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This is an excellent editorial piece from the Wall Street Journal discussing the surprise announcement that Aetna, one of the leading insurers in this country, was withdrawing from the vast majority of Obamacare exchanges. But instead of sitting up and seriously considering this massive defection as a wake-up call (unlike all the previous failures), the Democrats want to blame Aetna itself in order to safeguard the narrative that Obamacare is working perfectly well. I have reproduced the piece in its entirety below; it’s worth the read.
“Democrats claimed for years that ObamaCare is working splendidly, though anybody acquainted with reality could see the entitlement is dysfunctional. Now as the law breaks down in an election year, they’ve decided to blame private insurers for their own failures.
Their target this week is Aetna, which has announced it is withdrawing two-thirds of its ObamaCare coverage, pulling out of 536 of 778 counties where it does business. The third-largest U.S. insurer has lost about $430 million on the exchanges since 2014, and this carnage is typical. More than 40 other companies are also fleeing ObamaCare.
The mass exodus will leave consumers consigned to the exchanges with surging premiums and fewer options, but don’t mention these victims to Democrats. They’re trying to change the subject by claiming Aetna is retaliating because the Justice Department is trying to block Aetna’s $37 billion acquisition of Humana.
The 2010 ObamaCare law makes it nearly impossible for non-mega insurers to operate, and a tide of regulations has encouraged consolidation. Aetna says the Humana tie-up will create economies of scale that could sustain the money-losing exchange policies.
But Massachusetts Senator Elizabeth Warren is now emoting on Facebook that “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.” This week the Administration also released a July 5 letter from Aetna in response to a Freedom of Information Act request. Democrats claim the document shows CEO Mark Bertolini conditioning Aetna’s ObamaCare cooperation on merger approval.
This is some gall. Aetna was answering a June 28 “civil investigative demand,” in which Justice’s antitrust division specifically asked how blocking the merger would “affect Aetna’s business strategy and operations, including Aetna’s participation of the public exchanges related to the Affordable Care Act.”
Soliciting sensitive internal information that Aetna is legally compelled to provide—and then making it public to sandbag the company—is the behavior of political plumbers, not allegedly impartial technocrats. If police tried this, it’d be entrapment.
Mr. Bertolini had merely replied that the legal costs of an antitrust suit would strain Aetna’s performance. The insurer would have “no choice but to take actions to steward its financial health” and “face market realities,” such as reducing unprofitable business. Public companies have a responsibility to shareholders, and the wonder is that any insurer is still part of the exchanges.
ObamaCare’s troubles aren’t the result of any business decision. The entire industry is caught in the law’s structural undertow. Despite subsidies, overall enrollment is flat, there’s too much monthly churn, and the exchanges aren’t attracting enough healthy people to make the economics work.
Blame the law’s architects, not Mr. Bertolini, who must wonder what happened to the political goodwill he has tried to bank over the years. Aetna was inclined to accept the exchanges as loss leaders to support ObamaCare’s mission of universal coverage. The company led ObamaCare’s industry pep squad in 2009 and 2010.
The calculation then was that subsidies would open a new market, and consumers would be mandated to buy their products. But in the final frenzy to pass the law, Democrats decided that insurers made too much money and they imposed price controls on profit margins. Now insurers are accused of declining to throw away more money.
The ObamaCare implosion means that about a quarter of U.S. counties will have only one or two plans, and in some zero. Areas in Arizona, North Carolina, Pennsylvania and Texas seem to be hardest hit, though the extent of the damage is still emerging.
Democrats figure they have insurers over a barrel because a Hillary Clinton Presidency is coming. She’s running on higher subsidies for beneficiaries, a taxpayer bailout for the industry, and a “public option” akin to Medicare for the middle class. In health care the solution to a problem caused by government is always more government, which will create new problems and beget more government.
Republicans have no obligation to participate. They had no hand in creating this mess and they’ve been mocked by Democrats and the media for years for warning about ObamaCare’s flaws and trying to repeal and replace the law. Assuming the GOP holds at least the House, they should insist that any “fixes”—which are fast becoming inevitable—create a rational health-care market. Democrats deserve to be held accountable for the collapse of their ideas.”
