Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

UnitedHealth shocked the health care world in November by suggesting it may ditch Obamacare's individual health insurance exchanges in 2017. During its latest earnings call on Tuesday, it vowed to make a final decision "by mid-2016." When the time comes, the company should push the eject button. An exit would stem accelerating losses and end a distraction from an otherwise growing business. 

Moving on Up
Obamacare exchange losses couldn't stop an earnings beat for UnitedHealth.
Source: Bloomberg
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Exchange losses meant UnitedHealth's total profit fell in the fourth quarter from a year earlier, though its Optum health-services business helped earnings beat estimates. UnitedHealth shares gained 2.5 percent on Tuesday. 

The company lost $475 million on exchange plans in 2015 and expects to lose more than half a billion in 2016 -- not exactly a great trajectory. UnitedHealth took a $340 million charge in the fourth quarter, mostly for early recognition of Obamacare losses. The company has said individuals on the exchanges often enroll, get a lot of care, then drop coverage, and that such customers use a great deal more health care than other people it insures, all of which drives losses. 

UnitedHealth has tried to discourage people from signing up for its exchange plans. It has raised prices, eliminated all "platinum" plans that offer 90 percent coverage of medical costs, and curbed marketing. It is more aggressively managing costs for customers on these plans, but still expects they will yield profit margins in the low negative double digits in 2016. That's a slight improvement from last year's negative 15 percent, but still pretty gruesome.

UnitedHealth CEO Stephen Hemsley said in November that losing money on exchanges in 2017 was unacceptable. But staying in the market and avoiding losses would take something of a miraculous turnaround. 

Bad Exchange
Obamacare exchanges have taken a bite out of UnitedHealth's insurance margins, especially in comparison to the fast growing Optum health services business.

Compared to other, smaller insurers that made exchanges much more of a focus, ditching Obamacare would be relatively easy for UnitedHealth. The company expects to cover fewer than 800,000 people on exchange plans by the end of January, when open enrollment ends for most. That would be about 1.7 percent of its 46.4 million total members, compared to as much as 4.7 percent for Aetna. 

UnitedHealth's other businesses are performing well enough that it doesn't need to keep throwing away half a billion dollars a year on a long-term bet on the exchanges. The company's Optum unit, which includes health-care software, consulting, care delivery, and pharmacy benefit management, grew 42 percent year-over-year in the fourth quarter, helped by the $12.8 billion acquisition of PBM Catamaran in July. The company expects Optum revenue to reach $80 billion in 2016, a gain of about 20 percent.

Obamacare excluded, the core insurance business grew profits by 8 percent in fiscal 2015. The post-exchange future looks pretty bright, if the company chooses it:

On the Right Track
Obamacare aside, UnitedHealth looks... healthy.
Source: Bloomberg

The argument for staying is more tenuous.

The Obama administration plans to respond to one of the UnitedHealth's most serious complaints -- that patients wait until they get sick and sign up for health insurance outside of normal enrollment periods, despite the fact that many shouldn't qualify -- by tightening standards for special enrollment and ending coverage for violators.   

The exchanges are seeing their best numbers yet, with 11.3 million sign-ups through the end of 2015, and more coming through the end of January. More enrollment is bad for UnitedHealth in the near term, but makes the exchanges more viable and valuable in the future. If lax enrollment standards are actually tightened and enrollment continues to grow, profit might follow. By exiting now, UnitedHealth could miss or be years behind on a market that may be lucrative in the long run. 

But all of that seems aspirational and distant compared to the present, growing sea of Obamacare-related red ink.

On the earnings call, Hemsley repeatedly emphasized the strength of UnitedHealth's other businesses and mentioned his desire to present "clean, strong" (read: mostly Obamacare-free) financial results to investors this year. Once unthinkable, an exchange exit looks increasingly likely, and even prudent. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Max Nisen in New York at

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Mark Gongloff at