Will smaller health care companies really be able to make a profit in an atmosphere that even UnitedHealth found impossible to sustain a profit in?
Republished from Investors.com, November 19, 2015. Image credit: AP
Fri, Nov 20 2015, ObamaCare: United Healthcare’s surprise warning that it may scrap participation in federal health care exchanges is more than bad news for consumer choice. It’s a broader sign of an unsustainable system.
The nation’s largest health insurance provider surprised the markets Thursday by saying losses from its 550,000 individual ObamaCare exchange enrollments were sharply cutting its bottom line. That’s notable because ObamaCare exchange participation only forms a small slice of the $105 billion company by market capitalization.
Yet it was enough to make the giant company and all the value it creates throughout its many operations suffer enough to trigger, as IBD market reporter Jed Graham wrote, “a surge of red ink.”
The company forecast $425 million less revenue in the fourth quarter and cut its full-year 2015 earnings-per-share forecast to $6 from $6.25-$6.35.
Not surprisingly, its stock fell 5.6% by the close of trading Thursday, and other health care and hospital companies such as Aetna, Anthem, Tenet, Cigna, Humana and HCA took similar hits.
“We see no data pointing to improvement,” UnitedHealth Group CEO Stephen Helmsley said on a conference call. Patients, he explained, were using their plans more than the company had anticipated and, worse still, were dropping coverage when they got well.
Bad as that is for company profits, it’s a predictable outcome given the structure of the law and what it permits.
What Helmsley described was a company caught up in the classic “death spiral” that IBD and reputable economists have been warning about: Insurance policy sales going in the main to the sickest patients who use the most health care services, while the high prices of the larded-up government-mandated packages continue to drive off younger, healthier consumers.
In short, the ObamaCare master plan of having young and healthy consumers subsidize the oldest, sickest patients isn’t working as the White House’s central planners and self-proclaimed experts claimed.
What’s striking here is that UnitedHealth is no tiny startup ship with a narrow margin of error riding the big ObamaCare regulatory waves. It’s the biggest of the big, a conglomerate that’s the product of the consolidation of the industry — Anthem and Cigna, UnitedHealth and HCA, HCA and private investors — that was supposed to enable the sector to absorb the blow of higher costs of insuring more customers and still continue to do well.
That’s not happening.
What’s more, UnitedHealth was in the ObamaCare exchanges for only a year, during a window of time when the government was supposed to cushion insurers against losses in the ObamaCare transition. The cushion ends next year, leaving companies on their own.
Will smaller health care companies really be able to make a profit in an atmosphere that even UnitedHealth found impossible to sustain a profit in? There’s plenty of reason to wonder, as the markets did Thursday.
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