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

United We Fall

A “Healthcare Workers for Obamacare” sign hangs torn in a parking lot in New York on Oct. 31, 2012.  AP

President Obama repeatedly promised that his signature health law, the Affordable Care Act, a.k.a. Obamacare, would reduce insurance premiums by $2,500 for the typical family.

ObamaCare: United Healthcare’s surprise warning that it may scrap participation in federal health care exchanges is more than bad news for consumer choice. It’s a broader sign of an unsustainable system.

The nation’s largest health insurance provider surprised the markets Thursday by saying losses from its 550,000 individual ObamaCare exchange enrollments were sharply cutting its bottom line. That’s notable because ObamaCare exchange participation only forms a small slice of the $105 billion company by market capitalization.

Yet it was enough to make the giant company and all the value it creates throughout its many operations suffer enough to trigger, as IBD market reporter Jed Graham wrote, “a surge of red ink.”

The company forecast $425 million less revenue in the fourth quarter and cut its full-year 2015 earnings-per-share forecast to $6 from $6.25-$6.35.

Not surprisingly, its stock fell 5.6% by the close of trading Thursday, and other health care and hospital companies such as Aetna, Anthem, Tenet, Cigna, Humana and HCA took similar hits.

“We see no data pointing to improvement,” UnitedHealth Group CEO Stephen Helmsley said on a conference call. Patients, he explained, were using their plans more than the company had anticipated and, worse still, were dropping coverage when they got well.

Bad as that is for company profits, it’s a predictable outcome given the structure of the law and what it permits.

What Helmsley described was a company caught up in the classic “death spiral” that IBD and reputable economists have been warning about: Insurance policy sales going in the main to the sickest patients who use the most health care services, while the high prices of the larded-up government-mandated packages continue to drive off younger, healthier consumers.

DOH!  It’s not like it was predictable or anything… 🙂

In short, the ObamaCare master plan of having young and healthy consumers subsidize the oldest, sickest patients isn’t working as the White House’s central planners and self-proclaimed experts claimed.

<<chuckle>>

Not that the ideologically rigid Obama and The Democrats will care. They will continue to hammer on it until you give in to government control of who lives and who dies and the Insurance companies go bankrupt leaving only the government left.

That’s Democrat “compassion” for ya… 🙂

What’s striking here is that UnitedHealth is no tiny startup ship with a narrow margin of error riding the big ObamaCare regulatory waves. It’s the biggest of the big, a conglomerate that’s the product of the consolidation of the industry — Anthem and Cigna, UnitedHealth and HCA, HCA and private investors — that was supposed to enable the sector to absorb the blow of higher costs of insuring more customers and still continue to do well.

That’s not happening.

What’s more, UnitedHealth was in the ObamaCare exchanges for only a year, during a window of time when the government was supposed to cushion insurers against losses in the ObamaCare transition. The cushion ends next year, leaving companies on their own.

(Insert “Jaws” theme music here) 🙂

Will smaller health care companies really be able to make a profit in an atmosphere that even UnitedHealth found impossible to sustain a profit in? There’s plenty of reason to wonder, as the markets did Thursday. (IBD)

“We cannot sustain these losses,” CEO Stephen Hemsley said in an investor call Thursday morning. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”

Several nonprofit insurance cooperatives that were supposed to compete for customers on the exchanges have folded. Meanwhile, some big publicly traded insurance companies, including Anthem, Aetna, Cigna and Humana, say they are enrolling fewer people than expected or even losing money.

A recent report by McKinsey & Co. found that the industry lost a total of $2.5 billion, or $163 per customer, in the individual market.

Insurance companies have had trouble attracting healthy customers to the exchanges to purchase their insurance products, many of which have deductibles of thousands of dollars.

The industry’s troubles are reflected in the insurance products being offered on the exchanges during the current enrollment period, reports The Wall Street Journal:

“For these plans, which will take effect in 2016, many insurers have raised premiums in order to cover the medical costs of enrollees, which have run higher than many companies originally projected, fueling this year’s losses. Insurers have also shifted to offering more limited choices of health-care providers”

Still, no other big insurer has signaled its intention to leave the exchanges. (NPR)

YET. But it will come. But don’t worry Obama and The Democrats are from the Government and they are here to help you! 🙂

The average premium for medium-benefit plans offered to 40-year-old non-smokers will rise 10.1% in 2016, according to the Kaiser Family Foundation.

 Political Cartoons by Glenn McCoy

Political Cartoons by Michael Ramirez