Obamacare’s Health Exchanges Are Customer Free Zones

Last month, the CEO of the nation’s largest health insurance company warned that he and his peers may balk at participating in Obamacare’s insurance exchanges — online, government-run portals where consumers and small businesses without conventional employer-sponsored coverage may shop for policies starting next year.

“We will only participate in exchanges that we assess to be fair, commercially sustainable and provide a reasonable return on the capital they will require,” UnitedHealth Group Inc. CEO Stephen Hemsley said.

That’s ominous news for Obamacare. If insurers don’t participate in the law’s exchanges, then consumers who had hoped to secure affordable coverage through the new marketplaces will instead find few choices and high prices. Taxpayers could be hit hard, too, as higher premiums in the exchanges will require more public spending on subsidies.

Enrollment in Obamcare’s exchanges is scheduled to begin October 1, and coverage will take effect in 2014. Americans with incomes between 138 percent and 400 percent of the federal poverty level — up to $92,200 for a family of four as of 2012 — will qualify for federal subsidies.

Obamacare’s supporters predicted that insurers would flock to the exchanges, where millions of potential customers would be waiting to buy coverage, per the law’s requirement that they do so.

But participating in government exchanges means playing by the government’s costly rules. Insurers will have to adhere to strict coverage standards that vary by state — and they’ll face restrictions on how they can price their products. Insurance companies will even have to pay a fee to sell insurance on the exchanges. That levy starts at 3.5 percent of every customer’s premium — and could increase from there.

Insurers may even need to put together a local provider network in each state exchange they join.

These factors will erode insurers’ slim profits. The Wall Street Journal recently reported that health insurers expect any potential profit margins from sales in the exchanges to be in the 3- to 5-percent range.

Sheryl Skolnick, an insurance analyst for CRT Capital Group, told the Associated Press, “There is a significant risk . . . that if the economics on the exchanges are not favorable, they’re simply not going to participate.”

Indeed, UnitedHealth Group has stated that it may participate in only 10 to 25 of the 100 or so markets in which it could be active. Aetna has identified 15 exchanges.

The viability of the exchanges is also dependent upon whether the federal government subsidizes coverage as prescribed in the law. The cost of doing so has exploded beyond initial estimates — and the exchanges haven’t even launched.

On February 5, the nonpartisan Congressional Budget Office announced that the cost of exchange subsidies had risen an astounding $233 billion. The total tab will exceed $1 trillion over the next 10 years.

In future years, Congress may not have the political will — let alone the money — to subsidize the exchanges at levels necessary to ensure widespread participation among insurers or consumers.

Further, those billions in expenses don’t include the funds that states will have to outlay for information technology systems to administer their exchanges. Nor does that trillion-dollar tab include the amount of money the feds will have to spend operating exchanges themselves in the 25 states that have defied Obamacare’s order that they establish them on their own. The Obama Administration has responded to all these concerns not by identifying ways to lower costs or entice insurers to participate — but by undertaking a rebranding effort.

Last month, the Department of Health and Human Services stopped using the word “exchanges” in press materials and on websites — and started calling them “marketplaces.” As Dean Clancy, the director of healthcare policy at FreedomWorks, observed, “If they’re trying to re-label, it means they’re flailing.”

When Vice President Joe Biden was asked before Obamacare became law whether insurance companies would go along with the president’s heavy-handed intervention in their business, he was blunt. “You know we’re going to control the insurance companies,” he told ABC News.

Maybe not. If insurers opt not to participate in Obamacare’s exchanges, the feds will lose control of their health reform effort — saddling consumers and taxpayers with higher costs.

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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