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United Health Care Leaving California is No Loss

UHC drops California like a pile of poop.

UHC drops California like a pile of poop.

California Insurance Commissioner Dave Jones expressed concerned in a news release from his office that United Healthcare had announced it was pulling out of the individual health insurance market in the state.

“United Healthcare’s decision to exit the California individual health insurance market is bad news for consumers,” said Commissioner Jones. “While both United Healthcare and Aetna have a very small share of California’s individual health insurance market, their departure means less choice, less competition, and more market consolidation by the remaining big three health insurers – Anthem Blue Cross, Blue Shield of California, and Kaiser – which means an increased likelihood of even higher prices from those health insurers downstream.” – C0mmissioner Jones

Neither the departure of United Health Care (UHC) or the previously announced Aetna closure of individual plans is much of a loss to California in terms of competition. Combined, the companies had less than an estimated 70,000 enrolled members. If the UHC rates on individual plans were anything like Aetna’s, they didn’t offer much competition in the first place.

While Commissioner Jones is worried about competition, he recently called for a ban on Anthem Blue Cross from participating in the Covered California small business health insurance group plans. You can’t bemoan a small market share holder like UHC pulling out of the market and potentially reducing competition while calling for a ban on one of the largest insurance carriers in the state, which has some of the  most competitive rates, and look credible about predicting the competitive forces in the market.

While some industry analysts point a finger at new guarantee issue rules for individual plans as a reason UHC and Aetna are vacating California, both are still retaining their lines of employer group business which IS ALL GUARANTEE ISSUE. Commissioner Jones is assigning the blame on special tax breaks some of the other carriers receive.

“One of the factors I believe contributed to this decision, even if the two companies are disinclined to acknowledge it, is the special tax break that California law gives to Anthem Blue Cross and Blue Shield, which has allowed and continues to allow those two companies to avoid paying $100 million in state taxes a year,” added Commissioner Jones. “Aetna and United Healthcare don’t get the special tax break provided to Anthem Blue Cross and Blue Shield, and so they faced a major competitive disadvantage in California.” – Commissioner Jones

While the tax situation no doubt was a factor in the decision making process, we only have to look at the comments reported in Bloomberg News about what UHC Chief Executive Officer Stephen Helmsley told investors last October –

The company’s plans reflect its concern that the first wave of newly insured customers under the law may be the costliest, Hemsley said. UnitedHealth will “watch and see” how the exchanges evolve and expects the first enrollees will have “a pent-up appetite” for medical care, Hemsley said. “We are approaching them with some degree of caution because of that.”

It doesn’t take actuary to figure out that “watch and see” is equivalent to letting the first wave of insurers take the losses on the pent up demand for medical care so UHC doesn’t have to. After the market and the health of our U.S. citizens stabilizes, UHC and Aetna will come back into the market to make money.

It is rather disheartening that UHC and Aetna have taken such a cynical profit driven approach to the individual market in California and in other states. Both of these companies have great IT infrastructures for enrolling and servicing their members. They are the sort of “military defense contractors” the U.S. market needs to lend experience and expertise during this period of difficult transition to a new health care and insurance market place.

The answer we received from both Aetna and UHC about the challenges in the health insurance market was one of “cut and run”. When the going got tough, they decided to run and protect their profits instead of working to help American families. Unfortunately, the public has a short memory and probably will not punish either insurer when they re-enter the market a couple years from now.

This would be a good time for Covered California or Department of Insurance to seek putting a moratorium of several years before a company can come back into California after dropping their business. We don’t need profiteers and fair weather friends that only see California as a profit center. Please reward those insurers that have chosen to participate in the new Covered California state health insurance marketplace. They are taking a gamble that even with the inevitable rough spots, health care reform will be better for people and business in the long run.

Full test of Commissioner Jones News Release

Second major health insurer pulls out of California market
Insurance commissioner concerned that reduced competition hurts consumers required to purchase health insurance in 2014
SACRAMENTO – Insurance Commissioner Dave Jones today expressed concern about the negative impact on consumers as a second health insurer – United Healthcare — announced its exit from California’s individual market.

“United Healthcare’s decision to exit the California individual health insurance market is bad news for consumers,” said Commissioner Jones. “While both United Healthcare and Aetna have a very small share of California’s individual health insurance market, their departure means less choice, less competition, and more market consolidation by the remaining big three health insurers – Anthem Blue Cross, Blue Shield of California, and Kaiser – which means an increased likelihood of even higher prices from those health insurers downstream.”

“One of the factors I believe contributed to this decision, even if the two companies are disinclined to acknowledge it, is the special tax break that California law gives to Anthem Blue Cross and Blue Shield, which has allowed and continues to allow those two companies to avoid paying $100 million in state taxes a year,” added Commissioner Jones. “Aetna and United Healthcare don’t get the special tax break provided to Anthem Blue Cross and Blue Shield, and so they faced a major competitive disadvantage in California.”

