Is This The Beginning of the End for Obamacare?

And Why Are Premiums Still Rising Three Years After The Law Was Implemented?

My grandfather used to say that, “where there is smoke there is fire”.

Based on the smoke signals I’ve been watching all year related to the Affordable Care Act and all things ‘Obamacare’ it’s possible that the fire beneath it will soon grow so significantly that it could, in time, turn the law into ashes. In the years before the law was implemented, and in the years since it began, many folks have predicted the law’s “death” or, in the case of Congress, have attempted to end it literally dozens of times, twice all of the way to the Supreme Court, but what we see smoldering now is different. The reasons that we wonder and worry about this growing fire includes the following ‘smoke signals’:

• Beginning in 2017 some of the largest health insurers in America have announced that they will no longer offer subsidized individual health insurance (aka Obamacare) through federal and state exchanges. United Healthcare was the first such insurer to announce that it was largely leaving the exchanges that sell Obamacare and, in the months that followed, Aetna made a similar announcement as has Humana and, in some states, Blue Cross.

• Humana, another national insurer, announced plans to dramatically reduce the number of states it offers coverage in starting in 2017. Humana, insures about 500,000 people through plans sold in the ACA exchanges and plans to offer such policies in just 156 counties across America in 2017 versus 1,315 in 2016.

• As I write this, Blue Cross has announced that it will cease offering individual health insurance through ACA exchanges in Tennessee and Nebraska. Will Blue Cross take a similar approach in other states?

• United’s decision may be particularly illuminating about whether the Affordable Care Act is sustainable. 2015 began with United, the largest health insurer in America, announcing that it would expand its Obamacare writings all over America, that it liked the promise of growth and sales the program offered, yet by Thanksgiving it was re-evaluating its position and predicting losses from Obamacare polices of $ 650 Million to $ 850 Million on the nearly 800,000 Obamacare policies it writes.

Obamacare is a small percentage of the insurer’s total business in that the company insures close to 48 million people.

In three busy days in April, United announced that it would exit 16 states, then a day later revised the total to 22 states only to revise it again, yet another day later, to 26 states, Florida included.

• Aetna’s mid-August announcement that it will exit 11 of the 15 states in which it offered Obamacare (Florida included) was based on the Department of Justice’s position against the insurer’s proposed merger with Humana and their ongoing individual health insurance losses now estimated at $ 300 Million. Here is part of what Aetna wrote in announcing their change of heart:

 Policy changes are needed for the public exchanges to remain viable. The public exchange model needs to evolve from its current state to address the inadequate risk adjustment mechanism, increase product diversity and attract the remaining uninsured population who could improve the risk pool.”

That from a company whose CEO in February, six months earlier, said, “we believe we have an obligation to stick it out and work until we know that it won’t work. It’s too early to give up on this process.”

• And speaking of major insurers coming and goings, two massive mergers, Aetna buying Humana for $33 Billion and Anthem (Blue Cross) buying CIGNA for $47 Billion, are on life support as the U.S. Department of Justice sues to block both deals. The government believes (and I agree) that the mergers would lead to higher premiums and fewer quality healthcare options for consumers. In my view, unless the cost of care itself is somehow transparently regulated then these mergers will, in time, lead to fewer choices and higher prices simply as a means to overcome the ever increasing cost of care. It always works that way. Or at least has historically worked that way in my experience.

While the Department of Justice’s position on these proposed mergers is important what is equally important is why these insurers felt the need to consolidate in the first place. In simple terms both Aetna and Anthem felt that purchasing their competitors would give them greater scale and leverage in the marketplace to negotiate the best possible prices with providers (doctors, hospitals and so forth).  I suspect that’s exactly what would happen in the short term (two, three to five years or so), and its for that reason that both the American Medical Association and the American Hospital Association came out in November 2015 adamantly against these mergers and suggested the government help them by stating, “fostering competition, not consolidation, benefits American consumers through lower prices, better quality and greater choice.”

That’s what you would expect these businesses, the providers, to say as they fear having their pricing squeezed by the proposed consolidated insurers. But with a powerful lobby behind both Associations, as well as that of the pharma industry (see my blog posting  on Healthcare here), providers were  able to convince the government to take their position and put a stop to the proposed deals.

