Obamacare’s Exchanges Begin To Implode

Need proof that Obamacare is imploding? Look to its exchanges.

The largest U.S. insurer, UnitedHealth Group, just announced that it may withdraw from the exchanges in 2017. The insurer currently offers plans in 34 states and covers more than 500,000 people through the online marketplaces. But it’s expecting $700 million in losses on its exchange business this year.

“We cannot sustain these losses,” CEO Stephen Hemsley recently told investors. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”

UnitedHealth’s decision is only the latest setback for Obamacare. Premiums and deductibles for policies sold through the exchanges have soared. The young and healthy — who must buy insurance for the law’s finances to work — are spurning coverage altogether.

The exchanges may not be long for this world. In the meantime, let’s hope that the government doesn’t try and use taxpayer money to bail out those insurance companies suffering losses on Obamacare’s exchanges.

The White House is still holding out hope that about 10.5 million Americans will go shopping in the exchanges before they close on January 31, 2016. That’s half the enrollment the Congressional Budget Office predicted earlier this year.

The exchanges just haven’t proved popular with young people. The federal government expected two million more young people to enroll this year than did.

All these folks opting out of coverage are jeopardizing the exchanges’ finances. Obamacare’s architects were counting on premiums from lots of young and healthy individuals to help offset the costs of care for older, sicker individuals.

The reverse has happened. Even as the young have balked, older Americans exceeded enrollment expectations by 29%.

The young can’t be blamed for refusing to purchase coverage. The plans available in the exchanges are simply unaffordable.

Across the country, premiums are on the rise. Rates for Minnesota’s largest plan, for example, have jumped by an average of 50%. Premiums for Tennessee’s equivalent plan have gone up by 36%, on average. Enrollees in Utah and Illinois have faced premium hikes averaging over 40%.

Premiums for mid-level “silver” plans in Alaska, Montana, and New Mexico have risen by an average of 36%.
Things are unlikely to get any better next year. The Department of Health and Human Services recently projected an average premium increase of 7.5% for exchange plans in 2016.

Deductibles have also taken off. In many states, over half the plans offered through Obamacare’s exchanges have deductibles topping $3,000.

In many cities, that number is even higher. Miami residents shopping for a plan in the exchanges will find their median deductible is $5,000. In Phoenix, it’s $4,000. The median enrollee in Chicago, Houston, or Des Moines will pay at least $3,000 for his or her deductible.

A family of four in Illinois can face premiums of $1,200 a month — and still have to deal with a $12,700 annual deductible.

Even Obamacare’s target market — the uninsured — isn’t interested in what the law is selling. According to the Kaiser Family Foundation, half the uninsured who were eligible for subsidized coverage refused to purchase it this year.

For many, it makes more financial sense to pay the modest tax penalty for going without insurance. It’s a lot cheaper to fork over the greater of $325, or 2% of household income than to spend thousands of dollars on insurance that they may never even use.

Indeed, last year, the average premium for a silver plan — the most popular option on the exchanges — was $307 per month, or about $3,700 per year. The average deductible was about $2,900.

In 2016, the tax penalty goes up to $695 for 2.5% of income. That’s still a lot less than the cost of coverage — especially with premiums and deductibles skyrocketing.

The Obama administration knows the exchanges are struggling to attract enrollees. So naturally, its solution is to throw money at the problem. The HHS plans to spend $35 million this year on advertising to try and increase enrollment, as recently reported in Politico.

Two years ago, President Obama brushed off criticism of his then-fledgling healthcare law by claiming “the same folks trying to scare people now are the same folks who have been trying to sink the Affordable Care Act from the beginning.”

The law is still fledgling today. And its critics haven’t sunk it. Obamacare has sown the seeds of its own demise.

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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