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UnitedHealth Exits California State Exchange to Check Losses

Sources have reported that UnitedHealth Group Inc.UNH is calling it quits in the public exchange business in California, which is one of the key markets. The decision was prompted by continued deterioration in the company's individual exchange business in that market.

This development comes after UnitedHealth's recent announcement that it will exit unprofitable markets next year. The company will stop offering individual insurance coverage in most of the 34 states it currently operates in order to stem the losses in this business.

Last year, the company was the first among the health insurers to spell out its troubles related to public exchanges. In order to scale back its activity on the exchanges, UnitedHealth recently withdrew platinum products, increased prices, eliminated marketing and commissions, intensified clinical engagement and medical management with this membership group and reduced its operating cost.

Among the 34 states in which it operates, the company will leave or has already left Alabama, Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas and Washington.

Another player, Humana Inc. HUM , is also mulling over dropping individual insurance coverage through exchanges in the states of Alabama, Kansas, Wisconsin and Virginia. The business brought Humana a meager profit in the first quarter and will likely lead to a loss for the full year.

Unlike UnitedHealth and Humana, another insurance major Aetna Inc. AET doesn't plan to drop its exchange business in any of the 15 states it currently operates in. It is also considering expansion into new states in 2017.

Cigna Corp. CI which is offering exchange insurance in seven states is also considering expansion into new states.

Insurers have had a mixed experience with the exchange business since its debut in 2013. But Unitedhealth's stint has been discouraging. The Minnesota-based insurer witnessed huge claims from sicker-than-expected customers enrolled on the public exchange. The number of healthy and young individuals who enrolled on these exchanges were far less that customers with old age and pre-existing diseases who lacked coverage earlier. This adverse mix of customer population led to increased claims and losses for the insurer.

Though the exchange business will be a bump in the road to profitability for the insurer this year, its other business segments are performing pretty well. We believe the exit of the exchange business will poise the company well for long-term growth.

UnitedHealth carries a Zacks Rank # 2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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