ObamaCare just claimed its highest-profile victim — America’s largest health insurer. UnitedHealth Group announced last month that it was considering pulling out of the federal health care exchanges in 2017. The industry giant expects to lose more than $700 million there this year.
So it was no surprise to hear CEO Stephen Hemsley express regret Tuesday over his company’s decision to enter ObamaCare’s exchanges. “It was for us a bad decision,” he noted. “In retrospect, we should have stayed out longer.”
If an insurer with the financial heft of UnitedHealth can’t make the math work on ObamaCare’s exchanges, then it’s only a matter of time before other insurers opt out of the marketplaces as well.
Aetna’s been losing money on its exchange business and is already planning its exit from several state exchanges in 2016. Anthem cut its earnings forecasts, blaming low enrollment. Overall, 30 nonprofit Blue Cross and Blue Shield affiliates nationwide barely broke even in the first half of 2015.
All told, insurers lost $2.5 billion in 2014 alone, according to consulting firm McKinsey & Co. How long will it be before insurers come to the same conclusion as UnitedHealth — that such losses are not sustainable?
UnitedHealth’s withdrawal would affect more than just its 500,000 existing customers, who would be forced to find coverage elsewhere. The disappearance of one more competitor would give other insurers a bit more leeway to raise rates.
Exchange shoppers already have fewer choices than they did when the exchanges opened. Fewer than half of ObamaCare’s 23 nonprofit insurance cooperatives are still selling policies on the exchanges. Only a handful are on solid financial footing.
Minor tweaks to ObamaCare won’t make a difference. The core problem for insurers is that not enough healthy people are signing up. ObamaCare was supposed to enroll 21 million Americans by 2016; instead, enrollment is flatlining. The administration has fallen 10 million short of its goal.
Worse, nearly half the remaining uninsured belong to the make-or-break “young invincibles” demographic — adults between the ages of 18 and 34. Premiums from these generally healthy Americans were supposed to subsidize the cost of providing care to older, sicker people.
For this plan to work, ObamaCare had to convince young Americans to pay for more expensive coverage than they’d otherwise buy. It started by making true, low-cost catastrophic coverage illegal and mandating 10 “essential benefits” that all health care policies must provide — whether customers want them or not.
So a single, healthy, young person who just wants a cheap policy in case he breaks his leg is out of luck. Obama-Care mandates that he pay for coverage he may never use.
These coverage mandates have pushed up the cost of insurance. Aetna, Anthem and Cigna have all raised premiums for exchange policies by double digits. In some markets, increases have topped 49%.
Policies that have managed to hold down premiums now come with sky-high deductibles. More than half the plans offered through the exchanges have deductibles of $3,000 or more.
As insurers have been forced to raise rates, healthy people are declining insurance altogether — or dropping out of the exchanges.
That leaves insurers with an older, sicker customer base that’s more expensive to insure. A negative feedback loop sets in, whereby the only way for insurers to offset their rising costs is to hike prices again. And that discourages still more young Americans from buying insurance.
Eventually, insurers like UnitedHealth give up and call it quits.
The individual mandate has proven spectacularly ineffective at reversing these trends. The penalty for 2016 — $695 or 2.5% of one’s household income — is more than a slap on the wrist.
But compare that to the costs for a midrange “silver plan,” ObamaCare’s most popular option. Last year, the nationwide average premium was $307 per month, or close to $3,700 a year. The average deductible was about $2,900.
In response to UnitedHealth’s decision, some ObamaCare supporters are calling for a federal bailout of insurers. But throwing more taxpayer dollars at ObamaCare won’t help. The law is collapsing under its own weight.
UnitedHealth may be the first major insurer to beat a path toward Obama-Care’s exits, but it won’t be the last.