Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Aetna Inc (AET), CIGNA Corporation (CI), and UnitedHealth Group Inc. (UNH): A Big Mistake With California Obamacare

Page 1 of 2

Someone has made a big mistake. We don’t know yet, though, who the mistaken party actually is.

A few commentators are gleefully proclaiming that Obamacare has received good news from the state of California. They note that rates recently announced for the state’s health insurance exchange are significantly lower than what the Congressional Budget Office projected. This, they say, signals that Obamacare could unleash competitive market forces that lower insurance costs.

Aetna Inc. (NYSE:AET)Others, including my colleague Sean Williams, observe that several major insurance companies aren’t participating in the California Obamacare exchange, including Aetna Inc (NYSE:AET), CIGNA Corporation (NYSE:CI), and UnitedHealth Group Inc. (NYSE:UNH). Their question goes along these lines: “Why would these companies decline to participate in one of the largest markets in the nation if there isn’t an inherent problem with how Obamacare will function?”

If the California Obamacare exchange is destined for success, three of the nation’s largest insurance companies could have made a very costly mistake in not jumping into the fray. If these companies’ caution proves wise, though, the insurers that are participating in California could be in for financial challenges if they underestimated costs. Who made the mistake? Here are a few things to consider.

Comparing costs
Back in 2009, the CBO originally projected that a middle-of-the-road “silver plan” could cost $5,200 per year — or around $433 per month. Instead, the least expensive silver plan in California’s exchange will cost $276 per month. That cost will be even lower for individuals qualifying for federal subsidies.

The most optimistic scenario calls for around 5 million people to purchase insurance through the California exchange. This flood of new members would enable those insurers participating in the exchange, including Kaiser Permanante, WellPoint, Inc. (NYSE:WLP)‘s Anthem Blue Cross, Blue Shield of California, and Health Net, Inc. (NYSE:HNT), to make more money on higher volume while offering insurance at lower costs. Capitalism at its finest, right?

A gloomier scenario is that a much lower number will buy insurance through the exchange, possibly causing participating insurers to lose money because they based their rates on overly rosy assumptions. This prospect probably caused the hesitancy of Aetna Inc (NYSE:AET), Cigna Corporation (NYSE:CI), and UnitedHealth Group Inc. (NYSE:UNH).

Page 1 of 2
Loading Comments...