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Obamacare dodged a huge bullet last summer. On Thursday, it got a very loud warning shot across its bow.
Leading insurance company UnitedHealth said on Thursday that it expects to take big losses on its Obamacare health plans, and it's pulling back on marketing 2016 plans. The insurer revealed it may exit the exchanges that sell those plans in 2017 because of fears that it won't be able to make money.
Obamacare observers said that UnitedHealth's announcement underscores financial challenges facing insurers that sell coverage on Affordable Care Act marketplaces, challenges that could lead to less choice and higher prices for exchange customers if UnitedHealth bolts the exchanges, and if other insurers follow suit.
The announcement came amid a spate of tough news for Obamacare.
That has included the planned shuttering of what will be more than half of the new co-ops created to sell insurance on the exchanges, the government's announcement that insurers will receive just a small fraction of the money they could have expected under a financial risk protection program, and stories detailing how rising premium prices and deductibles are causing consumers to question whether to buy exchange-sold plans.
The recent negative news contrasts with the relief Obamacare supporters felt last summer when the Supreme Court effectively saved much of the Affordable Care Act by ruling that federal financial assistance could continue for customers of HealthCare.gov, the federal exchange that serves more than two-thirds of the United States.
Some observers said that UnitedHealth's announcement, while significant, does not in itself mean that exchanges are in peril. UnitedHealth, which sells plans in 35 states for 2016, has only about 5 percent of the overall 10 million or so customers of exchange plans now, and was a late, somewhat reluctant entrant to the Obamacare market.
Obama administration officials note that despite UnitedHealth's announcement, the number of insurers on government-run health exchanges will grow in 2016, with an average of 10 insurers per state, up from nine per state this year, and eight per state in 2014. About 90 percent of returning consumers will have three or more insurers to choose from for 2016 coverage.
"The reality is we continue to see more people signing up forhealth insurance and more issuers entering the marketplaces, and at the end of January, we believe we'll be looking at another successful open enrollment — just like the last two, said Ben Wakana, a spokesman for the U.S. Health and Human Services Department.
"This year, people looking for coverage in the marketplace continue to have a robust number of plan choices and as the data shows the marketplace is stable, vibrant and a growing source of coverage for new consumers. Today's statement by one issuer is not indicative of the marketplace's strength and viability."
Aetna CEO Mark Bertoloni said last month that despite plans to withdraw from exchanges in two states, while adding plans in one state, Aetna views the exchanges "as a long-term market potential."
"We think it's way too early to call it quits on the ACA and on the exchanges. We view it still as a big opportunity for the company," said Bertoloni, whose company will be in 15 states.
But one insurance expert said UnitedHealth's statements are evidence that the Obama administration needs to adjust the ACA if the program is to remain a viable option for both insurers and for customers.
"The Obamacare business model doesn't work," said Robert Laszewski, president of consultancy Health Policy and Strategy Associates in Virginia. "Obamacare has got to be retooled."
Laszewski cited the fact that insurers overall still are losing money selling exchange plans in the second year of Obamacare, and that as a result many of them are raising prices, which could in turn lead to current and prospective customers taking a pass on further coverage.
"Premiums after subsidies are still too high," he said, referring to the tax credits most exchange customers get to lower their monthly premium cost. "Deductibles are up the roof, networks [of health providers in plans] are narrowing."
"The pro-Obamacare people, including the administration and all of the supporters, have really talked themselves into the notion that Obamacare is well-designed and it's working," Laszewski said. "These people are in denial."
He called for the administration to loosen regulatory restrictions on the design of insurance plans so that insurers can offer customers coverage that is more affordable while still being attractive.
"Fundamentally, the carriers have to be allowed to sell health plans that people want to buy," Laszewksi said.
Clare Krusing, spokeswoman for the industry group America's Health Insurance Plans, said that UnitedHealth's comments Thursday reflect what members of AHIP have been experiencing themselves in recent months with their exchange products.
"This has been a very challenging market; it's still a market in transition," said Krusing.
Krusing said the announcement by the federal government that there would be a significant, $2.5 billion shortfall in the money that insurers could expect to get from Obamacare's so-called risk-corridor program has led to "tremendous uncertainty, tremendous instability" in the exchange market. The risk-corridor program is designed to help insurers deal financially with not getting enough in premium payments to offset their costs from paying out health benefits.
Dan Mendelson, president of the Avalere Health consultancy, said, "It's going to be very important to differentiate how much of this is a United issue, as opposed to other plans in the market."
Mendelson noted that when UnitedHealth did enter the Obamacare market, it did so when other plans were already established there, which could have made it more difficult for UnitedHealth to get good results.
Still, he added, "there's no question this is a much harder year for the exchange plans."
Obama administration officials "need to think about" what UnitedHealth has said "and go further and assess whether companies that have stronger position on the exchanges are experiencing the same things, and they need to fix it."
If there is too much pressure to keep premium prices down, or other pressure that could make it difficult for insurers to make money on exchange plans, Mendelson said, "They could kill this market if they're not careful."
Larry Levitt, an Obamacare expert with the Kaiser Family Foundation, said that UnitedHealth's announcement is "a big deal, at least symbolically."
"UnitedHealth is not a big player in the ACA, and they came very late to the party, so I don't think it matters tangibly right now" what they do as an individual company in terms of participating on the exchanges, Levitt said. "But it's a sign that insurers are not bullish on the next few years."
"This is still not a profitable market for insurers," he said. "They hope it will be at some point, but it's not there yet, and without a public option [a government-sponsored health plan] and with the co-ops exiting in much of the country, you know Obamacare needs private insurers to play."