UnitedHealthcare announces it may exit the federal marketplace because of slow growth and higher-than-expected claims; clinical laboratories may see less reimbursement

Health insurance premiums in 2016 for plans offered through federal Obamacare exchanges (more formally known as the Health Insurance Marketplace) will see an average rate hike on midrange plans of 7.5%. This amount may vary widely depending on which state a consumer lives. In 2016, 38 states will have healthcare consumers apply for and enroll in coverage through the HealthCare.gov platform.

Big increases in healthcare premiums from one year to the next have a direct link to the amount of money health insurers will pay clinical laboratories for lab test claims. That’s because, when health insurers are in a financial squeeze, they tend to reduce reimbursement to providers, including clinical laboratories.

This news about premium increases for 2016 comes from a report issued by the Centers for Medicare and Medicaid Services (CMS). The rate analysis is part of the federal agency’s 2016 Marketplace Affordability Snapshot. CMS said that nearly eight in 10 returning marketplace consumers will be able to find a plan with premiums for less than $100 per month after tax credits and seven out of 10 will pay less than $75, once taxpayer subsidies are factored in.

“For most consumers, premium increases for 2016 are in the single digits and they will be able to find plans for less than $100 a month,” stated Kevin Counihan, CEO of the Health Insurance Marketplace, in the CMS statement.

ACA Still Not Meeting Stated Goals

As the Affordable Care Act (ACA) enters its third year, the healthcare law has yet to meet one of Congress’ stated goals, which was to reduce healthcare costs while extending coverage to millions of previously uninsured Americans. The 2016 premium increases for coverage under the ACA reflect the continuing pressure on insurers to maintain financially viability, particularly after the private health insurance industry discovered that those enrolling in the Health Insurance Marketplace continue to be less healthy than anticipated.

The financial squeeze on health insurers participating in the health insurance exchange during 2015 and into 2016 creates a spillover effect for clinical laboratories and pathology groups. If these plans pay out more in claims than they receive in premiums, they generally try to balance the books by paying providers less. That includes medical laboratories. Insurers also may be inclined to exclude higher-priced clinical laboratories and pathology groups from their networks.

UnitedHealthcare Could Leave the Marketplace Due to Unsustainable Losses

When giant health insurer UnitedHealthcare cut its earnings forecast in November, it announced it would decide in the first half of 2016 whether to continue participating in the public exchange markets. It cited as a reason the slower growth on public exchanges under the ACA and higher-than-expenses claims for the policies sold there, the Los Angeles Times reported.

UnitedHealth is projecting $275 million in losses in 2016, while its 2015 earning’s forecast was reset to about $6 per share, down from its previous forecast for $6.25 to $6.35 per share.

“We cannot sustain these losses,” UnitedHealth Chief Executive Stephen Hemsley told the Los Angeles Times. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”

The Los Angeles Times reported that federal officials are not concerned by any one insurer, pointing out that the number of health plans offering exchange policies has increased since the 2014 launch.

Under the ACA, insurers planning to increase their rates by more than 10% have to submit their proposals for review by either state or federal regulators.

Feeling pressure from shrinking earnings, UnitedHealthcare is warning that it may quit selling on the Obamacare exchanges because of higher-than-expected claims for those policies and slow growth in exchange enrollment. UnitedHealthcare Chief Executive Officer Stephen Hemsley says, “We cannot sustain these losses. We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.” (Photo copyright: Forbes.)

Premium Increases Higher than Expected

The federal marketplace sells five levels of insurance: bronze, silver, gold, platinum and catastrophic. The second-lowest-cost silver plan option is considered the benchmark because it is used by the Internal Revenue Service to determine tax credits.

CMS states that about eight in 10 individuals who selected a 2015 Marketplace plan qualified for financial assistance, and the average advanced premium tax credits for those enrollees who qualified for financial assistance was $270 per month.

Despite the 7.5% average increase in the marketplace’s benchmark rates touted by CMS, the change in most consumers’ premiums will not match the average. The Washington Times reported that premium hikes vary from state to state, from about 1% in Michigan to more than 30% in Alaska, Montana, and Oklahoma. At the low end, Indiana’s rates are decreasing an average of -12.6%.

An analysis of the silver benchmark plans in major cities across 49 states and the District of Columbia by the Kaiser Family Foundation (KFF) found changes in premiums ranging from -10.6% in Seattle to 38.4% in Nashville. The average of the rates changes is 10.1% before accounting for the premium tax credit. When the tax credit is factored in, premium changes range from an increase of 16.4% in Phoenix to a -4.8% decrease in Chicago.

For consumers who qualify for tax subsidies, double-digit premium increases granted to insurers do not always result in comparable out-of-pocket cost hikes. For example, the KFF report shows that monthly silver premiums for a 40-year-old nonsmoker making $30,000 per year are rising to an average of $719 in Anchorage, Alaska. However, that consumer will see a 0.6% premium decrease to $163 when the tax credit is included, meaning taxpayers will be picking up the added expense.

Wayne Winegarden, PhD, a Senior Fellow in Business and Economics at the Pacific Research Institute in San Francisco, calls the Obama administration’s claim of a 7.5% average premium increase on mid-tier silver plans on the federal healthcare exchanges a “misleading and a meaningless statistic” that “isn’t actually relevant to any individual in any state. (Photo copyright: Pacific Research Institute.)

The politically conservative Daily Caller website criticized the Obama administration’s rate hike figures for providing consumers with an “incomplete picture of what is happening in the health insurance marketplace through the Obamacare program.” The Daily Caller News Foundation’s (DCNF) analysis using data from bronze, silver, gold and platinum plans shows premium costs will rise an average of 20.3% in 2016, matching the 2015 price increase across all plans.

Wayne Winegarden, PhD, a Senior Fellow in Business and Economics at the Pacific Research Institute in San Francisco, told the DCNF that CMS’ 7.5% figure is “misleading and a meaningless statistic” that “isn’t actually relevant to any individual in any state. If you go across the four different metals, what happened in the gold plan, what happened in the platinum plan, what happened to the bronze plan?”

The Open Enrollment period for the Health Insurance Marketplace is from Nov. 1 to Jan. 31, 2016, for coverage in 2016.

—Andrea Downing Peck

Related Information:

2016 Marketplace Affordability Snapshot

UnitedHealth May Dump Obamacare Plans, Putting California Expansion in Doubt

Analysis of 2016 Premium Changes in the Affordable Care Act’s Health Insurance Marketplaces

HealthCare.gov states to see average rate hike of 7.5 percent on midrange plans

Insurers Win Big Health Rate Increases

Obamacare Premiums to Soar Three Times Faster than Feds Claim