Why UnitedHealth Left the ACA Exchanges

In 2016, UnitedHealth lost more than $500 million dollars on it’s Affordable Care Act (ACA) plans. Their attempt to decrease sign-ups failed and people continued to enroll. Now one might ask this question: why would a health insurance company want fewer people to sign up?

Because, unfortunately, the proportion of unhealthy people needing costlier health insurance support greatly outweighs the number of healthy people in the ACA’s exchanges.

People with preexisting conditions, for example, are signing up on the exchanges in inordinate numbers, and insurance companies must accept them. Naturally, unhealthy people cost insurance companies more. Young, healthy people, on the other hand, are not signing up to the degree necessary to offset these costs. Instead, they are signing up for short-term health care plans. These plans lack cover for preexisting conditions and lack full benefits, but they are cheap. Logically, a healthy person in the prime of his or her life does not want to spend exorbitant sums on health insurance because it is not necessary. These short-term plans have become such a threat to the law that liberal lawmakers have proposed a ban on them.

The behavior of healthy people is very important because as we have already seen, the success of the law relies on their participation. When these people sign up for insurance through the exchanges, the insurance companies are able to make a profit. For the system to work, there needs to be a balance of healthy and unhealthy policyholders. When fewer healthy people sign up and decide to pay the penalty or get a short term plan, the health insurance companies make less money and have to raise premiums.

So why are healthy people not signing up on the exchanges? Even with federal health care subsidies, these plans still cost more than they want to pay. After all, a healthy person does not need a lengthy list of benefits; they just want coverage for disasters or catastrophic illnesses. There is no reason to have comprehensive health insurance that will not be used.

According to a report by the Center for Health Policy Studies at the Heritage Foundation, 395 insurers were in operation in all 50 states and in Washington DC in 2013, just a year after the exchanges opened. Three years later, that number has declined by over 100 insurers. Even worse, a majority of the partners leaving the exchanges have done so voluntarily. Some are being forced out by new regulations, but the majority are simply choosing to leave because they are losing a lot of money. To make matters worse, the outlook for 2017 looks even more bleak. Competition will decrease in a vast majority of states for health insurance companies. When competition decreases, it usually spells doom for any market system because as competition decreases, prices rise, choices become scarce, and quality decreases. 

While UnitedHealth made headlines when it announced that it was leaving the ACA exchanges, many ignored the systemic problems that made UnitedHealth exit. With competition decreasing, costs rising, and an inordinate number of unhealthy people signing up for the exchanges, the future of the Affordable Care Act seems cloudy at best.

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