More Duct Tape Won’t Save Obamacare’s Collapsing Exchanges

President Obama and his closest advisers need to invest in a new crystal ball. When Obamacare’s health-insurance exchanges opened in 2014, the administration predicted that the marketplaces would quickly thrive — and offer consumers a wide range of affordable coverage options.

But today, three enrollment periods later, the exchanges are on the brink of collapse. Major insurers are quitting, premiums are skyrocketing, enrollment is below expectations, and the administration is taking increasingly desperate measures to paper over the problems. By this time next year, the exchanges could be out of business.

This month, the Obama administration reported that exchange enrollment had plunged by 1.6 million in the first three months of 2016, to 11.1 million. It could dip below 10 million by December if exchange shoppers quit paying their premiums — or are unable to prove citizenship — over the rest of this year at the same rate they’ve done so in the past.

Those enrollment figures are less than half of what the Congressional Budget Office had been forecasting. And consumers aren’t the only ones bailing on Obamacare’s exchanges. Insurers are doing the same. Blue Cross Blue Shield of Minnesota recently announced that it would pull out of the state’s individual market after losing half a billion dollars.

Health Care Services Corporation pulled its Blue Cross affiliate out of New Mexico’s exchange last year after the state denied it a 50 percent premium hike. The nation’s largest insurer, UnitedHealth, has pulled out of exchanges in all but a handful of states. And 16 of the 23 non-profit, state-chartered co-ops created by Obamacare to sell affordable insurance plans have gone bankrupt.

More insurers may follow suit. Blue Cross is losing huge sums on its exchange plans across the country: $300 million in Tennessee, $280 million in North Carolina, $185 million in Arizona, $135 million in Alabama. Insurers who intend to continue selling on the exchanges next year are seeking premium hikes that average more than 20 percent. Premiums for plans on Covered California, the Golden State’s exchange, are projected to jump an average of 13.2 percent next year. The state’s two largest insurers, Anthem and Blue Shield, will increase rates by 17.2 percent and 19.9 percent, respectively. That’s more than triple the average annual increase in each of the last two years.

Even those increases might not be enough to keep them solvent. Next year, two federal subsidies for insurers expire: the so-called reinsurance program and risk-corridor program. The former provides direct payments to insurers who cover high-cost individuals; the latter requires insurers with healthy profits to funnel some of them to insurers that lose money.

The White House is pulling out all the stops to try to keep the exchanges functional. Its last-ditch efforts are unlikely to work. In June, it announced a series of proposed rules designed to “improve the risk pool” in the exchanges, including fixes to the “risk-adjustment program,” which shifts funds from plans with healthier members to those with sicker ones.

It’s tightening up rules for those who try to sign up outside of open enrollment under “special enrollment periods” (these have been abused by people who waited until they were sick before buying insurance). And it’s attempting to kill off low-cost, short-term “fixed indemnity” plans to force those who buy them back into the exchanges.

The latest front in the administration’s fight for Obamacare is in the courts. This month, it appealed a ruling from federal judge Rosemary Collyer that invalidated payments to insurers designed to offset the cost of certain subsidies for low-income consumers. Congress never appropriated money for the subsidies, but the administration doled them out anyway.

Team Obama is also trying to coax young people into signing up with a major new ad campaign. But celebrity endorsements, a campaign targeting “young invincibles” with events at colleges, bars, and cafes, and thousands of outreach organizations have failed to attract enough young people in the past. Enrollment among 18- to 34-year-olds accounted for just 28 percent of the total this year, unchanged from Obamacare’s first year — and far below the 40 percent administration officials said was needed to keep the exchanges stable.

This time won’t be any different. The White House even announced that it would give $22 million to state regulators so that they can “hold insurance companies accountable for unjustified hikes.” But premiums aren’t shooting up because regulators don’t have enough money or power. They’re shooting up because insurers have lost vast sums of money on Obamacare and can’t afford to lose much more.

Since the president signed Obamacare into law, the administration has made more than 40 administrative changes to keep it from falling apart. Adding a bit more duct tape isn’t going to make things any better.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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