By Kerry Young, CQ Roll Call
January 19, 2016 -- UnitedHealth Group, the nation's biggest health insurer, said it stepped up investment in Medicare products even as its recent profit was eroded by the costs of participating in the insurance exchanges created under the 2010 health law.
Earnings from the operations of UnitedHealth's core insurance businesses plunged by almost half in the last three months of 2015, dropping to $949 million from $1.73 billion in the year-earlier period. The company on Tuesday blamed spending to make its Medicare plans more attractive by securing higher grades in the so-called Stars rating system and the poor financial performance of plans that comply with the requirements of the federal health exchanges.
On a call with analysts, UnitedHealth reiterated that it's considering whether to continue to participate in the health exchanges in 2017, with a final decision expected in mid-2016. The Minnetonka, Minnesota–based company had first announced this plan in November. A withdrawal by UnitedHealth would be seen as a major setback for the political prospects for the health exchanges, a centerpiece of the health overhaul.
The company described participation in the new market as a significant drag on its profit. UnitedHealth claims $720 million in 2015 losses related to "individual exchange-compliant insurance business," including a $245 million hit in the fourth quarter for advance recognition of expected 2016 losses. As a result, earnings from the operations for its traditional insurance business in total fell $238 million to $6.8 billion last year from about $7.0 billion in the previous year. In contrast, earnings from the operations of United Health's Optum health services unit rose almost $1 billion, or 30 percent, year-over-year to $4.3 billion.
UnitedHealth has about 700,000 customers whom it acquired through public exchanges, a figure that it expects to decline over the course of the year.
"We will not pursue membership growth and have taken a comprehensive set of actions to contain membership and sharpen performance over the balance of 2016," said David S. Wichmann, UnitedHealth Group president and chief financial officer. "We have withdrawn platinum products, increased prices and eliminated marketing and commissions."
UnitedHealth expects significant gains in Medicare Advantage enrollment, expecting to add about 300,00 new customers in the first three months of this year, according to Wichmann. UnitedHealth shares rose $3.70 to $112.90 in midday trading, besting the small gains seen in major stock indexes.