• There also continues to be a great deal of what I call ‘experimentation’ in the delivery of healthcare and health insurance, all of which is healthy, but none of it has ‘cured’ the problem. Consider New York based Oscar Insurance Corporation, a tech focused option to traditional coverage that entered the market two years ago with great fanfare and cute cartoon advertising, but that has since announced that it will cease offering coverage in New Jersey and Dallas, the later a market it just entered in 2016. In Dallas the company explained that they are leaving after just one year due to the fact that several larger insurers are leaving the market, that Blue Cross is seeking a substantial increase in rates that is disruptive, and that they were experiencing larger than expected losses and increases in future losses.

• In Florida, the Office of Insurance Regulation has announced that individual health insurance premiums will increase by an average of 19% and will range from $399 to $600 per month. Of further concerns is that every health insurer requested a substantial rate increase with the largest increase being Humana’s 36.8% and the smallest being the 11.7% from Health First Commercial Plans. The reasons for such large increases in rates? The healthcare consulting firm Avalere found that about 53% of the increased premium was due to inpatient and outpatient hospital spending. Another factor that the state found was driving the increases in 2017 is the departure of insurers from the ACA Exchange, especially Aetna and United.

• Speaking of Florida, in 2016 about 1,530,000 Floridians bought health insurance via the Federal Exchange and of those some 1,420,000 (93%) received a Federal (tax credit) subsidy from the IRS based on their income. Nationally, 9.4 million people, 85% of those enrolled, receive a subsidy that averages $ 291.00 per month. Many wonder if these subsidies are sustainable and others ask if we should, instead, regulate or subsidize the actual cost of care. Tax credit subsidies are available to people who have low or moderate household incomes which the government defines as earning between one and four times the federal poverty level, or $20,090 to $80,360 for a family of three.  Nationally, about 57% of all Obamacare customers also receive subsidies to lower their out-of-pocket health costs when receiving medical services or medications. Those so-called cost-sharing reductions are available to people whose household incomes are below 250 percent of the poverty level, or $50,225 for a family of three, and who sign up for “silver” Obamacare plans. Silver plans, which cover the costs of about 70% of the cost of health services, are the most popular Obamacare plans, with 7.72 million people enrolled (about 70% of all plans). Some political leaders are now calling for an expansion of the subsidies, but in a state where nearly 95% of enrollees’ premiums are already subsidized one must ask how the subsidizes help control the true issue, the cost of medical goods and services and while medical insurance premiums are, most certainly, high it seems that the cost of the actual care needs to be addressed.

• According to the Kaiser Family Foundation, in 2017 one in four counties in America is at risk of having just a single insurer on its exchange, the program that sells subsidized health insurance (Obamacare). The fundamental success of the ACA law’s ‘individual mandate’, the requirement that individuals carry coverage, is predicated on the Exchanges being profitable for insurers and for that to happen people must sign up. Two of the very best benefits of the law; allowing folks to enroll without answering any health questions and covering them for pre-existing conditions from day one demand that healthy people enroll so as to balance those who have health issues and that will assuredly enroll and have claims.

• Unfortunately, enrollment has fallen far short of predictions and that has caused insurers to leave. In February 2013, for example, the Congressional Budget Office predicted that 24 million people would buy health coverage through the federal and state exchanges in 2016. As of July Healthcare.gov reported that about 11.1 million people were enrolled in Obamacare plans as of the end of March. If one recalls the focus of the new law when it was being touted in 2008 and 2009 it was the estimated 40 million of (then) uninsured Americans. Whether 40 Million or 24 Million its clear that the 11.1 Million is much less than was targeted or predicted and to have success the program needs more (healthy and young) people enrolled.

• And as I write this blog I see that one of our trade groups, the National Association of Health Underwriters, has written a mid-September newsletter about a brand new New York Times article entitled; ACA Faces Uncertain Future, Despite Success In Reducing Uninsured Rate. That article cites Census Bureau data released this week which showed the uninsured rate has fallen to 9.1%, “the lowest level ever recorded by the agency,” saying it “certainly looks” as if the Affordable Care Act “is solving the puzzle of getting people covered, a major goal of the law.” The Times points out, however, thatthe new numbers also highlight where the law is not working well – and how difficult it will be to drop the uninsured rate much lower.” The paper says ACA marketplaces are “struggling in states across the country,” and if they do not stabilize, “the uninsured rate could stall or even reverse.” Moreover, the law has what the Times describes as a “hazy future.

• And speaking of the New York, New York Magazine’s latest issue includes comment from President Obama in which he’s quoted as saying the ACA has real problems,” but adding that they’re eminently fixable problems in terms of strengthening the marketplace, improving the subsidies so more folks can get it, making sure everybody has Medicaid who was qualified under the original legislation, doing more on the cost containment.”

