Obamacare Spooks Aetna and UnitedHealthcare – Leaves California Market

UnitedHealthcare the largest health insurance company will no longer sell individual health insurance in California. Its 10,000 members will now be forced to look for alternatives. United Healthcare operates in California through its subsidiary Pacificare. This makes UnitedHealthcare the second health insurance company to flee California’s individual health care market ahead of January 1 implementation of Obamacare. Earlier Aetna decided to (unfairly) pack its bag leaving 60,000 individual health insurance members in a lurch. Aetna has 1.5 million members covered under other plans in California.

Individual health insurance policyholders from both companies can keep their policies till December 13, 2013. Beyond that the policyholders will have to purchase health insurance from carriers who are part of the new California Health Benefits exchange. They may also buy from carriers not part of the exchange.

UnitedHealthcare and Aetna are still staying in California for Medicare.

Obamacare which will come into force from January 1, 2014 will require health insurance companies to accept all individual health insurance applicants. This means carriers will no longer be able to reject elderly and those with pre-existing conditions. This also means health insurance carriers will no longer be able to deny coverage on flimsy (or no) grounds.

Big Carriers Leaving is Bad for Consumers

Aetna has 50,000 and UnitedHealthcare has 8,000 members covered under individual health insurance. These members will now be forced to look for alternatives. A competitive market gives more choices to customers and keeps the costs down in the long run.

Three health insurance carriers UnitedHealthcare, Aetna, and Cigna Group, chose not to participate in California’s state run market place Covered California which opens January 1. With the first two carriers out Cigna may follow soon.

Carriers With Low Market Share Can’t Compete Under Obamacare?

As per Citigroup 2011 data three companies, Anthem Blue Cross, Kaiser Permanente, and Blue Shield of California, together have 87% individual health insurance market share in California. UnitedHealthcare’s share is 2% and Aetna’s share is 4%.

California wants health carriers to compete fairly, transparently, and more directly on price. It wants carriers to offer uniform deductibles, co-payments, out of pocket maximum and benefits across four major categories.

Experts argue that companies with small market share cannot compete on price and hence remain profitable when Obamacare kicks in. This is what Gary Claxton, a vice president at the Kaiser Family Foundation has said.

National companies that don’t have a strong local presence may not be able to compete on price very well if they don’t have the best networks or best discounts.

It is being reported that companies are negotiating harder with service providers and creating smaller networks in order to keep premiums down. Companies with low market share claim they can’t get better rates than companies with larger market share.

But there is a flaw with this argument. Aetna which abandoned its 50,000 individual health insurance members has 1.5 million covered under other health plans. Aetna has the negotiating power of 1.5 million members. National insurance companies can (and probably do) negotiate with some health care service (especially equipment manufacturers) providers at national level.

Tax Incentives and Not Obamacare a Reason for Leaving?

California Department of Insurance Commissioner Dave Jones believes that the reason Aetna and United Healthcare are leaving is the tax break California gives to Anthem Blue Cross and Blue Shield. The tax break allows these two companies to save $100 million in taxes a year. Aetna and United Healthcare do not get any tax holiday in California. Hence they faced a major cost disadvantage.

This type of  cherry picking is not right – ethically or morally. These are the same companies which expect us to gape in awe and clap till palms hurt on their CSR activities. But when it comes to the core of their business they are dumping customers.

Healthcare is a basic human need. Without health a major chunk of the constitution is meaningless   including freedom of speech and persuit of happyness. Finally Obamacare is trying to set things right.