United Health continues to claim that they will be pulling out of most of the ACA state exchanges next year because they are losing money on the policies they sold on those exchanges. Now, as of March 2016 they had actually expanded their ACA coverage from about 500,000 ACA enrollees at the end of 2015 to 795,000 enrollees in 34 states this year.
That’s a 60% expansion. How much have these financially “toxic” policies hurt United Health so far this year? According to United Health Group’s third quarter earnings report (page 2) in the first nine months of this year:
-Their total revenue was just over $137 billion (up 21% form the first nine months of 2015)
-Their premium revenue was $107 billion (up 12% from 2015)
-Their profits were nearly $5.4 billion (up 16% from 2015)
Clearly, United Health has been weathering the effects of these toxic policies quite well. Still, United health is a huge insurance company. Since they don’t itemize earnings and losses by individual policy type, it is possible their losses on the ACA exchanges were simply offset by the gains they made from their other products.
Let’s dissect their finances a little more closely to see if that’s what’s really happening and, if so, how United Health might be doing so well in spite of claiming to lose hundreds of millions of dollars on the exchanges.
To begin with, we need to look at United Heath Group’s medical loss ratio. That’s the ratio of their total medical expenses divided by their total premium revenue. For the first nine months of this year, that ratio was just under 81.3%. That’s exactly where it was in the third quarter of 2015, and rather low for the health insurance industry as a whole. This loss ratio tells us that United Health’s total medical costs are no more of a burden to them this year than they were last year, or any year for the past decade.
Now, some reports have claimed that United Health’s loss ratio specifically for their ACA policies was well over 90% and even exceeded 100% in some states. How could United Health maintain such a low overall loss ratio if they’re losing so much money on the exchanges? The only way for them to do this is if they have lower loss ratios for their other policy types so they can offset their ACA losses.
So let’s examine the other types of health insurance United Health issues to see if that theory checks out.
Page 27 of United Health’s quarterly finances shows that they had a total of 48 million medical members in September and another 4.9 million Part D (Medicare prescription drug) members. That’s a lot of members, so it’s easy to assume the losses from their 795,000 ACA members might be diluted by such a huge crowd.
There are some problems with that assumption though.
21.7 million of United Health’s members don’t actually have insurance through United Health Group. These 21.7 million members have a “fee-based” membership, which means United Health provides only administrative service contracts to employers who self insure. In other words, United Health collects no premiums and pays no medical costs for any of them, so they don’t count toward United Health’s medical loss ratio whatsoever.
But there are still nearly 31 million members who United Health insures directly. Surely that’s enough people to drown out the losses they suffered from the ACA policies, right?
Over 14 million of those members have Medicare Advantage, Part D or Medicaid policies. Medicare advantage and Part D policies have a minimum loss ratio of 85% by federal law and many states require a minimum 85% loss ratio for Medicaid policies as well. In fact, a minimum loss ratio of 85% will be a federal requirement for all Medicaid plans starting in 2017.
So, in order for United Health to maintain an overall loss ratio below 82%, they have to offset a required 85% loss ratio on most of their Medicare and Medicaid policies as well as their presumed 95% losses on the ACA policies.
It wouldn’t be possible for them to do this unless they had very low loss ratios on their other insurance policies. In other words, those policies would have to be substantially overpriced if United Health is telling the truth about losing so much money on the exchanges.
Another explanation for why United Health Group has such glowing finances in spite of their alleged ACA losses was volunteered by one of their employees. In a comment made on my last blog about United Health a marketing specialist for United Health wrote:
“The company pulled the business out of the exchanges because they projected they would lose money. Keep in mind, this has only been a source of revenue for 2 years. They analyze the businesses individually. So overall numbers are great. When taken singularly, the preexisting conditions of the exchange plans make those less profitable right away. Analyzed over only 3 years, the PROJECTION is loss. Whether they actually lose money on those plans remains to be seen.”
United Health is reporting projected losses, not actual losses? Really?!? So, to summarize:
-United Health’s revenues and profits continue to climb in spite of their claim that their ACA policies are losing them hundreds of millions of dollars each year.
-For this claim to be true, they would need to overcharge many of their non-ACA customers to make up for their ACA loses.
-If they’re not really losing money, but merely projecting future losses, then multiple news sources have been reporting misinformation about them for more than a year.
I can’t think of another explanation that fits United Health’s financial data, though neither explanation appears to reflect well on United Health’s business practices.