Roll Tide

One might be forgiven for thinking health insurers are cracking under the strain of Obamacare’s broken insurance exchanges. But don’t be fooled: it is the 10 million Obamacare enrollees who are in trouble, not the insurers.

To be sure, new nonprofit cooperative insurers, set up with special subsidies to compete in the exchanges, have had a terrible run. They deliberately underpriced their premiums to gain market share, expecting the federal government to bail out their losses. Once the Republicans took over the House of Representatives, then the Senate, this became unlikely. As a result, the administration announced in November that 12 of 23 nonprofit cooperative insurers were shutting down.

However, these nonprofit cooperative insurers, which did not exist before Obamacare, are not important overall. That is why UnitedHealth Group’s November 19 announcement that it is losing $500 million on the Obamacare exchanges and might withdraw from Obamacare in 2017 is a big deal. Just a few weeks earlier, UnitedHealth Group had announced it would expand into 11 new states’ Obamacare markets.

The insurer is also dialing back advertising and brokers’ commissions for 2016, even though it is too late to withdraw from the market literally. (We are in the middle of Obamacare’s third open season.) However, it is the threat of absolute withdrawal in 2017 that has shocked many. By 2017, the fourth year of Obamacare, the market is supposed to have shaken out. Both insurers and Obamacare’s political sponsors understood that insurers would not know how expensive claims would be from those who signed up during the first three years. That is why insurers were given temporary taxpayer subsidies, called reinsurance and risk corridors, for 2014 through 2016. Reinsurance is a direct handout of $25 billion from taxpayers to insurers. Risk corridors were more complicated and supposed to be budget-neutral. Insurers that made more money than expected would pay money to those that lost more money than expected.

 

When it became clear that the losers far outnumbered the winners, the administration tried to raid the kitty to make risk-corridor payments from the general fund. By this time a new Congress (in which the majority opposed Obamacare) actually read the bill that its predecessor had passed in 2010 and pointed out that the administration could not pay out that money. As a result, Obamacare insurers will only receive $362 million of $2.9 billion of risk-corridor payments requested.

However, even if Congress did cave in and pay the risk corridors in full, payments would finish in 2016. That is what makes UnitedHealth Group’s announcement about dropping out in 2017 so important: it is effectively an admission that three years are not enough to learn how to manage risks in Obamacare’s exchanges. Indeed, it suggests that risks are unmanageable, that the vicious circle of increasing premiums’ driving healthy subscribers away and leaving only sick ones on the books cannot be stopped under Obamacare.

The exchanges have fewer victims than initially expected. The economy has been strong enough that employer-based coverage has stood up to Obamacare. As a result, only 10 million people are caught in them, instead of the 21 million forecast when the law was passed. However, this is a mixed blessing. These 10 million are a politically weak constituency of working-class and lower middle-class citizens in middle age — the people whose needs politicians always talk about but seldom address because they are not politically active.

The only group politically powerful enough to renegotiate the exchanges are the insurers, and they show no more creativity than to lobby for their subsidies to be restored, which this Congress has promised not to do. On the other hand, simply quitting the exchanges is not very painful for large health insurers. UnitedHealth Group’s stock took a small hit when it admitted its struggles, but Obamacare exchanges are a tiny share of its business. As more insurers make the same decision to quit, 10 million Obamacare subscribers will be left high and dry in short order. (DC)

Political Cartoons by Michael Ramirez
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Political Cartoons by Bob Gorrell

Death Spiral

Well, this was predictable. It’s just to what degree are the Liberal Media and Obama going to do to hide it…

Obamacare is exhibiting early signs of a “death spiral” as hundreds of insurance plans listed on the federally-run exchanges in 37 states and the District of Columbia request double-digit premium increases for 2016, says David Hogberg, a health care analyst and senior fellow at the National Center for Public Policy Research (NCPPR).

A “death spiral” – which is the insurance pool equivalent of a bankruptcy – occurs when rising premiums force younger, healthier people to drop their insurance coverage due to the increased cost. But their exodus leaves the remaining “risk pool” older, sicker and more expensive to insure than before, necessitating further rate hikes.

