UnitedHealth to be a tough exchange player

By Allison Bell

January 17, 2013

Consumer groups are pushing states to make the new health insurance exchanges "active purchasers" that push hard to bargain with carriers for lower rates and better products.

Stephen Hemsley, the president of UnitedHealth Group (NYSE:UNH), assured Wall Street today that his company intends to be an "active seller" that will bargain hard with the exchange managers for fair treatment and rules that give the company the ability to earn a reasonable return on capital.

"The more complex exchanges become, the greater is the potential for unintended market distortions," Hemsley said during a conference call that covered UnitedHealth's earnings for the fourth quarter of 2012.

The Patient Protection and Affordable Care Act of 2010 (PPACA) calls for state and federal agencies to set up at least 50 exchanges, or Web-based health insurance supermarkets, for the individual market, and another 50 for the small group market by Oct. 1, with the coverage sold through the exchanges to start taking effect in 2014.

"You can expect each one to operate somewhat different," Hemsley said.

Once the exchange market matures, UnitedHealth expects "exchange coverage" that will fit somewhere on the supermarket shelf between commercial coverage and the Medicaid plan market, Hemsley said.

UnitedHealth is making no firm plans to participate or not participate in the exchanges, Hemsley said.

"We would expect of participate in a number of exchanges," Hemsley said, suggesting the number could range from 10 to 25, or even more, but emphasizing, again, that there are no guarantees on the number.

Individual and small-group health plans now generate about 10 percent of UnitedHealth's earnings, and the company sees no reason to expect the PPACA exchanges to have a dramatic effect, either positive or negative, on that contribution, Hemsley said.

Hemsley did express some skepticism about the idea that exchanges will be ready to go Oct. 1.

That timeline "seems challenging," Hemsley said.

So far, however, the U.S. Department of Health and Human Services (HHS) has been implementing PPACA in fashion that seems "rational, predictable and reasonably collaborative," Hemsley said.

UnitedHealth is reporting $1.2 billion in net income for the fourth quarter on $29 billion in revenue, down from $1.3 billion in net income on $26 billion in revenue for the fourth quarter of 2011.

The UnitedHealthcare health insurance unit is reporting $1.6 billion in operating earnings for the latest quarter on $27 billion in revenue, compared with $1.8 billion in operating earnings on $25 billion for the comparable quarter in 2011.

The company ended the quarter providing or administering coverage for 27 million people, up from 26 million a year earlier.

The company ended the year providing traditional insured commercial coverage for 9.3 million people, down from 9.5 million people a year earlier. Enrollment in the self-insured employer health plans the company administers increased to 18 million, from 16 million.

In other earnings call news, the company:

• Has priced about 70 percent of its 2013 commercial insurance business. The markets have been competitive but rational, and prices are a little better than they were a year ago, Hemsley said.
• Found that the underlying cost of health care -- the cost trend -- was about 5.5 percent for 2012, and the company expects the trend to be between 5 percent and 6 percent this year.
• Is managing provider relationships that account for about $20 billion per year in claims through "pay for performance" incentive programs. The company hopes to increase the value of claims in pay-for-performance programs to about $50 billion by 2017.
• Estimates the current influenza season might lead to about $50 million more claims than the company's plans' typical flu season