Yesterday, we talked about Obamacare and its purported failure in the rural regions of the US.  Those regions have always been problem areas for healthcare.  Long before there was a hint of the program. Too few practitioners, little density to support hospitals, and the population is generally a little poorer than the rest of the US.

But, like when John Schnatter shot off his mouth a few years ago, decrying that Obamacare would add a fortune to his costs for pizza, many other folks try to blame their failures on this healthcare program.

Don’t forget that PapaJohn pays his employees a little less than his Pizza Hut competitors (per Payscale.com) and that he also charges customers $ 2 for delivery (which more than pays his delivery people on most days).  (PizzaHut charges $ 3.50 for delivery, by the way.)  If Schnatter did the math, the most the costs to insure his employees would have increased would have been $ 0.10 per pizza.  (By the way, his staff are considered restaurant employees, so the minimum wage is far below the $ 7.50 we all consider it to be.)

And, now UnitedHealth is also claiming that Obamacare is making them lose money.  So, they are leaving the marketplace.

But, let’s consider a few facts.  There are four big national players in the healthcare marketplace.  Three are BlueCross/Blue Shield (which actually is the backbone of almost every single exchange in the US), Aetna (which is acquiring Humana Health) [chose to operate in 15 exchanges so far] , and Anthem (acquiring Cigna) [in more exchanges, but not all]- and, then there’s United Health.

Anthem admits its enrollment grew more than it expected on the Obamacare program.  (Most of that growth resulted from the non-profits in New York, Colorado, and Kentucky that folded- and NOT from aggressive pricing, a concept that helped other firms grow their business. As a matter of fact, some of Anthem’s rates were above others in their respective marketplaces.)

And, Anthem is maintaining  a slim positive margin on its Obamacare business.  Its earnings have been exceeding expectations as a result- which Anthem hopes to augment when it acquires Cigna later this year.  Admittedly, their profit goal is 3 to 5%- and Anthem doubts it will achieve that until sometime late next year.

But, let us also remember that Anthem is organized to handle individual plans.  Which, of course, is also true for the Blues.  Aetna has a mix of both individuals and large plans.

UnitedHealth on the other hand, has been organized to provide health care to companies and large groups.  So, it’s knowledge about individual plans requires it to course through a steep learning curve.   That’s why it only supplies about 6% of the total census of patients insured by Obamacare.   Moreover, UnitedHealth’s premiums are higher than their competitors (because it offers a wider range of practitioners, which means the costs are higher).

 

Oh, UnitedHealth also claims it lost $ 525 million on PPACA in 2015 and $ 650 million is expected to be drained in 2016.  (It has all of 795000 Obamacare enrollees.  Which means they are losing some $ 65 a month per subscriber.)  But, UnitedHealth is not only geared to providing healthcare for large corporate entities, it’s Obamacare efforts have been aggressive in the rural and southern regions of the US.

It is pulling out of 536 counties, leaving those regions  with just one choice. And, as you can see, when you recall the data from yesterday, UnitedHealth is involved in 83% of the counties that will be left with just one supplier. Those regions are the ones where plan costs are especially difficult to control.  And, with 795K clients in 536 counties, it is averaging less than 1500 consumers per county.  Obviously, no economy of scale!

But, let’s REALLY look at UnitedHealth’s picture.  (All these data came from their 10-K reports.  Interestingly, the data is not consistent from year to year.  For example, in 2015, the Medical costs are listed as 89659 for CY 2013- but in previous years’ 10K, they had a different value posted.  The same is true for their operating costs.)

But, as you can see, their census has been fairly stable.  (The “drop” in Tricare is realted to the fact they reclassified as a group program.) And, their medical costs ratio rose in 2013- before Obamacare, dropped in 2014,  and rose again in 2015.

So, it looks like their overhead costs exceeded ratios allowed (both for Obamacare and in general)- because their healthcare program profits did dwindle.  (I didn’t list their operational profits or overall revenue, since that includes many other business interests.)  Mostly because they signed on the bulk of their patients in the rural regions- where the census is too low to cover the overhead they normally maintain.  Either they will have to figure out how to handle individual plans, or stick to their primary business of large groups and companies, where the overhead is diffused over many subscribers.

But, despite their claims, this is  not an Obamacare problem, per se.