Want proof that Obamacare’s health insurance exchanges are doomed? Just look at what the law’s former supporters say about them now.
Princeton economist Uwe Reinhardt, who in 2013 predicted that Obamacare would “flourish” over time, now warns that the exchanges have entered a “death spiral.”
Aetna CEO Mark Bertolini called the exchanges “a good investment” as late as April 2016. By August, he said that the “structural challenges facing the public exchanges” had become so dire that the company would withdraw from 11 of the 15 it had participated in.
Other insurers are similarly beating a path to the exits. The ones that remain are hiking their premiums and deductibles, narrowing their networks, and lobbying for relief from the federal government.
But it’s too late. As the Obama administration draws to a close, it’s looking increasingly likely that the exchanges will meet their end, too.
The coming death spirals were entirely predictable. Several states implemented Obamacare-style insurance regulations in the 1990s—guaranteeing coverage for all comers, regardless of health status or history, and limiting how much more insurers could charge those who were old or sick relative to the young or healthy. The insurance markets in those states have been a mess since.
Washington state did so over 20 years ago. After just six years, every insurer had left the individual market.
Starting in 1992, New York adopted similar community rating and guaranteed issue mandates. Predictably, people waited until they got sick to sign up. Claims costs skyrocketed. Insurers had to hike premiums to $6,000 a month in some cases. No ordinary consumer could afford such coverage, so New York’s individual health insurance market shriveled from 1.2 million people to just 31,000 by 2010.
The same fate awaits Obamacare because the individual mandate penalty which fines people the greater of $695 or 2.5% of income for not having health insurance—is too weak to force young, healthy people to enroll in the exchanges.
Switzerland has an Obamacare-style individual mandate. But in 1996, when the country instituted its mandate, 97% of Swiss were already insured. And as Reinhardt has noted, the Swiss mandate only works because it levies harsh fines on the uninsured—even garnishing wages when necessary.
Such statist intervention is neither desirable nor politically feasible in America.
As a result, healthy Americans will continue to forgo insurance, pay the low penalty, and hope they don’t get sick.
It’s tough to blame them. The lowest-cost exchange plans have premiums of roughly $3,000 a year—and deductibles over $5,700. Even if they do become ill, it’s tough to swallow nearly $9,000 in expenses before insurance even kicks in.
As young people shy away from the exchanges, insurers’ risk pools will only grow older and less healthy. Obamacare’s exchanges need young people to comprise 40% of enrollees to be sustainable, according to the Congressional Budget Office. They currently make up just 28 percent.
To stay afloat, insurers can try to raise rates and squeeze providers for lower reimbursements. But such moves ultimately make plans less attractive to healthy people. As more and more healthy people opt out, the mix of enrollees grows older and sicker. A death spiral is the investable result.
Obamacare’s exchanges are not long for this world. It’s up to a new Congress—and a new president—to understand this reality and implement healthcare reform that actually delivers affordable, accessible, quality care for all Americans.
Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The Way Out of Obamacare (Encounter 2016). Follow her on Twitter @sallypipes.