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UnitedHealth may bail on Obamacare because people use their insurance

God forbid you're a parent of a sick child and insured through UnitedHealth.

God forbid you're a parent of a sick child and insured through UnitedHealth.

When UnitedHealth announced double-digit rate hikes for its plans sold through exchanges created by the Affordable Care Act, regulators obliged. Washington, D.C., customers saw rates rise by 11 percent. A number of Michigan consumers got hit by 14 percent increases.

Much of that will serve to fatten the Minnetonka company's already plump bottom line. Profits over the last five years total nearly $27 billion, roughly equal to the GNP of Latvia.

Still, UnitedHealth has its woes. CEO Stephen Hemsley told investment analysts last week that not enough people are buying its plans on exchanges, and those who do are actually using the coverage they paid for. That combination, according to Hemsley, could cut into the company's bottom line by hundreds of millions of dollars. So by next year, UnitedHealth must decide whether it will bail on selling policies through Obamacare.     

"We cannot sustain these losses," said Hemsley. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."

Ironically, people served through state sponsored benefit programs grew the company's revenues by $5.3 billion in 2014, UnitedHealth's website says. 

University of Minnesota's Dr. Roger Feldman, who specializes in health economics, is "a little bit" surprised by the announcement. UnitedHealth, which can't offer plans in the MNsure exchange because it's not a nonprofit, was initially reticent to enter markets in other states before this year. That allowed competitors to gain a foothold. Moreover, UnitedHealth didn't seem to consider that people paying for health insurance might actually use it. 

"What we're finding now that the people who signed up on [exchanges] had unmet health needs, and over the long term poorer risks," Feldman says. "[Insurers] are having a harder time meeting their goal of enrolling healthy people to offset those high costs."

UnitedHealth's most recent quarterly profits were $1.9 billion. The downside was what it cost to do business — almost 29 percent higher from the same period the previous year. Perhaps some of that can be attributed to what the company pays its executives. Between salaries and bonuses, its top four executives were paid $50 million last year. That was 25 percent more than 2013. 

Private jet travel and stock options weren't included in those calculations, of course.