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Aetna’s decision to withdraw from 11 out of 15 state exchanges is a big deal; it follows the paths of UnitedHealth Group and Humana, both large insurance companies who have also chosen to cut ties with Obamacare. (Incidentally, the DoJ is trying to block a Aetna-Humana merger; are they worried about competition?)
A short analysis by Market Watch provides some insight into the decision and the current state of Obamacare:
**Aetna explained the decision as a way to “limit our financial exposure moving forward,” after pretax losses of $200 million in the second quarter and losses totaling $430 million on individual products since January 2014. The company did not specify what portion of the losses was attributable to individual public plan offerings.
**The company criticized the ACA’s “inadequate” risk-adjustment mechanism, which is meant to limit insurers’ losses as they start covering sicker individuals. It’s a common criticism from health insurers, which have long said that the risk-pool program isn’t working the way it’s supposed to, though others say big insurance companies should instead change their model to keep costs down.
**Of Aetna’s exchange membership this year, more than half is new, with those needing expensive care making up “an even larger share” in the second quarter, the company said.
**Coupled with the risk pool, this makes premiums costlier and “creates significant sustainability concerns,” the company said.
The affect of these withdrawls means fewer insurers and fewer choices for consumers than when the law first began several years ago. That’s not good. The law needs some reform. MarketWatch notes, “The Centers for Medicare and Medicaid Services has indicated a willingness to make changes to the risk-pool mechanism, although it’s unclear whether legislation to that end would be passed.
Any fixes will also depend on strong enrollment figures. Premiums have increased for 2017, but the financial penalty for not having health insurance has also increased. Whether that penalty, an average of $969 per household, according to a Kaiser analysis, will prompt increased enrollment is a “big wild card,” according to a co-author of the Kaiser report. A rise in premium costs “suggests additional enrollment growth is not a given,” said Riggs, having potential negative implications for hospital and managed care, along with investors in those spaces.”
Will this have an impact on the 2016 election? It will be interesting to see — especially since the open enrollment period is slated to begin on November 1, just days before the 2016 election. The cost of premiums, especially if they are substantially higher, may affect people’s voting decisions. Of course, don’t put it past the Administration to delay open enrollment until Nov 15 and shift everything by two weeks, in order to avoid a “November surprise”. The only thing that’s not a surprise at this point is that the law continues to founder considerably, at the expense and disruption of everyday citizens.
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A few weeks ago, the Feds trotted out a statistic aimed to bolster support for the fledgling Obamacare legislation amid steep premium hikes and costly non-compliance fines. While the Obama Administration celebrated the fact that the uninsured rate was finally below 10%, in reality, this same statistic actually represents the most colossal failure of any government program in the history of this country.
In 2010, we had nearly 307 million people living in the United States, with a 16.3% uninsured rate — or a record number of 49.9 million uninsured, according to the Census Bureau. On March 20, Nancy Pelosi presented a letter to the House of Representatives showing the yearly effects of Obamacare on insurance coverage — which included estimates on the number of uninsured each year. Obamacare passed three days later.
Looking at the data that was used to persuade passage of Obamacare, the number of estimated uninsured in 2016 was projected to be less -30 million and a 95% insured rate. That means the government predicted that by now, the uninsured rate would have dropped from 16.3 down to 5% — not 9.1% which is the current statistic. Going from 16.3% to 9.1% (instead of 5% by now) means that the government hit only 63% of the projected number of uninsured. (For the sake of also considering population increases, let’s say that the government only hit about ⅔ of its target).
This is a big deal. Congress and the public were told that the intended effects of getting the number of uninsured Americans down to a low number were worth it in the long run even if it meant that rest of the population — some 257 million people who currently HAD insurance at the time — would experience some sort of disruption with their health insurance. Most of these 257 million people were relatively happy with their plans and prices but the government decided that mucking with the system for all, for the reduction of some uninsured, was worth it.
