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UnitedHealth Group Inc. (UNH), Aetna Inc (AET), CIGNA Corporation (CI): Why Obamacare’s State Rate Changes Are Misleading

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UnitedHealth Group IncIn addition to inspiring heated debate from both sides of the health-care issue, Obamacare has become one of the most confusing pieces of legislation ever passed. With the difficulties in analyzing the law’s effects, every new development seems to raise more questions than it answers.

For months, a number of states have announced expected premiums under their state health insurance exchanges, and in most cases, the premiums under Obamacare have been decidedly higher, inspiring opponents to declare the legislation a patent failure. Yet this week, the state of New York came out and said that its exchanges would cut premiums by more than half, leading to proponents of health-care reform declaring the success of the program. Which side is right?

Measuring from different baselines
The problem that objective analysts face in assessing Obamacare is that everything depends on the baseline from which you start. Every state’s insurance environment is different, and so in judging savings under Obamacare, you’re inherently judging not only how well Obamacare does in establishing a health-insurance framework but also how well the pre-Obamacare framework did in providing low-cost care to those seeking coverage.

President Barack Obama delivers remarks on the Affordable Care Act’s Medical Loss Ratio Refunds. Source: White House.

For instance, one key variable that is much different from state to state is the quality of insurance coverage offered under pre-Obamacare plans. In states that allowed insurance companies to craft lower-priced coverage by trimming benefits and imposing restrictions on coverage, premium increases under Obamacare tend to be higher, because Obamacare requires more comprehensive coverage that should lead to a decrease in out-of-pocket costs. Indeed, major insurance carriers UnitedHealth Group Inc. (NYSE:UNH)Aetna Inc (NYSE:AET), and CIGNA Corporation (NYSE:CI) are probably choosing not to participate in some states’ health-insurance exchanges precisely because the required changes in benefits will fundamentally change the health-insurance landscapes in those states. That makes their profit prospects less certain and their shareholders more nervous about the impact the legislation will have on their bottom lines.

By contrast, in states that already required some of the same things that Obamacare does, Obamacare exchanges are more likely to produce premium savings, but they’re also unlikely to have as much savings on out-of-pocket costs because pre-Obamacare insurance offerings already provided favorable benefits. They’re also less likely to lead insurance companies to change their minds about offering coverage, because the nature of that coverage isn’t all that different under Obamacare.

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