Health insurance giant Aetna just announced that it will sell health plans in only four of Obamacare’s state exchanges next year, down from the 15 it currently operates in. The law’s partisans claim that the move is payback for the Obama administration’s recent decision to block Aetna’s merger with rival Humana.
These folks are delusional. Aetna is abandoning the insurance marketplaces because it’s lost massive amounts of money thanks to Obamacare’s unrealistic regulations. Many more insurers are following Aetna to the exits. Consequently, the exchanges could soon collapse — and the law with them.
Those convinced that Aetna’s withdrawal was politically motivated point to a “private” letter the insurer sent to the federal Department of Justice in early July. Aetna warned the administration that if its proposed merger with Humana were blocked, the firm would eventually “leave the public exchange business entirely.”
Conversely, if the merger went through, Aetna promised to use its increased pricing power to “support even more public exchange coverage over the next few years.”
The letter isn’t evidence of a quid pro quo. It’s a simple statement of fact. Aetna has been hemorrhaging money on its exchange business. In just the second quarter of this year, Aetna lost $200 million. Fifty-five percent of Aetna’s customers this year are new enrollees, who generally need more expensive medical care than repeat enrollees. Consequently, the insurer is projecting end-of-year losses of $300 million.
With no relief in sight, Aetna decided it could no longer afford to stay in the exchanges.
Other insurers have already reached the same conclusion. Next year, UnitedHealth, the nation’s largest insurer, will withdraw from 31 of the 34 states in which it currently sells exchange plans. More than 40 other insurers are exiting the exchanges — or drastically downsizing their presence.
This exodus leaves millions of consumers with limited options for 2017. In nearly one-quarter of counties, people will have access to just one plan. In Arizona’s Pinal County — population 400,000 — every single insurer has left the market.
Those insurers who have decided to tough out another year in the exchanges have proposed raising premiums an average of 24%. Many are looking to make even bigger hikes. In Phoenix, Ariz., one insurer plans to boost premiums 122%.
Obamacare is to blame for this sad state of affairs. The law’s mandates make it impossible for most insurers to avoid losing money — much less turn a profit.
Consider its “community rating” rules, which bar insurers from charging older enrollees more than three times what they charge younger ones. Older people are up to six times costlier to insure. So insurers must overcharge young people to make up for their losses on older enrollees.
The law also mandates that everyone buy comprehensive plans that pay for a wide variety of expensive “essential health benefits” and cover at least 70% of enrollees’ medical expenses, on average.
Many young people would gladly accept less comprehensive coverage that kicks in only for major expenses, like surgeries or cancer treatment, in exchange for lower premiums. But Obamacare effectively bans them from making that deal.
In fact, it requires them to sign up for overpriced coverage, thanks to the much-hated individual mandate.
That mandate isn’t working. Many people are exempt because their incomes are too low. Others are choosing to pay annual tax penalties of the greater of $695 or 2.5% of income — rather than thousands of dollars for mediocre insurance coverage they don’t want.
Insurers need millennials to comprise 40% of exchange enrollees to break even. But right now, they’re just 28% of enrollees. And there’s no sign of that figure turning around.
Consequently, insurers aren’t taking in enough funds to cover the cost of claims for the older and sicker Americans who have enrolled on the exchanges.
Administration officials may have expected insurers to eat multi-million dollar losses indefinitely. But after three years of losing money, Aetna and other insurers have had their fill. Unless officials scrap most of Obamacare’s mandates, even more insurers will push away from the table — and cause the exchanges to crumble.