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Even before President Obama leaves office, ObamaCare has begun unraveling.
The law was passed over the objections of a majority of Americans, it is still opposed by a majority of Americans — and their opposition has been vindicated. Last week, UnitedHealth Group announced that, after estimated losses of more than $1 billion for 2015 and 2016 under ObamaCare, the company was pulling out of most of its ill-fated exchanges. In fact, commercial insurers across the country are hemorrhaging money on ObamaCare at alarming rates.
The president promised these insurers taxpayer bailouts if they lost money, but Congress in its wisdom passed legislation barring the use of taxpayer dollars to prop up the insurers. Without the bailouts, commercial insurers are being forced to eat their losses — while more than half of the ObamaCare nonprofit insurance cooperatives created under the law failed.
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A potential shakeup in Arizona’s Affordable Care Act marketplaces is resurrecting President Barack Obama’s 2010 health-care law as a political issue in this year’s U.S. Senate race.
The developments mean customers will have fewer subsidized plans to pick from next year, and in some rural counties, they could have no options at all. UnitedHealthcare, the national insurance giant, on Tuesday signaled that it intends to abandon Arizona’s Affordable Care Act marketplace in 2017. Blue Cross Blue Shield of Arizona, the only other insurer to offer plans in all of Arizona’s 15 counties, also is considering pulling out of some areas.
Arizona voters could face a stark choice on the issue in November.
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The ACA significantly altered the rules governing the individual insurance market, and the general effect was to lower premiums for older and less healthy people and raise premiums for younger and healthier people. To induce younger and healthier people to enroll, the law contained the individual mandate and subsidies for both buyers and, for the first few years of the program, sellers of insurance in the form of premium stabilization programs.
This study analyzes data from HHS from 2014, the first year of the ACA’s implementation, and finds that insurers suffered significant losses despite eventually receiving much larger payments from the law’s reinsurance program (one of the premium stabilization programs) than they expected when setting their 2014 premiums. Given the same population and same utilization of services from that population, insurers would have had to price average premiums more than 25 percent higher to avoid losses in the absence of the reinsurance program.
While insurers’ performance varied significantly across carriers and states, the large overall losses in 2014 raise questions about the long-term stability of the changes made by the ACA, particularly after 2016 when the reinsurance and risk corridor programs end and premium revenue must be sufficient to cover expenses.
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It’s not surprising that UnitedHealthcare is high-tailing it out of Arizona’s health-insurance marketplace. The exchanges — a major part of the Affordable Care Act — are money losers. Not enough young, healthy people have signed up in Arizona and elsewhere to use the plans. Some rural counties in Arizona may have no options on the exchange, which could complicate things for those who are required to have insurance but don’t qualify for coverage through an employer.
The exchanges have never been viable options for healthy, working people. They are not affordable for those who are in the middle class and patients have to be careful to choose a plan that offers decent doctor choices.
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The Mercatus Center at George Mason University released a new working paper on the Affordable Care Act. The study, authored by Brian Blase of the Mercatus Center, Doug Badger of the Galen Institute, and Ed Haislmaier of the Heritage Foundation contains two key findings:
First, insurers incurred substantial losses overall despite receiving much larger back-end subsidies per enrollee through the ACA’s reinsurance program than they expected when they set their premiums for 2014. Second, it is estimated that in the absence of the reinsurance program, insurers would have had to set premiums 26% higher, on average, in order to avoid losses—assuming implausibly that the overall health of the risk pool would not have worsened as a result of the higher premiums. The findings raise serious questions about the ACA’s future, particularly when the reinsurance program ends and premium revenue must be sufficient to cover expenses.
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One of the reasons that ACA Exchange plans are losing money is their inability to attract enough healthy enrollees. Healthy people are, disproportionately, young people. And large numbers of young adults don’t have to enroll in ACA Exchange plans – because the ACA mandates that their parents’ employer provide them with coverage, and that coverage is almost invariably priced lower.
Anyone up to age 26 with a parent who has employer-based health coverage that includes dependents can enroll in the parent’s plan. This is called the “dependent care mandate,” and is a requirement of the ACA. There are no other requirements for this coverage option: the “child” does not have to live with the parent or be financially dependent or a dependent for tax purposes on the parent. The “child” could be employed and eligible for employer-based coverage on his/her own, but elect to take the parent’s coverage if it’s preferable.
Exchanges are being undermined, in part, by the ACA’s dependent care mandate.
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On Tuesday UnitedHealth Group reported a terrific first quarter, with strong performance across nearly all business lines. There was one exception: The conglomerate’s insurance exchange unit raised its projected Affordable Care Act losses for 2016 to $650 million from $525 million, after booking $475 million in red ink last year.
CEO Stephen Hemsley said ObamaCare’s instability, small market size and costly patient population “continue to suggest we cannot broadly serve it on an effective and sustained basis.” He said UnitedHealth will withdraw to “only a handful of states” in 2017.
Normally sedate insurance markets have been roiled by everything from the federally chartered co-op failures to enrollment well below projections. ObamaCare’s architecture also makes it economically rational for consumers to wait until they are about to incur major medical expenses to get covered, and administratively created “special enrollment periods” encourage such gaming.
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United Healthcare’s announcement that it is pulling out of most of the exchanges established by the Affordable Care Act is one of many indications of the law’s continuing instability.
There are many other insurance plans in the same boat. Blue Cross Blue Shield plans have dominated the individual and small-group markets in most states for decades. If they were to abandon this market, they would have less ability than United does to grow their business elsewhere. But many of these plans are nonetheless contemplating such a move.
ObamaCare isn’t likely to enter an insurance death spiral; there’s too much federal money propping the whole thing up. But it isn’t on track to become a stable, self-sustaining insurance pool either, because very few middle-class families want to get their insurance through the exchanges. Which means the law is not only unstable financially, it is politically unstable as well.
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The Obama administration has published rules that “will make it impossible to offer HSA-qualified plans in the future” in the ACA exchanges, according to HSA expert Roy Ramthun. That’s because plans offered in the exchanges must comply with HSA and new ACA rules that conflict. This is one more way in which the ACA is limiting options to people getting coverage through the Obamacare exchanges, giving enrollees fewer of the options available to those with private and employer coverage outside the exchanges. Nationwide, nearly 20 million people were enrolled in HSA-qualified plans last year.