And yet, only ⅔ of the projected uninsured has gotten insurance. 28.6 million people in the population remains uninsured, when it was projected that about 20 million (down from 50 million) would be uninsured by this time. How is this a success? It’s not, of course. Financially too, this program is derelict.
Celebrating an “under 10% uninsured number” is a hollow victory, a gimmick, a ruse to hide the truth about Obamacare. This statistic is an unmitigated disaster, an admission of utter failure of a program that has encroached into the lives of every American and arguably the biggest government program failure this country has had to contend with.
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Obamacare futures continue to worsen in recent weeks. A couple of weeks ago, UnitedHealth Group chose to exit the majority of Obamacare exchanges because it expects roughly 2/3 billion in losses. Next, Aetna announced that it might break even this year, but called for Congressional fixes to ensure sustainability in the marketplace.
The immediate fix, however, will be another round of premium rate hikes — with some expecting to be more than 10%. However, timing may play a key in the November elections; the rate hikes will hit when Obamacare open enrollment begins on November 1, just days before the presidential and Congressional elections. If high premium rate hikes happen as expected, voters may express their resentment at the ballot box.
Some notes on the current state of insurers and exchanges:
**”Blue Cross and Blue Shield plans, which dominate many state exchanges, saw profits plummet by 75 percent between 2013 and 2015, according to an analysis by A.M. Best Co. A chief reason for the financial woes: “the intensity of losses in the exchange segment.””
**Health Care Service Corp., which operates Blue plans in five states, dropped out of New Mexico’s exchange for this year after regulators refused to approve rate hikes as big as the company sought. In Texas, Illinois and two other states where HCSC does business, medical costs for individual customers exceeded premiums by more than $1.3 billion last year.
**Just over half of the 23 nonprofit startups seeded with Obamacare loan dollars have collapsed after hemorrhaging red ink. The 11 surviving plans continue to struggle, with more than $400 million in combined losses last year.
**New York-based Oscar, the much ballyhooed, tech-savvy startup bankrolled with billions in venture capital dollars, is sputtering. Medical costs for Oscar’s individual customers in New York, where it has the most customers, outstripped premiums by nearly 50 percent last year, according to financial filings.
**Just 28 percent of HealthCare.gov customers for 2016 were between the ages of 18 and 34, significantly below the 35 percent threshold typically considered necessary for a balanced marketplace.
Health and Human Services has yet to put out fresh numbers on the amount of enrollees who have actually paid premiums. The enrollment numbers were already widely off the mark from the predicted CBO numbers calculated when Obamacare was passed. Though many think Obamacare is an issue that has expired with the American electorate, it is certain to become more important in the days leading up to election day in November.
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The Hill has an interesting article about Obamacare, premium costs, and insurance companies. Insurers have been losing money as a result of the Obamacare set-up, and many are facing increased financial security. From the article:
Insurers say they are losing money on their ObamaCare plans at a rapid rate, and some have begun to talk about dropping out of the marketplaces altogether.
“Something has to give,” said Larry Levitt, an expert on the health law at the Kaiser Family Foundation. “Either insurers will drop out or insurers will raise premiums.”
While analysts expect the market to stabilize once premiums rise and more young, healthy people sign up, some observers have not ruled out the possibility of a collapse of the market, known in insurance parlance as a “death spiral.”
In the short term, there is a growing likelihood that insurers will push for substantial premium increases, creating a political problem for Democrats in an election year.
Insurers have been pounding the drum about problems with ObamaCare pricing.
The Blue Cross Blue Shield Association released a widely publicized report last month that said new enrollees under ObamaCare had 22 percent higher medical costs than people who received coverage from employers.
A report from McKinsey & Company found that in the individual market, which includes the ObamaCare marketplaces, insurers lost money in 41 states in 2014, and were only profitable in 9 states.
“We continue to have serious concerns about the sustainability of the public exchanges,” Mark Bertolini, the CEO of Aetna, said in February.
The Aetna CEO noted concerns about the “risk pool,” which refers to the balance of healthy and sick enrollees in a plan. The makeup of the ObamaCare risk pools has been sicker and costlier than insurers hoped.
