Hospitals Feel Pain as UnitedHealth Eyes Obamacare Exit Door

UnitedHealth Group May Leave Obamacare, What's Next?
  • Progress toward insuring all Americans may have plateaued
  • Hospitals see some insured people converting to self-pay

The possible departure of insurance leader UnitedHealth Group Inc. from Obamacare signals worsening prospects for hospitals already facing a slowdown in gains from the program.

UnitedHealth said Thursday it expects to lose as much as $500 million next year selling coverage under the Patient Protection and Affordable Care Act. The company has scaled back marketing efforts for individual ACA insurance plans, and it may stop participating in 2017.

Hospitals, including for-profit chains HCA Holdings Inc. and Tenet Healthcare Corp., have already agreed to cuts in Medicare reimbursements, expecting they’d see fewer uninsured patients, said Sheryl Skolnick, an analyst with Mizuho Securities USA Inc. in New York. The administration has predicted slow growth in sign-ups under the ACA, and UnitedHealth’s announcement suggests insurers are less willing to participate.

Hospitals are “going to ratchet back their expectations for ’16,” Skolnick said in a telephone interview. “They may feel real pressure in terms of growth in newly insured for next year.”

The ACA has been a boon to health-care companies since going into full swing in 2014. Yet progress toward insuring all Americans may have plateaued. The administration has projected about 1 million in new paid enrollment next year, far short of an earlier estimate from the Congressional Budget Office of 8 million.

Slowing Momentum

“Nationally, we’re seeing that reform is feeling kind of tired,” Skolnick said. “It no longer has the momentum you’d need to feel optimistic for eliminating uncompensated care and treating the uninsured.”

The ACA boosted hospital earnings before interest, taxes, depreciation and amortization by an average of 9 percent this year, and half of that came from patient enrollment through insurance exchanges created by the act, according to Joshua Raskin, an analyst with Barclays Plc in New York. If insurers continue to see participation in the exchanges as unsustainable, hospitals could experience “significant uncertainty” in 2017, he wrote Thursday in a note to clients.

Shares of HCA, based in Nashville, Tennessee, fell 6.9 percent to $65.39 at 4:00 p.m. on Thursday in New York; Dallas-based Tenet tumbled 8 percent to $30.40 and Community Health Systems Inc. of Franklin, Tennessee, dropped 7.9 percent to $26.32.

This table from Bloomberg Intelligence analyst Jason McGorman shows the boost that hospital chains -- including Tenet and Community Health -- have gotten from the ACA.

Obamacare has significantly reduced the number of uninsured in the U.S., from a high of 18 percent of adults in 2013 to about 9 percent in the first half of 2015, according to government data. Supreme Court challenges to the law have largely failed, and proponents say the program, like the Bush administration’s expansion of drug coverage for the elderly under Medicare Part D, is “here to stay.”

Yet some hospitals saw a recent disturbance in these trends. Uninsured admissions at HCA rose 14 percent in the third quarter from a year earlier, Chief Financial Officer William Rutherford said on an Oct. 27 conference call, adding that many patients may have left their insurer because they haven’t been able to pay their premiums.

“We saw a slowing of Medicaid conversions in the quarter -- that is, uninsured patients that become qualified for Medicaid,” he said. “We also saw an increase in the number of people previously registered as insured that were converted to self-pay.”

Bellwether Trends

Trends at for-profit hospitals, which must regularly report earnings, can be a bellwether for the nonprofits that comprise 80 percent of the U.S. total, said Jim Lebuhn, a senior director in Chicago with Fitch Ratings, which rates the nonprofits’ debt.

The CBO estimated in March that 21 million people would be covered by Obamacare in 2016. Investors in for-profit institutions “were putting a lot of value” on increased enrollment, but nonprofits were suspicious of that value, Lebuhn said in a telephone interview.

About 10 million people are currently enrolled, and emergency-room doctor James Williams says he sees many with “insurance in name only” -- cheap plans that become unaffordable for expensive hospitalizations.

“If you can’t afford your premium and co-pay and deductible, then I have to figure out another way to help,” the Lubbock, Texas, physician said. “Having insurance and getting care are two very different things.”

Not Budging

Twenty U.S. states have yet to widen Medicaid eligibility to anyone making less than 138 percent of the federal poverty level, so millions of people the ACA sought to cover aren’t insured. States with Republican-controlled legislatures -- including Utah, where Medicaid expansion was vigorously debated -- don’t appear ready to budge.

Other options for enrollment are dwindling in some parts of the country. Of 23 nonprofit cooperative insurance providers established to give consumers additional choices, 12 are closing. That will leave more than half a million subscribers looking for new programs in 2016.

With or without insurance, patients continue to pile into hospital emergency rooms, where care is most expensive, according to the American College of Emergency Physicians.

“We used to see 150 patients per 24 hours, and now it’s 180,” said Diana Fite, an emergency physician in Tomball, Texas. “The place is packed and we get so many uninsured.”

Pushing for Expansion

Tenet also reported an increase in uninsured patients, primarily in Florida and Texas. Neither of the Republican-majority states has expanded Medicaid, in spite of the influx of federal Medicaid funds they would receive. The company still is pushing for expansion, CFO Dan Cancelmi said in a telephone interview, even though “when you’re headed into a presidential election year, it may be difficult to move the ball down the field.”

Tenet officials said they always anticipated Obamacare sign-ups would slow from the first year to the second. The legislation’s impact is within their expectations, and Medicaid may continue to expand.

“There’s a broad coalition out there of business groups and other groups that want to see these dollars going into their states,” Cancelmi said. “I still feel confident that we’ll move there.”

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