Aetna had approximately 60,000 people covered by individual policies as of March 31, 2013, and it projects it will have approximately 50,000 people covered by individual policies at the end of 2013, when the company exits the individual market. United Healthcare, through its subsidiary PacifiCare, had approximately 10,000 individual policyholders late in 2012. Policyholders from both companies have been informed they can keep their existing health insurance untilDecember 31, 2013. Aetna and United Healthcare policyholders will be able to purchase health insurance from other health insurers inside and outside the new California health benefits exchange.

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  • Bill Schlack

    What is the $100 million tax advantage for Anthem and Blue Shield?

    • http://www.insuremekevin.com Kevin Knauss

      I have a pretty good idea on the particular tax incentive, but I need to confirm the details. Hopefully, I will have some answers shortly.

    • http://Www.insuremekevin.com/ Kevin Knauss

      I spoke with the press office for Commissioner Jones and they filled in the gaps on how Anthem Blue Cross and Blue Shield of California can receive a potentially $100 tax savings.

      In the early 2000’s a bill was passed that allowed Anthem Blue Cross and Blue Shield of California to submit their individual PPO health insurance plans for approval through either the California Department of Insurance (CDI) or the Department of Managed Health Care (DMHC).

      If approved through DMHC it is considered a “health plan” and not subject to the CDI tax collected on premium revenue for “health insurance”. Most of the plans DMHC regulates are HMO plans not PPOs. Consequently, a plan approved through the DMHC is not levied any premium tax saving the carrier money.

      I am not sure what additional rules the DMHC may place on those plans to comply with their regulations that are more focused on HMO plans.

      CDI regulates the PPO plans in the individual market including numerous plans from Blue Cross, Blue Shield, Aetna, UCH, Health Net, etc.

      I can understand the Commissioner’s frustration with the law giving Blue Cross and Blue Shield the option to apply with the DHMC for their PPO plans and thus avoiding the premium tax. There may be other “turf battles” going on between the two departments, which for intents and purposes, should be one department. The duplication of effort, monitoring and regulations is at times ridiculous for the carriers, not to mention consumers who may be baffled on who to file a complaint or grievance with.

      • Bill Schlack

        Thanks. This explains about as clear as it can why the difference.

  • Dsims

    Does this mean that UHC will also drop medigap coverage?

    • http://Www.insuremekevin.com/ Kevin Knauss

      No. The decision only applies to under 65 year old individual health insurance policies.

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  • http://thelongversion.com/ TheLongVersion

    Kevin, leaving your politics out of the discussion you know UHC and Aetna leaving the state is NOT a good thing for consumers. Although it may be a good thing for an agent, if said agent is selling a competing company’s policies… I find it interesting that you also advertise the scam that is AARP and medicaid gap coverage on your website. What a wonderfully ingenious billion dollar heist that was for AARP.

    Regardless whether Obamacare ever actually does what proponents claim it will, it has become an executioner of choice and now we know the administration has known that for 3 years.

    • http://Www.insuremekevin.com/ Kevin Knauss

      First, it’s all about politics…and money. I never represented UHC, but do have clients with Aetna. I don’t want to see them leave the individual market and wished they had participated in offering new ACA plans to their current members.

      The true scam is that Blue Cross and Blue Shield were allowed to have certain IFPs regulated by the DMHC and thus avoid paying taxes. How much in campaign contributions to the legislators that carried that legislation did that cost the Blue’s?

      The AARP Medigap or Medicare Supplement plans (not Medicaid which you wrote in error) are actually underwritten by…United Health Care! The AARP moniker is simply a branding agreement and a means to boost AARP membership. You must be a member of AARP to enroll in their Medigap plan.

      The AARP – UHC partnership is no different then the NRA teaming up with a credit card issuer to brand the credit cards, and get a cut of the action, from credit card purchases.

      In terms of choice, at least in California, we have new carriers into the individual market place such as Western Health Advantage, Contra Costa Health Plan and Chinese Community Health Plan. For many parts of California, choice of health plans has increased.

      In addition, the market place is far more transparent. What good is 10 different choices if the plan designs and names are so confusing that a consumer can’t make an intelligent decision. I try to stay abreast of five different carriers and I still get lost. At least the ACA makes comparing plans much easier than before.

      Finally, some agents may get a bump from the ACA if they are in the right place at the right time. Otherwise, the total dysfunction of the Covered California website on the agent side, along with individuals having the ability to directly enroll without the help of an agent severely limits opportunities to expand an agent’s “book of business”.

      To see how I really feel about a part of the ACA read my blog post about the problems agents are seeing with Covered California http://insuremekevin.com/2013/11/04/agents-get-sermon-peter-lee-covered-california/