One could almost feel sorry for UnitedHealth. Despite their attempts to limit enrollment in their healthcare plans, enrollment is increasing – and so are their losses.
Last November UnitedHealth announced real and projected losses of between $400 million and $450 million on the ObamaCare exchanges for 2015 and 2016. They tried to curb enrollment by reducing marketing and slashing commissions to health insurance brokers. Alas, people kept enrolling in their plans, anyway.
Anna Wilde Mathews reports in The Wall Street Journal that UnitedHealth increased its projected losses to more than $500 million for 2016 for their exchange business with these increased enrollments. It’s a bad business that loses more money with increased customers.
Lest you feel sorry for UnitedHealth, they still projected earnings of $7.60 to $7.80 per share and the stock price closed up 3% at $112.58 per share at the close of business January 19th. They also reported a profit of $1.22 billion, or $1.26 a share, for the fourth quarter of 2015. This was down from $1.51 billion, or $1.55 per share a year earlier.
The Real Story
The real story is the failure of the ObamaCare exchanges. UnitedHealth is doing just fine in most of their business but losing money on the exchange business. The reason is the perverse regulations of ObamaCare.
UnitedHealth and most of the healthcare insurers are losing money because ObamaCare requires them to cover pre-existing medical conditions but allows consumers to sign up for coverage after they are sick. It mandates coverage of many preventive medicine treatments at no cost to the patient and limits premium price adjustments to three levels (rather than the usual six), using community rating instead of actuarial analysis.
In other words, it demands insurance companies provide benefits to everyone without regard to the cost of providing those benefits. This is a formula for losing money and that’s exactly what is happening. The only reason the insurance companies have gone along with this perverse business model is because the Obama administration promised to bail them out when they lost money.
This brings me to the real reason UnitedHealth is whining about their losses – which they surely expected. They are lobbying for the government bailouts they expected but didn’t get because the bailout provisions of the ACA are budget neutral.
The risk corridors provision of ObamaCare called for those insurance companies making profits on the exchanges to kick in a portion of their gains to compensate those companies losing money. Bailouts to losers were therefore limited to profits kicked in by the winners. But when the losers greatly outnumbered the winners, there was not enough money to bailout the losers.
Winners contributed about $400 million but losers demanded $2.9 billion in bailouts. When Republicans resisted attempts by the Obama administration to change the budget neutrality rules, insurance companies were left with losses of about $2.5 billion to absorb.
UnitedHealth, and others such as Humana, are continuing their efforts to lobby the White House and Congress to change the budget neutrality rules to increase their bailouts. But the real solution is not more taxpayer money to subsidize a bad business model. It’s to fix the system by repealing ObamaCare and replacing it with a better healthcare insurance system that gives consumers more freedom of choice in picking their doctors, hospitals, and healthcare insurance providers – and allows the insurance industry to price their products based on the real risks of providing that insurance. The taxpayers should not be forced to bailout a bad system.