Insurers may prove choosy with overhaul exchanges

The leader of the nation's largest health insurer warned Thursday not to assume widespread participation from his company in part of health care overhaul's coverage expansion that unfolds later this year.

UnitedHealth Group Inc. CEO Stephen Hemsley told analysts the insurer's involvement in online exchanges that are expected to help millions buy coverage will depend on whether it's financially viable for the company.

"We will only participate in exchanges that we assess to be fair, commercially sustainable and provide a reasonable return on the capital they will require," he said.

These exchanges are expected to start accepting enrollment this fall for coverage that begins in 2014. Customers will use the websites, which will vary by state, to compare policies and apply income-based tax credits toward their bills. Many details on the exchanges have yet to be worked out, so Hemsley said the company hasn't made any specific decisions.

But he estimated that UnitedHealth will participate initially in roughly 10 to 25 exchanges, when at least 100 might be set up.

"In a perfect world, we would participate in them all," he said, adding that the insurer will keep evaluating exchanges and could eventually join more.

These exchanges will target individuals and people who have coverage through small employers. The consulting firm PricewaterhouseCoopers has estimated that they will generate $50 billion in premiums for the industry and at least 11 million customers by next year.

But insurers will have to spend money to make that money. The overhaul will impose taxes and fees on insurers, and it introduces some restrictions on how they can set premiums or the price of coverage.

Insurers, who are not required to participate in the exchanges, also will have to design plans that fit the requirements for each state exchange and build networks of health care providers.

"There is a significant risk … that if the economics on the exchanges are not favorable, they're simply not going to participate," said Sheryl Skolnick, an analyst who covers insurers for the institutional broker and dealer CRT Capital Group.

That could affect the premiums people pay for coverage. Proponents of the overhaul say the exchanges will help restrain premium hikes because insurers will be competing against each other as customers compare several policies side by side to find the best match.

UnitedHealth competitor WellPoint Inc. said it is planning to be on exchanges in all 14 states in which it sells plans with its well-known Blue Cross Blue Shield brand. But a company spokeswoman said in an email the Indianapolis-based insurer wants to see exchanges that emphasize competition and maximize choice for customers.

Whether insurers ultimately leave some exchanges thin on competition remains to be seen.

Wells Fargo analyst Peter Costa said every company will weigh the risks of participating in those exchanges against potential benefits. But too many details about the exchanges remain unknown to say how those deliberations will pan out.

Morningstar analyst Matthew Coffina expects widespread insurer participation.

He noted that some companies will lose business to the exchanges, so they will need to be on them to recapture it and gain new customers. He also noted that government officials will want credible companies like UnitedHealth or WellPoint on their exchanges and not just small, local insurers.

"I think regulators are aware of that, so they'll want to offer rules and terms that are attractive enough to attract a robust participation," he said.

Hemsley spoke to analysts Thursday morning after UnitedHealth announced results from the recently completed fourth quarter. The insurer's earnings slipped 1 percent to $1.24 billion. Earnings per share rose 3 cents to $1.20 compared to the last quarter of 2011, when the company had more shares outstanding.

UnitedHealth's total revenue climbed 11 percent to $28.77 billion.