UnitedHealth Could Ditch Obamacare: What It Means For Traders

Reevaluating ACA In View Of Higher Losses

UnitedHealth Group is witnessing higher losses on ACA exchanges and evaluating its participation in the same. Analyst Joseph France believes that the company’s potential exit from the market in 2017 would eliminate a program whose losses could worsen because of adverse selection and uneven enforcement of controls on enrolment.

France believes that UnitedHealth’s experience and its decision to review its commitment to the exchanges could hasten the ACA’s decline. The company’s revised outlook for 2015 reflects that its exchange related losses will be higher than was previously expected.

“Eliminating ACA-related losses is a positive, particularly since Medicare and Medicaid are growing faster and the benefit to HCA and ACHC has been limited,” the Cantor Fitzgerald report mentioned, while adding that the current hospital environment requires outreach, greater risk-taking and collaboration with other providers.

De-Risking From HIX Downside

UnitedHealth has reduced its 2015 EPS outlook, citing pressure in its individual public exchanges. The company also guided to 2016 EPS of $7.10–$7.30. Analyst Ana Gupta believes that this indicates meaningful HIX losses, which should make the company stop marketing actively for 2016 and make a potential exit in 2017.

UnitedHealth has de-risked 2016 with two-thirds of the 2015 guidance reduction relating to 2016, Gupta mentioned. She added, “[We] now expect upside from concessions from CMS on Risk Corridors also disclosed yesterday. UNH has said that they will exit the market should they not see improvement before 2017 as they cannot continue to subsidize this market.”

The analyst expects UnitedHealth to have strong negotiating power since over 50 percent of the current HIX market is being serviced by publicly traded insurers.

Gupta pointed out that other players like Aetna Inc AET and Anthem Inc ANTM have largely de-risked 2016 by exiting underperforming HIX markets and focusing their exposure to more stable state-run exchanges. The EPS estimate for FY2015 has been reduced from $6.35 to $6.00.