Analyst: Anthem Likely Will Exit ACA Exchanges in 2018

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By Sara Hansard

Sept. 19 — Anthem Inc. is likely to get out of the Affordable Care Act insurance exchanges in 2018, Goldman Sachs managed care analyst Matthew Borsch said Sept. 19.

Goldman Sachs has cut its estimate of Anthem’s earnings per share by 50 cents for 2017 “to reflect more potential downside from the ACA exchanges, given what seems to be Anthem’s decision to remain mostly in the exchanges for next year,” Borsch said in a webinar on the investment firm’s investment analysis of managed care companies’ prospects. However, Borsch added, another possibility for Anthem is “that Anthem tells investors—as I think they will—that they will be getting out of the exchanges entirely for 2018. So stay tuned on that.”

UnitedHealth Group Inc., Aetna Inc., Humana Inc. and some Blue Cross Blue Shield plans are cutting back their participation in the ACA marketplaces for 2017 due to heavy losses for the exchange plans, which so far have enrolled sicker-than-expected people in their first three years. If Anthem, one of the five major U.S. health insurers, pulls back for 2018, that would likely be another big blow to the viability of the health insurance marketplaces.

Anthem spokeswoman Jill Becher declined to comment in an e-mail to Bloomberg BNA Sept. 19.

While it isn't likely that the exchanges will do better than expected, Borsch said, the next administration and Congress may “have some sort of fix for the exchanges,” which could boost Anthem's outlook.

Withdrawal Would Be ‘Major Blow.'

Caroline Pearson, senior vice president at health care policy consulting firm Avalere Health, told Bloomberg BNA in an e-mail Sept. 19 that Anthem hasn’t suggested publicly that it plans to leave the exchanges in 2018. “Anthem has historically been a dominant carrier in the individual market, along with the independent Blues,” she said.

The company has 923,000 enrollees in the public exchanges in 2016 and says it expects to lose money on exchange enrollees in 2016, Pearson said. It holds about 9 percent of exchange market share nationwide in 2016 and that share could increase in 2017 as a result of other plans exiting the market, she said. “If Anthem did withdraw from exchange markets in 2018, it would be a major blow to competition and beneficiary choice, since Anthem currently participates in 14 states,” she said.

Obamacare Exits Improve Investor Outlook

Goldman Sachs maintained buy ratings on Anthem, WellCare Health Plans Inc. and Cigna Corp. The investment firm upgraded its outlook for managed care companies to attractive from neutral. Among the reasons cited by Borsch were a “stable profit margin outlook” for the industry, the fact that medical cost trends are “up only moderately so far this year” and there is “less risk from the ACA exchanges following the market exits” of UnitedHealth, Humana and Aetna.

“Managed care should work under any of the reasonably likely election or merger scenarios,” and the suspension of the ACA health insurance fee in 2017 enacted in the Consolidated Appropriations Act of 2016 should be either a source of earnings “or a buffer against the downside,” Borsch said.

In July, the Department of Justice brought lawsuits to stop the proposed mergers of Anthem and Cigna as well as Aetna and Humana. The failure of those deals “is an outcome that's now mostly priced in” to the companies' stock market valuations, Borsch said.

Enrollment Expected to Drop in 2017

For publicly traded companies, Goldman Sachs projects that enrollment on the ACA exchanges will be down 35 percent in 2017, and that overall exchange enrollment will decline by 20 percent, Borsch said.

Risks for the industry include the fact that “the group insured price increases are lagging medical cost trend so far this year,” and that could worsen in the second half of the year, Borsch said.

In addition, there is “uncertainty on the regulatory approach of the next administration,” such as the possibility of less favorable policies for Medicare Advantage products if Democratic candidate Hillary Clinton is elected, he said. In addition, there is the “potential for some limited federal and/or state-based public options, maybe partly in relation to the scarcity of plans participating in the ACA exchanges,” he said.

Public Option, Colorado's Single-Payer Proposal

Clinton has endorsed the concept of adding a public option government-sponsored plan to the exchanges, and Colorado is voting on a state ballot initiative to create a single-payer, government-run health care system in November.

“ACA implementation has driven exchange losses, particularly for many of the not-for-profit plans,” Borsch said, referring to many Blue Cross Blue Shield plans. That means they have less power to push against price trends in the group insurance market, he said.

“If enrollment lags or falls next year that could lead more insurers to withdraw” from the ACA marketplaces in 2018, Cynthia Cox, associate director of health reform and private insurance for Kaiser Family Foundation, told Bloomberg BNA in a telephone interview Sept. 19.

However, Cox said 2018 “could be a more attractive year in general for insurers than 2017.” People who don't have qualified coverage under the ACA may be liable for the full penalty—$695 per adult or 2.5 percent of income—for the first time when they file 2016 tax returns in 2017, she said.

In addition, 2017 is the last year when plans that don't comply with the ACA must be phased out, Cox said. The so-called grandmothered plans, which were allowed by President Barack Obama in late 2013 to counter public anger over noncompliant plans being shut down, are in effect in 35 states and could cover between 2 million and 4 million enrollees, according to estimates.

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To contact the editor responsible for this story: Kendra Casey Plank at

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