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Anthem, one of the five largest public health-insurance companies in the US, may pull out of the Affordable Care Act's public exchanges if the market does not improve in 2017.
After the release of Anthem's third-quarter results on Wednesday, CEO Joseph Swedish said the insurer would evaluate its participation in the exchanges, established under the law better known as Obamacare, for 2018 when it gets the results of the 2017 plan year.
Clearly, 2017 is a critical year as we continue to assess the long-term viability of our exchange footprint," said Swedish on the call.
"We will continue to closely monitor this business, and if we do not see clear evidence of an improving environment and a path towards sustainability in the marketplace, we will likely modify our strategy in 2018. We believe both the pricing and regulatory environment need to be improved to drive toward a sustainable and affordable marketplace over the long-term."
The firm has 889,000 people enrolled on exchange-based plans, according to the call.
A scale back by Anthem would make it the fourth of the five largest US health-insurance companies to pull out substantially from the markets after Aetna, UnitedHealthcare, and Humana. All of these companies have said the people signing up for coverage on the public exchanges are sicker and costlier than expected, leading to substantial losses for the companies.
Swedish reiterated those concerns on Wednesday, calling the Obamacare performance "disappointing." The Anthem CEO did say, however, that increased premiums and cost controls should make ACA plans profitable in 2017. Here's his comments from the call:
"We continue to experience higher than initially expected costs from members with chronic conditions, as we've discussed with you previously. Overall, the financial performance in individual ACA compliant products has been disappointing, as membership has been short of our original expectations since its inception and operating margins have been lower than expected beginning in 2015. We believe we've taken the appropriate actions across our served markets to return to slight profitability in 2017."
These exits have led to fear over the long-term sustainability of the exchanges, given fewer choices for consumers and increasing premiums for those still receiving care from the marketplaces.
While the exchanges have drawn most of the attention, they also account for only 5% of the total health insurance markets. The Department of Health and Human Services estimates that 13.8 million people will sign up for insurance through the exchanges for 2017. On the other hand, the Kaiser Family Foundation estimates 155.9 million Americans get their insurance from their employer.
Anthem's announcement came just 24 hours after open enrollment began for Obamacare, marking a critical time for the administration.
Anthem missed earnings estimates for its third-quarter earnings, posting $2.45 a share against analyst estimates of $2.47 a share. Revenue, however, beat expectations at $21.1 billion against estimates of $20.7 billion.
The insurer also said its benefit expense ratio, the ratio of medical payouts against payments coming in, increased to 85.5%, up from 83.6% from the same quarter a year ago. The firm said it was due to its Medicare business but also the "individual" line that includes Obamacare plans.
"Further, the benefit expense ratio reflects the impact of higher medical cost experience in the Individual business, partially offset by the timing of lower medical cost experience in the Local Group business, as expected," a release from the company said.
The company also said it planned to fight the Department of Justice's lawsuit blocking its merger with its rival Cigna.
The stock was higher by 3.75% after the news, to $121.82 a share as of 10:04 a.m. ET.
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