Obamacare is facing the hard knocks of reality. Selling overpriced
insurance to the healthy and underpriced insurance to the sick is not a good
model for insurance companies.
Aetna is the latest insurer to say it has had enough. Aetna announced it
withdraw from 11 of 15 states where it currently offers plans through the
exchanges.
Pinal County Arizona, in the Phoenix area, may have no insurers offering
plans.
The Wall Street Journal reports Aetna will reduce the number of counties where it sells
exchange plans next year to 242 from 778.
Aetna Inc. will withdraw from 11 of the 15 states where it currently
offers plans through the Affordable Care Act exchanges, becoming the latest
of the major national health insurers to pull back sharply from the law’s
signature marketplaces after steep financial losses.
Blue Cross Blue Shield of Arizona said in June that it would withdraw from
Pinal County and Maricopa County, in the wake of steep losses, but maintain
its exchange presence in the remainder of the state. The nonprofit had said
in June that it stayed in more-rural counties partly because it “couldn’t
overlook that several counties would have no options or very limited access
if we didn’t find a way to stay in the market.” A spokeswoman had no
immediate comment late Monday.
Aetna will reduce the number of counties where it sells exchange plans
next year to 242 from 778, a dramatic turn that came a few weeks after the
insurer said it expected steep losses for the year and would reconsider its
participation in the market, which it had previously called an important
opportunity.
Aetna’s move comes after UnitedHealth Group Inc. and Humana Inc. already
unveiled major reductions in their ACA-plan offerings, and as more nonprofit
cooperative insurers have said they will fold.
“I see an erosion of freedom of choice,” said Jim O’Connor, a principal at
consultants Milliman Inc., both among different insurers but also among
health-care providers, as more exchange plans feature limited networks of
hospitals and doctors.
Mispriced Insurance and Unstable Economics
Those wondering why Aeta and other insurers are abandoning Obamacare in
droves will find the answer in the Unstable Economics of Obamacare.
Aetna Inc. dealt the Affordable Care Act a severe setback by announcing
Monday it would drastically reduce its participation in its insurance
exchanges. Its reason: The company was attracting much sicker patients than
expected. Indeed, all five of the largest national insurers say they are
losing money on their ACA policies and three, including Aetna, are pulling
back from the exchanges as a result.
The problem isn’t technical or temporary; it’s intrinsic to how the law
was written. By incentivizing insurers to misprice risk, the law has created
an unstable dynamic. Total enrollment this year will be barely half the 22
million the Congressional Budget Office projected just three years ago.
Premiums, meanwhile, are set to skyrocket, which will further hamper
enrollment. It isn’t clear how this can be fixed.
Insurers can no longer charge or exclude coverage for pre-existing
conditions or charge men and women different rates. They can’t charge older
customers more than three times as much as the young. They must cap
out-of-pocket costs.
By circumscribing insurers’ ability to underwrite risks, the ACA thus
distorts how insurance is priced. Avik Roy, a health-policy expert who
advised Republican Senator Marco Rubio during his presidential campaign, says
the average 64-year-old consumes six times as much health care as the average
21-year-old. To adhere to the 3-to-1 maximum ratio, an insurer would have to
charge the 21-year-old 75% more than his actual cost and the 64 year old 13%
less.
The rational response to such pricing would be for young, healthy
customers to stay away and sick, older customers to flock to the exchanges.
The ACA included several mechanisms to prevent that: income-linked subsidies
to purchase insurance; penalties for those who didn’t buy insurance; and
three separate mechanisms to compensate insurers in the early years for
outsize costs.
It hasn’t worked. The compensation payments have been much less generous
than insurers were led to believe.
According to Avalere, a health-care consulting firm, enrollment drops
sharply as subsidies shrink: 81% of people earning between 100% and 150% of
the federal poverty level and eligible to enroll did so in 2016; just 2% of
those earning more than 400% did. “The more consumers must pay themselves for
what the ACA is offering, the less attractive they find it,” notes a report
by 10 health policy experts, including Mr. Roy, issued by the conservative
American Enterprise Institute last December.
So how can the ACA be fixed? Democrats’ solution is, essentially, more
subsidies. Mr. Obama has called for a “public option,” a federal health plan
to supplement private insurers. Hillary Clinton, the Democratic nominee for
president, goes even further: She wants anyone over 55 to be able to opt into
Medicare. Both would nudge the U.S. closer to a “single payer” model like
Canada’s that liberal activists have long sought.
Yet this would require a lot more money and further erode market forces in
health care.
Obamacare on Death Bed
Obamacare, as we know it now, is on the death bed. It will likely be
replaced by an even bigger fiasco requiring still more taxpayer subsidies
coupled with fewer market incentives to reduce costs.
Gee, who predicted this?
Mike “Mish” Shedlock