Thirteen percent of the people who signed up for Obamacare in 2015 have already been dropped from coverage because many of them failed to pay their share of the subsidized premiums, The New York Times reported. 

And that’s before the premiums on many policies are due to skyrocket next year.

In an Oct. 4, 2008 speech in Newport News, Va., then-Sen. Barack Obama promised that if elected president, he would reform the nation’s health care system, adding that “we’ll start by reducing premiums by as much as $2,500 per family.”

But in 2016, six years after President Obama signed the Affordable Care Act (ACA) into law, Obamacare premiums for hundreds of thousands of Americans will be going up, not down.  

Under the Affordable Care Act, state insurance regulators have until August to decide whether to approve or deny steep premium hikes for next year, which are inducing “sticker shock” even after the U.S. Supreme Court ruled that those enrolled in the federal exchanges were eligible for government subsidies.

“Unfortunately, those polices are on borrowed time,” Hogberg noted. “Eventually, older and sicker customers will purchase those policies, the rates will go up, and the young and healthy will flee the exchanges. At that point the death spiral will be in full gear. The insurance rate hikes for 2016 are just the beginning.”

“In the end, the exchanges are not sustainable, and free-market based reform of our health care system will be necessary,” Hogberg predicted.

According to HealthCare.gov, “the Affordable Care Act (ACA) requires that insurers planning to significantly increase plan premiums submit their rates to either the state or federal government for review. The threshold for this requirement is 10%.”

NCPPR found that 231 plans listed on Obamacare exchanges in 37 states and the District of Columbia have requested double-digit premium hikes of at least 10 percent for 2016, nearly double the number of plans (121) that did so for 2015.  

Another 126 plans want to raise their rates by 20 percent or more in 2016, compared to the 21 plans that made a similar request in 2015.

For example, eight plans listed on the District of Columbia exchange have requested 2016 premium hikes ranging from 10.13% for Group Hospitalization and Medical Services, Inc.’s (GHMSI) BluePreferred Multi-State Plan- Individual to 20.44% for the company’s BluePreferred Multi-State Plan- Small Group policies.

GHMSI cites “projected increases in medical and pharmacy claims due to cost and utilization trend impacts as well as change in projected pool morbidity” as reasons for raising its premiums.

 
 

But some requested rate hikes are much higher.

On April 13, Aetna Life Insurance Co. submitted a request for a 59.71% premium hike for its Aetna Fee for Service-Small Group plan in Virginia, effective Jan. 1, 2016.  This plan is one of 38 that are seeking premium hikes of more than 40 percent for 2016 compared to the zero who made such requests in 2015, according to NCPPR.

“Medical costs are going up and we are changing our rates to reflect this increase,” the company said in its filing, adding that “several requirements related to the Affordable Care Act (ACA) also impact these rates.”

A 55.83% rate hike increase was also submitted by Blue Cross Blue Shield of Minnesota for its “non-grandfathered individual risk pool” affecting 171,000 policy holders.

“In 2014, the ratio of claims to revenue received (excluding potential federal risk corridor payments) exceeded 115% and resulted in an operating loss in excess of $135 million,” the company explained in its filing.

“High claims trends for the first quarter of 2015 reflect an acceleration in costs, suggesting an extremely low probability of lower claims for the balance of 2015. Our responsibility to set plan year 2016 rates at levels that cover all anticipated costs will result in significant price adjustments for all 2016 individual reformed products.”

Drew Altman, president and CEO of the Kaiser Family Foundation, noted in The Wall Street Journal that instead of decreasing health care spending, as Obama promised ACA would do, it is “picking up speed.”

He added that “greater use of health services as well as more people covered by the ACA appear to be responsible for most of the increase.” The double-digit premium requests for 2016 reflect insurers’ belief that this trend will continue next year.

In January 2014, CNSNews.com asked economist John Goodman, former president of the National Center for Policy Analysis, how Americans would know if Obamacare enters a “death spiral.”

