The State of Healthcare: Growing more Unstable by the Minute

Working class America is paying too much for health coverage. Insurers are losing money and dropping out of ACA exchanges. How much longer until something breaks? 

As we wrote last week, UnitedHealth has been forced to exit most Obamacare exchanges after announcing losses totaling $1.1 billion. While Obama considers UnitedHealth a “small player” in the ACA marketplace, the insurer is in fact the largest in the country. And $1.1 billion is a lot of money, even for a company as big as United. 

According to UnitedHealth CEO Stephen Hemsley, the insurer will remain in a “handful of states” in 2017. If the company does eventually decide to pull out of every ACA exchange, over 1 million customers will be left with very few options.  

UnitedHealth isn’t the only company struggling to adapt to the failure we know as Obamacare. ACA exchanges alone have cost Blue Cross Blue Shield in North Carolina $400 million. Blue has already dropped exchanges in New Mexico and is considering a complete departure from the marketplace next year. 

As estimated by consulting firm McKinsey and Co., total insurer losses in the individual market (now dominated by ACA exchanges) were roughly $2.5 billion in 2014. This number is only predicted to grow. 

Meanwhile, insurers are begging the White House to bail them out using the ACA’s “risk corridor” provision, a massive bailout program that could end up costing taxpayers billions. The risk corridor provision required insurance companies with large profits to spend a portion of those gains on plans that led to big losses. Congress predicted that this requirement could evolve into a gigantic, taxpayer-funded bailout for insurers and demanded there be a requirement that payments to losers could not exceed the amount taken from the winners. 

There are far more losers than winners, however, and thus the total amount of money the losers stand to gain is far lower than insurers had hoped. Perhaps this is why many insurers are seriously considering leaving the ACA marketplace. 

The real question here is ‘what exactly is responsible for losses that have climbed into the billions?’

Obamacare upset the individual marketplace in several ways, most notably by terminating old coverage plans and forcing sweeping new rules on plans offered in the ACA marketplace. Insurance companies had no experience with this new layout when it began in 2014. There were bound to be mistakes. 

You would think these mistakes would go both ways, some companies charging too much and some too little. Instead, there was a huge bias towards undercharging, which is why risk corridor payments were capped far below what was expected. 

Competition was certainly a factor, but pressure to succeed was likely the real culprit. The Obama Administration had a giant stake in creating the perception of success in the ACA’s early days. Likewise, insurers were pressured to set low premiums and attract more customers, ensuring the new program was not a flop right form the start. So instead of avoiding financial risk by offering prudent prices, insurers prayed for the best and offered low, low premiums to appease Obamacare’s almighty creator. 

Three years later, it is clear such wishful thinking was a mistake. The situation grows more unstable by the minute and will not improve on its own. The only thing preventing complete destabilization is the massive amount of federal subsidization of premiums for low-income households. The ACA makes enrollment nearly free for millions of Americas. These individuals do not see the high premiums about which middle-class Americans complain. 

Families with incomes above 250% of the poverty line find Obamacare exchanges very unattractive and have purchased insurance plans through other means. Many have simply refused to purchase plans at all. 

The perception that ACA plans cover too little and cost too much will become more entrenched in American thinking as time moves on. Many insurance companies will be forced to raise premiums to stem their losses. 

As working-class families struggle to pay for plans that cover basically nothing, the government will continue to dole out money to support the low-income families enjoying free coverage. Not only is Obamacare financially unstable, but it is politically unstable as well. Our only hope is that America’s next president has a genius idea to replace this vitally-flawed system.