Why The Obamacare Exchanges Are Failing

Submitted by Devon Herrick via The National Center for Policy Analysis,

I reported earlier this week that the Obamacare Marketplace is slowly failing. Three days later the largest health insurer in America, UnitedHealth Group, announced it expects to lose $500 million on exchange plans next year and may exit the market in 2017.

The issue for many insurers is they were encouraged to participate in the exchange in return for a temporary risk sharing program called Risk Corridors. Under this program, all insurers paid into a pot of money and the firms suffering excessive losses were to share the funds based on a formula. However, a budget deal passed late in 2014, the ‘Cromnibus’ Spending Bill, required the program to be budget neutral. The losses far exceeded the pot of money collected by the program. Insurers have only received about $0.13 cents on the dollar of what they would have gotten under an opened-ended program.

The Centers for Medicare and Medicaid Services (CMS) has affirmed insurers will get their money. But the question is: where it is going to come from? CMS has $363 million to divvy up while insurers have requested $2.87 billion.

Why are insurers losing so much money? In my original article, I stated the exchange plans are suffering adverse selection due to the perverse regulations which drive up costs – making health coverage a bad deal for all but the sickest enrollees. The only people enrolling are those who are eligible for the most generous subsidies. Consider what Larry Levitt, a health insurance analyst with the Kaiser Family Foundation, told Bloomberg.

“The ACA marketplaces are not yet profitable for most insurers,” “It’s going to take enrollment growth, especially among healthy people, to make it an attractive market for insurers. If enrollment stagnates, we could very well see insurers thinking twice about their participation.”

The solution cannot be gouging healthy people so runaway costs are covered. The Affordable Care Act was support to slow the growth in health expenditures. Just about any economist will tell you the current system is not accomplishing that. Slowing spending requires appropriately-designed health plans with positive incentives among enrollees. The ACA’s cost-control mechanisms are the opposite of that; they’re akin to pouring gasoline on a fire in hopes it will put it out.

Why not scrap the perverse ACA regulations and admit it was a pipe dream to ever assume young, healthy people could be coerced into paying several times their expected costs to cover other people’s excessive spending. Young people already have a lower demand for health coverage because they don’t expect to need care. As I reported earlier in the week, healthy people also know they’re getting a raw deal when they are expected to pay $5,000 for health plans that require an additional $6,000 in spending before the plans will begin to pay claims. Justice Roberts called the penalty a “tax.” I know people spending $5,000 for health plans they get no benefit from. They certainly think in terms of their $5,000 premiums as another Obamacare tax they can ill afford.

*  *  *

In addition to this disaster, and on top of enrollment projections that are proving way off, perhaps the biggest immediate crisis facing the Obama administration’s signature health reform measure, as Eric Boehm (via reason.com) notes,  is the utter collapse of many of the so-called cooperatives that were set up by states as part of the 2010 law.

The Consumer Operated and Oriented Plan, or Co-Op, portion of the health care law established nonprofit health insurers that would receive federal funding and were intended to compete with private, for-private insurers on the exchanges as a way to lower prices. They were supposed to be small-scale single-payer systems that would be free from the profit motive; a progressive’s dream solution to the problem of providing health insurance for all.

 

Instead, they’ve turned into a nightmare. So far, 12 of the 23 co-ops have failed, defaulting on more than $1.2 billion in federal loans. Only two have been able to break even so far, and most of the remaining co-ops are eyeing massive premium increases—as high as 40 percent in some cases—to stay solvent.

 

A government program being poorly run is nothing new, of course. But the co-ops established under the health care law were subject to a series of regulations that make you wonder how they were ever supposed to succeed in the first place.

 

“It should be no surprise that so many of them are going belly-up,” said John Davidson, director of health policy for the Texas Public Policy Foundation, on the latest edition of the Watchdog Podcast. “The rules that they put on these co-ops almost set them up to fail.”

 

For starters, the co-ops were barred from hiring anyone who had served at an executive level at any health insurance company in the country.

 

Think about that for a second. This was essentially a brand new business venture that was prevented from relying on the expertise of anyone who might have the slightest idea what they were doing.

