After A String Of Obamacare Exits, What's Up For HMO Stocks?
Zacks Investment Research | Aug 22, 2016 11:16PM ET
The health insurance industry has been creating a lot of noise lately with players cribbing about their bad experience in the individual exchange business on public exchanges also popularly called Obamacare.
While UnitedHealth Group Inc. (NYSE:UNH) was a the first to disclose its unpleasant experience on public exchanges last year, this year Aetna Inc. (NYSE:AET) , Humana Inc. (NYSE:HUM) , Anthem Inc. (NYSE:ANTM) and now CIGNA Corp. (NYSE:CI) have joined the bandwagon.
UnitedHealth which was present in 34 states in 2016, has already exited public exchanges in more than two dozen markets and will exit more. In2017, it will completely exit the business or at the most be present on only three to four. Aetna has a similar saga to share. After its second-quarter earnings, the company announced that it is calling quits in the public exchange business in 11 of the 15 states in which it is currently present.
Aetna will reduce its individual public exchange participation to 242 counties from 778 for the 2017 plan year. This development comes after Aetna suffered pretax loss of $200 million in the second quarter and total pretax loss of more than $430 million since Jan 2014 in its individual products sold via public exchanges.Aetna is now expecting losses (pretax) north of $300 million on policies sold on public exchanges for 2016.
Another player Humana Inc. (HUM) recently announced it will sell plans through public exchanges in 11 states in 2017, down from 15 states this year because of losses. Anthem Inc. (ANTM) also witnessed huge claims in its public exchange business in the second quarter.
While at the outset it seemed that public exchanges would add to the topline of the players by bringing in more enrollments, it did not turn out that straight. Insurers witnessed an adverse mix of population signing up for insurance on these exchanges. Those who sought insurance were mostly sick who went on to utilize healthservices, therefore causing a spike in claim ratio. In short, the premium paid by these members did not compensate for the care they sought, thus giving rise to losses on these policies.
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