Major insurers are no longer sure if they can afford to participate in the Affordable Care Act’s (Obamacare) insurance exchanges. That’s making the White House nervous.
In late March, the Obama administration met with insurance industry representatives in what was officially billed as an effort to fix Obamacare’s “risk adjustment” program, which is supposed to compensate insurers who take heavy losses by covering higher-risk patients.
The administration’s charm offensive is likely the result of announcements by UnitedHealth, Aetna, Cigna, several Blue Cross Blue Shield affiliates and Humana that they’d consider quitting the exchanges next year.
The exit of those carriers would be bad for consumers and doctors. But even if the administration manages to keep them in the fold, Obamacare is reshaping the healthcare landscape in other ways that undermine the interests of America’s physicians.
Insurers have lost a lot of money on the exchanges. UnitedHealth pegged its loss at more than $720 million last year. It’s going to exit the markets in Michigan, Georgia and Arkansas, effective next year.
Anthem said that losses on Obamacare plans caused its profits to fall 64% in the last quarter of 2015.
Blue Cross Blue Shield plans haven’t fared much better. Fitch Ratings found that 23 of 35 BCBS companies reported $1.9 billion in lost earnings. Sixteen had a net loss. Health Care Service Corp., which owns Blue Cross affiliates in Illinois and four other states, lost $1.5 billion on its individual insurance business in 2015—nearly twice as much as the $767 million it lost in 2014.
Meanwhile, 12 of the 23 non-profit insurance Consumer Operated and Oriented Plans (Co-Ops) started by Obamacare have failed. That’s forced hundreds of thousands of people to secure coverage elsewhere. Eight of the 11 remaining are under “enhanced oversight” or undergoing federally-mandated “corrective action plans.” Should they fail also, consumers will have even fewer insurance choices.
The acting administrator of the Centers for Medicare & Medicaid Services, Andy Slavitt, said in late February that he supported loosening capital rules to allow private insurers to become part owners of Co-Ops that have survived. But who would want to invest in a venture that appears doomed to fail?
Payer Landscape Changing
Even if insurers weren’t failing or quitting the market, Obamacare’s exchanges would still have the effect of reducing competition. That’s because the industry is rapidly consolidating in order to cope with Obamacare’s heavy regulatory burden. Aetna and Humana agreed on a $37 billion merger last July. Within a month of that announcement, Anthem and Cigna announced a $54 billion deal. If both mergers go through, the nation’s big five insurance companies will be whittled down to three. Meanwhile, in California, the state’s Department of Insurance recently approved Centene’s purchase of HealthNet.
Merger mania will further concentrate what is already a highly concentrated market. Between 2006 and 2014, the market share of the four largest insurers increased from 74% to 83%.
An analysis by the American Enterprise Institute found that there’s been zero growth in the number of health plans in the commercial market since 2008. In testimony before Congress, the report’s author, Scott Gottlieb, MD, a practicing physician, said that Obamacare “has made it more difficult for new health plans to get started.”
Further limiting choice is the shift among exchange plans toward HMOs. In the 1990s, the American people rejected HMOs, which generally restricted them to a limited provider network. As a result, many disappeared. And PPOs became the norm. But last year, 43% of mid-level Silver plans available on the ACA exchanges were HMOs, according to an analysis by the Robert Wood Johnson Foundation. Thirty-nine percent were PPOs.
This year, just a third of those Silver PPO plans remained available. The rest were either discontinued, or the insurer who previously offered them otherwise reduced the number of plans it offered or sold plans in fewer areas. In 22 states, none of the PPO plans that were available in 2015 stayed the same in 2016.
Gottlieb says that this movement toward greater concentration in the industry and greater reliance on HMOs is by design. Obamacare, he told the House Judiciary Committee last fall, is “nothing short of a wholesale embrace of the capitated arrangements and the concept of shifting financial risk onto providers.”
Cutting Competition Hurts Physicians
Less competition in the insurance market harms not just consumers but doctors, too. Mammoth insurers, for instance, could dictate lower reimbursement rates for doctors. Those that refuse could lose out on the chance to treat a substantial population of patients. As the American College of Physicians noted in a letter to the U.S. Department of Justice (DOJ), “Insurance consolidation would harm the process of negotiation as physicians could be forced to accept anti-competitive reimbursement.”
A 2012 study published in the American Economic Review looked at the Aetna-Prudential merger and found reductions in healthcare employment and wages in areas where the 1999 merger had the most impact on competition.
Northwestern University professor Leemore Dafny, PhD, told Congress last fall, “insurance consolidation will tend to lead to lower payments to healthcare providers.” That’s obviously bad for doctors and hospitals. But shouldn’t lower prices at the hospital be good for consumers?
Only if those lower prices “are ultimately passed through to consumers in the form of lower insurance premiums (and/or out-of- pocket charges),” Dafny testified. And there’s a “lack of evidence for this pass-through,” she said.
In other words, insurers tend to dictate lower payment rates to doctors—and keep all the savings for themselves.
The DOJ has blocked previous health plan mergers because of the harm they’d cause physician practices. In the case of a proposed merger in Michigan, the DOJ said that it “would have given Blue Cross Michigan the ability to control physician payment rates in a manner that could harm the quality of healthcare delivered to consumers.” Likewise, the Pennsylvania Insurance Department found that a proposed merger in the Quaker State would’ve “reduced provider reimbursements below competitive levels.”
The net effect for doctors of all these changes driven largely by Obamacare is that insurers and hospitals will continue to exert greater control over the practice of medicine. Doctors will have less autonomy and face the prospect of lower reimbursement rates.
This trend won’t change unless Obamacare is dismantled and replaced with a reform package that increases competition in the healthcare marketplace.