 

Another regulation prevented the co-ops from raising any capital aside from what was provided via those federal loans. Other rules prevented the co-ops from being allowed to turn a profit, and if one happened to accidentally make money anyway, it wasn’t allowed to use its profits to help it grow.

It’s the kind of business plan that would be laughed out of a business school classroom. “The co-ops were essentially amateur exercises,” said Davidson.

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Westcoaster
Westcoaster

“They were supposed to be small-scale single-payer systems that would be free from the profit motive; a progressive’s dream solution to the problem of providing health insurance for all.”

“It’s the kind of business plan that would be laughed out of a business school classroom. “The co-ops were essentially amateur exercises,” said Davidson.”

Which proves Obamacare was never designed to be an entree to “single-payer”. In fact, single-payer, cutting out the greedy for-profit insurance companies, is probably the only sane way to reduce our healthcare costs.

Anonymous
Anonymous

Westcoaster,

Yes, and the VA is an excellent example of how it is done.

After all, you let people die before they can get an appointment and you can cut cost way, way down.

The dead don’t do much in the way of health care consuming (voting for democrats yes, healthcare not so much).

Hollow man
Hollow man

It was designed to fail. Now because of Republican interference the government must step in and this time and not listen to the stupid elephant people. Just let the jack asses do their job.

hardscrabble farmer

“Under this program, all insurers paid into a pot of money and the firms suffering excessive losses were to share the funds based on a formula.”

Sounds like it was lifted word for word from Atlas Shrugged.

Here’s what’s going to happen.

The government is going to slowly cannibalize the insurance companies, small ones first as the larger ones consolidate- thinking they will make a killing, which they will for a while- but eventually they will be eaten by the regulators all in the name of providing health care to every American (even people who aren’t, but hey).Expect the same to happen to pharmaceutical companies. That will be the end of insurance companies/pharmacies/hospitals and pretty much all health care in the country with the exception of urban centered Mexico-style urgent care centers that will charge top dollar for rent-to-own type service. Most people with serious illnesses will simply succumb to them with the exception of the very wealthy who will form their own private health care co-ops. They’ll probably offer contracts to top students to attend what’s left of Med Schools (I expect colleges and Universities will also go the way of the Dodo with the exception of a very small number of private, ultra elite academic institutions and WalMart style state schools that are one stop above minimum security prisons and designed to produce state employees/prison guards/poultry plant workers/etc.) and offer them a lifetime of giving their betters face lifts,boob jobs, lipo-suctions, angioplasty, bi-pass, etc.

The rest of the population will learn to live off grid in rural areas and either stay healthy and sew up their own wounds, set their own bones or die.

And that will be the future of healthcare.

Ayn Rand was an starry-eyed optimist.

Aheinousanus
Aheinousanus

Wait!!! What?!?!? All those Obama voting yoots are not signing up for ObamaCare???
Socialist hypocrites!! Who could have predicted that?

bb

My tax accountant got me out of paying the penalty this year but next year it could be as high as 2400 dollars according to him.
Not sure what I will do.I’m going to find someway to get out of paying that penalty(tax )

Phil from Oz
Phil from Oz

Seems “Understanding Obamacare” is a hot topic in bookstores. Amazon’s flogging two titles in the advertising sidebar on this page, and a very brief online search using the above term returns 12 million hits . . . . .

gm
gm

@ westcoaster omg ! Do you really think I or anyone else in business is going to do it for no profit?

You want lunch , I am selling for a profit
You want a car ? I am selling at a profit
You want a house? I am selling at a profit

Etc, Etc ,Etc.

You sound like a communist , each according to their ability , each according to their need.

If I go to work everyday and I just break even , how the fuck do I get the currency for that lunch or car or house? By extrapolation , how the fuck does ANYONE? Which is why a communist, socialist ,LIBERAL , economy always fails.

@HSF exactly correct sir

@ BB Make sure you are not owed a refund , then the IRS cannot tax you under the current rules .
Remember your accountant is sanctioned by the state , just as a lawyer is , and Will indeed protect the state . The only way the IRS can take the penalty from you is if YOU are owed a refund .
Or you could declare as a Musloid or another protected status .

Or you could just tell them to fuck off . Due to the absolute ex post facto gibberish that they are saying is the truth .

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