson Foundation,  “If [United] can’t make money on the exchanges, it seems it would be hard for anyone.”

This entry is about a little experiment.  Although United may not be one of the biggest players on the Exchanges, the various Blue Cross insurers most definitely are.  And so, what does United’s situation suggest about the vulnerability of Blue Cross insurers?

It turns out that there are 38 markets for which we have data on which Blue Cross and United compete for Silver plans, the most common metal level purchased.  By market, I mean they both sell the same kind of plan type (HMO, EPO, POS, PPO) in the same rating area of a state.  (This looks only at states that use healthcare.gov and thus have their data made available at data.healthcare.gov). So, if Blue Cross sells at least one HMO plan in Georgia Rating Area 7, and a United company likewise sells at least one HMO product in Georgia Rating Area 7, I treat the two insurers as competing against each other.  And, if Blue Cross’s premiums tend to be lower than United’s in the competing markets and United is losing money, that might be some evidence that Blue Cross is vulnerable.

The chart below shows the result of the experiment.  I calculated the median silver premium for Blue Cross companies in the 38 competing markets and the median silver premium for United companies.  I then divided the Blue Cross median by the United median.  I used a 40 year old adult individual as the basis for the computation, although prior research shows that little turns on the choice of age. The chart shows a histogram of the results.


What we can see is that the histogram is skewed to the left: on balance, Blue Cross tends to charge less than United.  Sometimes, as in three rating areas in Kansas and two ratings areas in South Carolina, it charges less than 3/4 of what United charges.

Does this prove that many Blue Cross insurers place themselves in financial jeopardy by continuing to sell?  Hardly.  There is a lot more to profitability than premiums even when metal tiers and plan types are the same.  Blue Cross may have struck better deals with medical providers.  Blue Cross may run a more efficient operation.  Blue Cross may be able to attract a healthier risk pool.  Blue Cross is raising its rates.  Claims experience in 2016 may be different than experience in 2015.  And, in some markets, Blue Cross charges more.  In Virginia Rating Area 10,  Blue Cross’s median is 1.27 times that of United’s. I get it.

But still.

I’d feel a lot better about other insurers’s prospects if they tended to charge more than one that was encountering financial difficulties.  And, yes, perhaps the ACA can shrug off the possible departure of United.  We can trot out the words “blip” and “outlier.”  But I am not ready to join some academics and advocates in the eternal Obamacare sunshine with a chorus of “nothing to see here.”  Maybe there’s not much difference between United’s situation and that of other large insurers. Maybe, it’s just that United’s directors and officers found the courage to sound the warning sooner.

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Bombshell: United Healthcare thinking of exiting Obamacare

Today’s news that United Healthcare 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” is a very big deal.  United would not be disclosing to shareholders that it might fully or significantly exit Obamacare in 2017 if this was not a significant possibility.

United is a major player in the Exchange markets.  It sells policies in about 47% of the 395 rating areas serviced by the federal exchange. Moreover, the loss of United could be very harmful to any remaining competition of the exchange markets.  A quick study of data from healthcare.gov shows that if one looks at Silver plans in rating areas in which United sells a policy and one looks at all plan types (HMO, EPO, POS,PPO), there are 204 combinations.  In 73 of those (about 36%), United is the only insurer, meaning that if no one else steps in to the United vacuum, there will no longer be a seller of that plan type.  HMO plans in Alabama rating area 13 is an example of such a market. If United exits, it would appear that there will be no HMOs in that area.

In another 59 of those 204  (about 29%) rating area/plan type markets in which United participates, United is one of only two players.  An example of such a market is the POS market in  Arkansas, rating area 1. There, UnitedHealthcare of Arkansas, Inc. and QCA HealthPlan are the only sellers. This means that if no one else steps in, there will be  another large chunk of markets in which there will be an Obamacare monopoly.

Moreover, the problems United is evidently facing do not appear to be the result of particularly low prices.  The graphic below shows for each of the 204 market-plan type combinations in which United is present,  the ratio of United’s  its median price for policies to the median of all prices. It shows United prices tend to be fairly close to the median and, if anything, tend to be a bit higher.  Thus it will be a challenge to ascribe United’s failures to any sort of extreme pricing — a fact suggesting that either United had problems on the cost side or simply that it is now facing up to a fact that some other large insurers may wish to deny: Obamacare is in trouble.


The ACA simply does not work without voluntary insurer participation.  There is no public option and their closest cousin, the coops are mostly dead or in financial distress.  It surely should work better if there is at least some competition.  But insurers don’t voluntarily participate where they think they can’t make money.  So, unless United, one of the biggest health insurance carriers, is doing something particularly wrong or has unduly gloomy management, one has to worry about its warning being an oracle of things to come for other insurers.


In contrast to my usual practice, I have revised this entry fairly heavily during the course of the day.  I think it is important to get the information out there and I hope readers excuse some instability in the entry.

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