When UnitedHealth Group Inc. declined to participate in Covered California and walked away from the state’s individual market in 2013, the state bid adieu to the largest health insurance carrier in the nation with mixed emotion.

But when UnitedHealth asked to join the exchange in 2016, Covered California Executive Director Peter Lee and the board responded with an emphatic “no.”  The board adopted rules on Thursday that limit inclusion in markets throughout the state to insurers already in the exchange.

Newbies will be initially limited to select small markets that are underserved by other insurance companies. UnitedHealth can conceivably operate in five of 19 regions where there are fewer than three health plan choices, but that’s it.

“We think the health plans that helped make California a national model should not be in essence undercut by plans that sat on the sidelines,” Lee told the Los Angeles Times.

There is some concern that insurance companies that joined early will be saddled with the sicker, less lucrative customers and UnitedHealth will game a market it has been able to observe from a distance. But there are any number of reasons why California may be slow to embrace the company.

UnitedHealth sued the state last July to block a $173.6-million fine from California’s Department of Insurance Commissioner Dave Jones. It was the latest iteration in a long-running dispute over the company’s takeover of PacifiCare in 2005. Then-Insurance Commissioner Steve Poizner, a Republican, announced his intention in 2008 to sue UnitedHealth for $1.3 billion, claiming they violated state laws 992,936 times between 2006 and 2008, with each violation punishable by a $10,000 fine.

Policyholders complained of lost and miscoded records during the transfer, a bunch of which ended up in India, and said they went months without medical care while the snafus were sorted out. Doctors complained that the insurance company mixed up which providers belonged to which medical groups, and messed up contract information that resulted in lower payments to them.

UnitedHealth said those were administrative errors that didn’t hurt anyone and an administrative judge agreed with them in 2013, settling on an award of $11.5 million. The commissioner said he regarded the judge’s ruling as simply advisory and issued the $173.6 million fine.

There is also concern that if UnitedHealth is allowed in the exchange it will peddle its so-called “skinny plans” to big companies. Those plans would allow businesses to dodge government penalties for not offering insurance through the exchange by peddling cheap policies that don’t provide basics like hospitalization or emergency room care. Governor Brown vetoed legislation last year to ban them in California.    

Although Commissioner Jones is not a huge fan of UnitedHealth, he criticized the exchange board for excluding the company. Jones echoed complaints that keeping UnitedHealth out reduces competition, unfairly favors one insurance company over another and shrinks the pool of available medical providers.

Covered California is dominated by four insurance companies that account for more than 90% of enrollments.

–Ken Broder

To Learn More:

California Rejects UnitedHealth's Bid to Sell Obamacare Statewide (by Chad Terhune, Los Angeles Times)

California Obamacare Cool to Unitedhealth's Sales Pitch (by Dan Mangan, CNBC)

Is California’s Move to Limit UnitedHealth Access Fair to Consumers? (by Mary K. Caffrey, American Journal of Managed Care)

PPACA Skinny Plan War Flares in California (by Allison Bell, LifeHealthPro)

“Skinny” Health-Insurance Plans Let Employers Offer Shoddy Health Care to Their Workers (by Spencer Woodman, Vice)

UnitedHealth Sues Insurance Commissioner to Block $173.6 Million Fine (by Ken Broder, AllGov California)