Managed health care and service providers, along with sector-related exchange traded funds, look ill as health insurance giant UnitedHealth Group (NYSE: UNH) cuts its losses and plans to withdraw from the Affordable Care Act, or Obamacare.
Among the worst performing ETFs on Thursday, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) declined 4.3% and the SPDR S&P Health Care Services ETF (NYSEArca: XHS) decreased 3.0%.
Health care providers weakened Thursday after UnitedHealth scaled back marketing efforts for Obamacare plans sold to individuals this year and hinted that it may quit the business in 2017 as it loses hundreds of millions of dollars on the program, reports Zachary Tracer for Bloomberg.
The move was an abrupt one-eighty from October when the insurer said it was planning on expanding coverage through the ACA in 11 more states next year.
Weighing on UnitedHealth’s outlook, new clients under Obamacare have used more medical care. Additionally, the insurer revealed that some people have signed up for coverage, received care and then dropped their policies. Consequently, the firm projects a loss up to $500 million on the Obamacare plans in 2016 and will record $275 million of the costs in the fourth quarter.
“We cannot sustain these losses,” Chief Executive Officer Stephen Hemsley told analysts. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
Moreover, UnitedHealth’s announcement may hint at deeper problems in the health care space.