Morningstar equity analyst Vishnu Lekraj talks about why UnitedHealthcare's decision to largely exit Obamacare was the best move, and who else could follow. Bobbi Rebell reports.
United Healthcare says it will largely at city obamacare individual health care insurance market next here. Blaming mounting losses from the program let's get more from additionally crotch he covered the sector over at Morningstar and it's that the U. There's no means are you support this decision you think it's the right live. I do I think it's a pretty decision when you take a look at what the exchanges are you being in terms of profitability for these insurers. It's either in the 0% range or negative so it makes a lot of sense operationally. That UnitedHealth word to take a cautious stance with the exchanges and in many cases exit the exchanges wholesale. Again it's it's a very it's on profit more here right now doesn't really make sense for really any should teachers be participating in the changes. So then the next question is is anybody else can exit mean you've got. At that and what can happen. Yes that's a great question and there's some other dynamics at play here that may keep those insurers within the exchange market. I am what I mean by that is that there are a couple of high profile mega mergers. Being reviewed by Justice Department at the moment about to share those insurers really want to. Offender beast. Gold gained stuff. The administration at the moment when they're reviewing their their current acquisition targets so what of the key things that are not Iraq. The cold or with any insurance or the exchange market is it is not. Not healthy and and you know that no pun intended but. There it's older. Sicker population that is within the exchange me what you need are younger healthier folks to enter that market. To make it more viable. To make it more richer. And also pricing needs to be developed a little bit better I know there's been some pressure here as far as. Trying to gain as much membership as possible with the exchange's. However pricing seems to be a little lower than what I believed need if he needs to be so prison probably be increased. And you'll probably need to see some improvement in terms of the membership make up with the exchange. Statement at this making the government this kind of and it can be changed from the government to make it easier for these these companies to make profit and stay on board. Get you may see some changes we see some tweaks to administration has shown a propensity to do so in the past. I don't think it's a really a message to the government proceed system it's just it's a very new market it's a very new insurance market. Analysts knew that that the membership makeup of this market the coal or would have been. A lot of it sicker skew a little bit older. So just gonna take time for the work itself out and I fully expect UnitedHealth the start participating again. Once that management team feels it's at it it's opportunity for him so he'll give them time here they'll take some time here. To really see how things shake out similar pricing ends up the C if the membership make up starts to improve in the middle sector moved back yet. It's not a permanent decision. I don't believe so you know it's probably going to be the next couple of easier again to see. The price see how the again lead the market develops. Wants to feel comfortable with the market yielding he level profitability that's gonna return. He does desirable return to shareholders that the move back into the market Harry and just quickly your take on the stock and it's here. We had another thing to peer groups slightly overvalued can stop for their health is slightly overvalued at the moment. When you look at the longer term aspects of the insurance industry. And the longer term aspects for UnitedHealth. It's gonna be pressure operating environment with him for here for many of these players. My don't believe the mark is really factoring in bodies had was at the moment apparently there thank you so much. Thank you I think it's an issue that Grachev Morningstar popular well this is Reuters.