• Also, several media outlets (The New York Times, The Daily Caller, Fox News) are running stories with the headline ‘Clinton Pushing for Public Option as ACA Implodes . These reports, and others, note that Democratic nominee Clinton suggest that “a public option would be a government-sponsored and government-run insurance plan, probably modeled on the traditional Medicare program, which would be offered to customers on the exchanges as an alternative to the private insurance plans”. According to the Times, the healthcare proposals of Hillary Clinton and Donald Trump show the ACA “will almost certainly have to change to survive.” The Times says Clinton is joining President Obama and much of her party by “calling for more government, not less.” Meanwhile, the Times adds that Trump and congressional Republicans “would go in the direction of less government” by “reducing federal regulation and requirements so insurance would cost less and no-frills options could proliferate.” Both parties agree that for many, the health plans in the individual marketplace are “still too expensive and inaccessible.” Janet S. Trautwein, chief executive of the National Association of Health Underwriters, said, “Employer markets are fairly stable, but the individual insurance market does not feel stable at all.” She added that inmany states, the individual market is in a shambles.”  

Whether a private or public insurance plan is used will not, in my view, matter unless and until we control the cost of care without controlling the loss of care. Who provides the coverage will never solve the foundational issues that drive the problem of ever rising health care costs in America. As noted, the President has also recently used the insurer departures from Exchanges, along with the news of continued and large rate increases, to again suggest that the Federal government should offer its own policies in competition with established, private insurers and while this all might sound good as a ‘political sound bite’ during a whacky political year, and while it’s possible that Americans might even want the Federal government to offer individual health insurance, the fact is that doing so will not control the cost of care or coverage one bit. Unfortunately, there is nearly nothing particularity ‘affordable’ about the Affordable Care Act, nothing that actually truly controls the costs of medical goods and services, items that increase at nearly double digits year over year due to continued medical inflation four years after the law’s implementation.

• Aside from greed other items driving the increase in claims and premiums include:

1. The aging of America (just as it is true that young drivers have more auto accidents older folks have, of course, more medical care needs, more expense),
2. Americans are living longer than ever in our history (older folks need more care and more costly care), and
3. The fact that we as a society are living longer thanks to remarkable new whiz bang medicines and medical advancements (again, see my blog on pharmaceutical costs here) but the cost of those drugs and procedures is often so astronomical that even some medical professionals question their value when they can often force people into bankruptcy just to afford them.

• Much of all of this reminds me of something called the Community Health Purchasing Alliance, or CHPA as they were often called, here in Florida in the mid to late 1990’s. Created by the state with much fanfare, the idea was that by reforming insurance and making it’s availability more efficient and automated, as many as 1,000,000 uninsured Floridians would sign up through small businesses. When the program first started every insurer in the state flocked to it to sell policies and there were, literally, hundreds of possible plans available. Three years later only the least attractive insurers and plans remained and the entire idea fizzled out a short while later. While I am not suggesting that that is what is going to happen to the ACA law or Obamacare and the Exchanges, I am saying that there are some similarities that, when combined with the other smoke signals on the horizon makes me worry and wonder how the ACA law is all going to shake out.

With the advent of the ACA law it is not, or should not be, a revelation that having fewer people enroll than were predicted or that those with health issues would, logically, enroll given the simplified path (no health questions, immediate coverage on pre-existing conditions) to obtaining something so valuable as health insurance. No that’s not a surprise, but in order for Obamacare to survive a few things are certain; more of the uninsured need to sign up, especially the healthy and younger folks and more insurers and more plans are needed in the marketplace, but the absolute key to all things health insurance and healthcare is that the cost of care needs to be somehow controlled.

A subsidized medical insurance premium program already has made the issue a social one so it should not require a large leap to figure out how to control the cost of care that our society so needs and values. I need not be an Indian Scout to know that without the courage to make health care costs transparent and, perhaps even regulate them, they will only grow and grow and their continued growth will be the perfect fuel to turn today’s smoke signals into a raging blaze that will cripple every consumer and business in America.

When it comes to insurance ‘fires’ of all sorts and shapes the professional agents and underwriters here at Morris & Reynolds have been helping our clients find the best company, coverage and cost since 1950. Whether you need help with your individual and group medical insurance, home or auto coverage or business protection, please contact us at any time for any reason. As always, thank you for the honor of providing your protection.

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