The clearest remedy for the losses is for insurers to raise premiums, perhaps by large amounts — something Republicans have long warned would happen under the healthcare law, known as the Affordable Care Act (ACA).
“The industry is clearly setting the stage for bigger premium increases in 2017,” said Levitt of the Kaiser Family Foundation.
Insurers will begin filing their proposed premium increases for 2017 soon. State regulators will review those proposals, and then can either accept or reject them.
Michael Taggart, a consultant with S&P Dow Jones Indices, pointed to data from his firm showing per capita costs for insurers are spiking in the ObamaCare marketplaces.
“We made a significant change in the rules with the ACA and we’re still working through the process to see how that market stabilizes,” Taggart said at a panel on Wednesday. “Is [a death spiral] a possibility? Sure it’s a possibility. I wouldn’t attempt to put a probability on it because I think there are a lot of things going on.”
One factor helping to prevent a death spiral is ObamaCare’s tax credits, which cushion the impact of premium increases on consumers.
“What we’re likely to see is more of a market correction than any kind of death spiral,” Levitt said. “There are enough people enrolled at this point that the market is sustainable. The premiums were just too low.”
Dr. Mandy Cohen, the chief operating officer of the Centers for Medicare and Medicaid Services (CMS), said in an interview that there is “absolutely not” a risk of a death spiral or collapse in the ObamaCare marketplaces.
While acknowledging that “companies are needing to adjust” to the new system, she pointed to the 12.7 million people who signed up this year, 5 million of whom were new customers, as a sign of success.
“What brings us the most confidence about the long term stability and health of the marketplace is its growth,” Cohen said.
Another risk, should regulators reject large premium increases, is that insurers could simply decide to cut their losses and drop off the exchanges altogether.
“Given that most carriers have experienced losses in the exchanges, often large losses, it only makes sense that most exchange insurers will request significant rate increases for 2017,” said Michael Adelberg, a former CMS official under President Obama and now a consultant at FaegreBD.
“Market exits are not out of the question if an insurer is looking at consecutive years of losses and regulators are unable to approve rates that get the insurer to break-even.”
The most prominent insurer eyeing the exits is UnitedHealth, which made waves in November by saying it was considering whether to leave ObamaCare in 2017 because of financial losses. The company last week announced that it is dropping its ObamaCare plans in Arkansas and Georgia, and more states could follow.
The Department of Health and Human Services argues that the attention on UnitedHealth is overblown, given that the insurer is actually a fairly small player in the marketplaces.
It’s more important to watch what happens with Blue Cross Blue Shield plans, which are the backbone of the ObamaCare marketplaces.
There have been some rumblings of discontent from Blue Cross plans. The plan in New Mexico already dropped off the marketplace there last year after it lost money and state regulators rejected a proposed 51.6 percent premium increase. Now, Blue Cross Blue Shield of North Carolina says that it might drop out of the marketplace because of its losses.
Blue Cross of North Carolina CEO Brad Wilson said in an interview that the company had lost $400 million due to its ObamaCare business.
“We’re not alone and I think that that also is evidence to suggest that there are systemic and fundamental challenges that we all need to have a civilized conversation about,” Wilson said.
He said a key factor in the decision on whether to stay in the market next year will be whether regulators approve whatever premium increase the company ends up proposing so as to try to make up for its losses.
Asked about the risk of a death spiral, Wilson said he is not worried about that happening “tomorrow,” but has concerns if the situation does not change over time.
“There’s not going to be something magical happen that will cause this to turn around,” Wilson said. He is pressing for changes like further tightening up extra sign up periods that insurers say people use to game the system, and repealing the Health Insurance Tax, which could help lower premiums.
Dr. Cohen of CMS said that her agency is in close touch with insurers and Blue Cross Blue Shield of North Carolina in particular. But she pushed back on talk of Blue Cross of North Carolina dropping out of the marketplace, stating flatly that, “I have no concerns about them leaving the market.”
She referred to problems the company has had with its computer systems that have led to some people being enrolled in the wrong plan, along with other issues that have added to the company’s administrative costs.
