UnitedHealthcare is pulling out of the Tennessee Obamacare health insurance market, only a year after announcing it would do business in the state.
The nation's largest health insurer announced Tuesday that it would stop selling health plans through the Affordable Care Act next year in most of the 34 of states where it operates.
The decision means about 40,000 people in Tennessee who signed up for policies with UnitedHealthcare will be looking for a new insurance company for 2017.
Policies purchased in Tennessee from UnitedHealthcare for 2016 will be honored, and UnitedHealthcare policies obtained through an employer will not be affected by the announcement. UnitedHealthcare had about 15.5 percent of the Obamacare market in Tennessee.
Chattanooga-based BlueCross Blue Shield of Tennessee has dominated the market in Tennessee since the exchanges were launched four years ago, but has suffered large losses thus far and had to raise its rates significantly last year. Company officials have said they will seek another rate increase this year in attempt to make money on the exchanges.
"We're disappointed about UnitedHealthcare's decision to withdraw from the marketplace after joining last fall because of how the departure will impact consumers," said TDCI Commissioner Julie Mix McPeak in a press release. "Thankfully, we have companies with strong ties to Tennessee still offering products across the state, both on the marketplace and off."
UnitedHealthcare sent a letter to state Department of Commerce and Insurance officials on Friday, notifying them that they would not be offering policies in Tennessee after 2016. Company officials said earlier this week that because of higher-than-anticipated losses, they would be offering Obamacare policies in only a handful of states.
UnitedHealthcare's retreat means that BlueCross BlueShield of Tennessee is the only insurer offering Obamacare coverage across every county in the state. Insurers Humana and Cigna offered policies in portions of the state but not in everycounty.
The UnitedHealthcare letter gave no reason for the company's pullout from Tennessee. The company only began insuring Tennesseans on January 1, so it is unlikely to have incurred large losses in the state thus far.
UnitedHealth's decision to slash its participation in the Affordable Care Act's insurance exchanges shows how these still-new marketplaces remain unsettled heading toward their fourth year.
UnitedHealth covered 795,000 people nationally through the exchanges as of the end of March, or roughly 6 percent of the 12.7 million total people who signed up for 2016 coverage through the ACA's public exchanges. UnitedHealth's announcement comes after nonprofit health insurance cooperatives created by the ACA reported deep 2015 losses and as other major insurers like Aetna have questioned the viability of the exchanges, which are a key element behind the ACA's push to expand insurance coverage.
Industry watchers say they expect other companies to also adjust their exchange participation as they put together their coverage plans for 2017. But they don't see UnitedHealthcare's move as the start of a mass exodus.
"I think insurers will have to become more selective in terms of which exchanges and how they participate, but by far and away I think the United move will be the biggest one this year," said Mizuho Securities Managing Director Sheryl Skolnick.
It's still too early to get a definite feel for how many choices consumers will have next fall when they start shopping for 2017 coverage. So far, UnitedHealth has decided to stay in exchanges in Virginia and Nevada but leave Arkansas, Georgia, Louisiana, Michigan, and Oklahoma, in addition to Tennessee. Other insurers may move into those marketplaces to replace it.
Generally, the number of choices a consumer has will depend on where the shopper lives, with insurers gravitating toward more populated areas.
"I think there's reason to believe we'll still have quite a few competitors in a lot of the areas where we had them last year," said Gary Claxton, a vice president with the Kaiser Family Foundation, which studies health care issues.
HHS says 39 health insurers left a marketplace for 2016 coverage while 40 entered one.
Spokesman Ben Wakana said the government expected insurers to enter and leave exchanges in their early years, and they have confidence that the new marketplace "will continue to thrive for years ahead."
Health insurers have faced several challenges in building their exchange business. Their initial wave of customers generated higher-than-normal claims in part because some of the uninsured had not used the health care system for years and were waiting for coverage to help pay for needed care.
Insurers also have struggled in many markets to add younger consumers who don't use as much health care and could balance those more expensive patients. Insurers say they also have been hurt by expensive patients who sign up outside regular enrollment windows.
UnitedHealth said Tuesday that it expects to lose $650 million this year on its exchange business, up from its previous projection for $525 million. The insurer lost $475 million in 2015. CEO Stephen Hemsley told analysts during a Tuesday morning conference call that his company will not carry into 2017 financial exposure from the exchanges, which represent a small slice of its overall business.
This story was updated April 19 at 9:50 p.m. with more information.