“There won’t be any neon signs that say ‘Death Spiral Underway,’ but what you’ll see is premiums keep rising,” he replied. “And if premiums keep rising, then fewer healthy people will buy in and we may get to a point where you need government subsidies to prop the whole thing up.”

May?? 🙂

Political Cartoons by Glenn McCoy
Political Cartoons by Michael Ramirez
Political Cartoons by Glenn McCoy
Political Cartoons by Michael Ramirez

Death Spiral

The Supreme Court decision in King v. Burwell, the case challenging the Obama administration’s decision to award tax credits for health insurance sold through federally established exchanges, could turn on the question of whether a ruling that ends the tax credits on federal exchanges might cause something known as a “death spiral” in health insurance markets.

The good news is the answer is probably no, but the bad news is that’s only because the death spiral has probably already started.

A death spiral generally occurs when insurers are forced to raise premiums sharply to pay promised benefits. Higher premiums cause many of the healthiest policyholders, who already pay far more in premiums than they receive in benefits, to drop coverage.

When healthy policyholders drop coverage, it leaves the insurer with little choice but to raise premiums again because they now have a risk pool that is less healthy than before. But another premium increase means many of the healthy people who remained now drop their policies, too, and this continues until the only people willing to pay the now-very-high premiums are those with serious medical conditions.

The death spiral isn’t just a theory. Eight states learned this the hard way in the 1990s when they enacted two policies known as “community rating” and “guaranteed issue,” requiring health insurers to sell coverage to anyone who wanted it at the same price.

This quickly set off a death spiral because people knew they could wait until they were sick or injured to buy insurance, and premiums rose sky-high as healthy people exited the individual insurance market while the sick remained.

 

New Jersey enacted both community rating and guaranteed issue in 1992. By 2003, the lowest monthly premium for a family policy in the state was $3,810 and nearly 40 percent of the people in the individual market had dropped their coverage.

Obamacare includes both community rating and guaranteed issue. The hope of the politicians who passed Obamacare was the individual mandate would keep the relatively healthy from dropping insurance coverage, thereby avoiding a death spiral.

They hoped to FORCE people to pay by government cudgel to avoid the inevitable. Remove the choice to cause the death spiral and subsidize the hell out of it (literally and figuratively). Sounds like an Agenda rather a “good” thing, doesn’t it? 🙂

During oral arguments in King, Justices Anthony Kennedy and Ruth Bader Ginsburg expressed concerns that not allowing subsidies in the 37 states using the federally established exchange would set off a death spiral in those states. Their fear was that while subsidies would no longer be available, and there would effectively be no individual mandate, community rating and guaranteed issue would remain.

Many commentators saw Justice Kennedy’s comments as a signal he isn’t willing to stop subsidies on federal exchanges, either because of the serious consequences of doing so or because surely Congress could not have intended to put states in the position of choosing between creating an Obamacare exchange or seeing health insurance markets destroyed.

What Justice Kennedy and many others may not understand, however, is the death spiral is probably already underway in all 50 states, regardless of how the Supreme Court rules in this case.

According to the Manhattan Institute, premiums climbed by 41 percent on average from 2013 to 2014, and premiums are likely to rise sharply again after two insurance company bailout programs included in Obamacare expire in 2017.

The other sign health insurance markets are in the early stages of a death spiral is the age mix of those buying policies through Obamacare. Originally it was estimated that around 40 percent of enrollees had to be in the relatively healthy 18 to 34-year-old age segment, so their premiums could be used to pay for the health expenses of older, less-healthy enrollees. So far it appears only some 28 percent of enrollees are in that coveted age group, which also comprises around half of the uninsured.

All of this means insurers are getting a risk pool that is less healthy than expected, and more premium hikes are around the corner. While subsidies hide some from the full impact, others in the middle class will not be shielded.

It will undoubtedly take a few years to know for sure, but for anybody concerned about setting off a death spiral or thinking Congress surely didn’t intend to do so, don’t worry. It looks like it’s already here, whether Congress intended it or not.

Political Cartoons by Chip Bok
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But enough about President Obama.
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