UnitedHealth takes a direct approach with the Affordable Care Act

UnitedHealth Group shook the ground under the Affordable Care Act market for individual health insurance when it said it was considering withdrawing altogether after a bad experience this year.

UnitedHealth is, after all, the nation's largest health insurance company. It has earned a reputation for good management. It if can't sell insurance through an exchange and make money, the whole program created by the ACA to get more people private health insurance must be in trouble.

In looking closer at what UnitedHealth said, however, it's too soon to conclude that the ACA exchange market is on its way to a collapse. What UnitedHealth did do was be a lot more direct than others in the industry about how it thinks this government-run market should really work.

Some companies hire lobbyists. Some do that and then also announce to their shareholders that they may get out of a government-run market.

The case for getting out is, on its face, not that difficult to understand. UnitedHealth is not making money with the customers it's gotten through the exchanges.

In 2015 it's on 23 individual public exchanges, insuring about 540,000 people as of last reported count. While that's a big chunk of customers — and risk — for just about any insurer, it's not for a company the size of Minnetonka-based UnitedHealth, which has about 46 million people in all of its plans.

As the company explained on a conference call for shareholders late in the week before Thanksgiving, it had thought in the fall of 2014 that its initiative with ACA-related exchanges would be roughly a break-even business in 2015.

Instead, it turned out to be a money loser, and the company said it will be again next year too, although the company will recognize some of next year's losses in this year's fourth quarter.

So far the company has found that people who signed up for its insurance plans through an exchange are using a lot more healthcare services than anticipated. What's worse is that healthy people have been dropping their coverage and sicker people buying in outside of the normal open enrollment period, meaning they signed up when they could after a life event like a marriage or the birth of a child.

As the 2016 open enrollment period on the exchanges got underway, UnitedHealth still had policies listed on them. But it cut its marketing as well as cut commissions paid to brokers, creating an incentive for the brokers trying to help people find insurance to go somewhere else.

UnitedHealth had been one of the companies that started slowly with the exchanges, sitting out the first year entirely. As UnitedHealth CEO Stephen Hemsley told investors, "perhaps we should have sat out the second year, perhaps the third. It might take longer for this to evolve."

The company is giving itself until maybe the middle of next year to decide whether it wants to stay in at all.

This news added another talking point to what's already been a contentious political debate stretching back years. But it's worth remembering a couple of things about this aspect of the ACA. One is that the individual market is about 7 percent of health insurers' revenue in 2014, since by far most Americans got insurance coverage through their jobs or through government plans such as Medicare.

The other is that the authors of the health care reform law tried to anticipate some of the difficulty insurance companies would have as a new form of the individual market got established.

One big problem, though, is that one of their good ideas, called the risk corridor program, hasn't worked out very well.

In a nutshell, the risk corridor program was meant to reimburse insurance companies that ended up insuring too many costly customers, with money collected from insurers that had a good experience with costs.

In October the federal government said insurers had $2.87 billion in risk corridor claims for 2014. Insurers with a better-than-expected experience, however, only owed $362 million in risk corridor contributions.

That meant that risk corridor payments for 2014 will cover less than 13 percent of claims.

Any real fix for this problem seems to have to come from Congress. Meanwhile, that big shortfall is one reason the two-dozen or so nonprofit cooperatives created after the ACA became law already appear headed toward extinction.

The big private insurers like Aetna and UnitedHealth were in much better shape to withstand losses. Yet it can hardly be surprising that generally prices through the exchanges increased this year, along with deductibles.

Some big insurers followed up UnitedHealth's announcement with calming statements of their own, saying that unlike UnitedHealth they weren't thinking about quitting the market.

Anthem, an operator of Blue Cross plans, added that its executives were "continuing our dialogue with policymakers and regulators regarding how we can improve the stability of the individual market."

Maybe UnitedHealth is a regular part of that dialogue, too, but has broken ranks with the other big private insurers by deciding to communicate what it really thinks about the individual insurance marketplace through the blunt threat to pull out.

We already knew that through the ACA we decided to deliver an important benefit to people but also that it should be run through private insurance firms.

What UnitedHealth has told us is that it's also up to us to make sure those private firms have a fair shot at making money at it.

lee.schafer@startribune.com

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