In early September, Aetna subsidiary Carelink/Coventry Health Care decided to pull out of the new insurance exchange established by Obamacare in West Virginia. Just one company will sell policies on the Mountaineer States exchange, which is set to open October 1.
About the same time, the non-profit FirstCarolinaCare Insurance did the same in North Carolina. So there will be just two carriers on North Carolinas exchange.
It wasnt supposed to be this way.
For three-and-a-half years, Democrats from President Obama on down have promised that the federal health reform law would create vibrant, competitive markets across the country, where people could go online and with a few clicks pick from a variety of competing health plans. The exchanges were supposed to be like Travelocity for health insurance.
Instead theyve been plagued with technical problems, bureaucratic delays, and mountains of rules and regulations, to the point where most wont function well, if at all, on opening day. And now insurance companies are backing away, out of fear that disaster looms ahead. The result will be little competition and much higher prices.
Insurance giant Aetna for example, had initially planned to enter 14 markets. It ended up pulling out of five of them. The company even left the exchange in Connecticut, where its headquartered.
United Healthcare will venture into only 12 states after saying previously that it might join 25.
And while Cigna sells individual policies in 10 states, its planning to participate in the exchanges of just five of them.
These companies are even steering clear of huge markets like California, Pennsylvania, and New Jersey.
Illinoiss insurance office predicted that 16 companies would sign up to do business in its exchange. Only six did so. Nebraska will have only four. And in Connecticut, consumers will have to choose from just three insurers.
The companies that have signed onto the exchanges have tended to be smaller, regional firms or those that have never sold commercial insurance before. A study by the McKinsey & Co. consultancy found that 26 percent of the companies joining the exchanges are new carriers. In California, all but four of the 12 are selling commercial insurance for the first time. Half of those in New York are new to the market.
Whether these companies will have the knowledge, resources, expertise, and network of doctors and hospitals needed to succeed is an open question. Any failures will prove highly disruptive.
For small businesses counting on Obamacare to help them provide insurance to their workers, the situation isnt any better.
Small businesses in Milwaukee, for example, will have just one or two companies to choose from, depending on where they operate. The one insurance firm that signed up for Washington states small-business exchange will only operate in two of the states 39 counties.
The dearth of insurance choices is also yielding a dearth of doctor choices. In order to keep costs down, many plans are limiting the number of doctors or hospitals their beneficiaries can visit. Blue Shield of Californias Silver Plan, for instance, will only cover 53 percent of doctors and 78 percent of hospitals, compared to a regular individual plan today.
So much for President Obamas much-ballyhooed promise in 2009 that [i]f you like your doctor, you will be able to keep your doctor. Period.
Why are insurers avoiding Obamacares exchanges, particularly when the law promises an influx of millions of new, taxpayer-subsidized customers who are required by law to purchase insurance or pay a fine?
Government efforts to control the price of insurance are among the chief reasons. Aetna pulled out of Maryland after state regulators demanded a 29-percent reduction in its proposed rates. The company explained that those prices would not allow us to collect enough premiums to cover the cost of the plans.
The government is also having trouble getting the exchanges running. The latest evidence? According to a September 19 report in the Wall Street Journal, just days before the exchanges are set to go live, federal computer systems cant accurately determine what people are supposed to pay for policies in the 36 state exchanges that the federal government is running on their own or in partnership with a state. Big insurers doubtless fear that theyll take the blame for these sorts of glitches.
But the biggest reason that many insurers are staying away from the exchanges? Obamacares myriad mandates and regulations that risk pricing the young and healthy out of the market. That will leave insurers to cover only older, sicker people for whom the law guarantees coverage at artificially low rates in the insurance pool.
Obamacares backers insist that a few bumps and glitches are to be expected when creating a brand new government-run marketplace and that theyll get ironed out over time. But if only the sick show up to the exchanges and if theres no meaningful competition to hold premiums down insurance prices will spiral upward until the exchanges collapse.
When Health and Human Services Secretary Kathleen Sebelius was asked earlier this year about how Obamacares exchanges would work, she said, what we are going to see is a very different kind of competition.
The American people arent going to like Obamacares brand of competition dysfunctional marketplaces with few insurance choices.