Opinion: As Republicans ready to dismantle ACA, insurers likely to bolt

December 30, 2016 by J.b. Silvers, The Conversation

There's a joke among insurers that there are two things that health insurance companies hate to do – take risks and pay claims. But, of course, these are the essence of their business!

Yet, if they do too much of either, they will go broke, and if they do too little, their customers will find a better policy. This balancing act isn't too hard if they have a pool sufficient to average out the highs and lows. I speak with some experience as the former CEO of one of these firms.

Employee-sponsored insurance has fit this model fairly well, providing good stability and reasonable predictability. Unfortunately, the market for individuals has never worked well.

Generally, this model forces insurers to take fewer risks so that they can still make money. They do this by excluding preexisting conditions and paying fewer claims. In such a market, fewer people are helped, and when they are able to get insurance, they pay a lot more for it than if they were part of an employee-sponsored plan.

The Affordable Care Act changed all of this. Companies were required to stop doing these bad things. In exchange for taking on substantially more risk of less healthy patients, they were promised more business by getting access to more potential customers.

The federal government offers subsidies to help pay the premiums for consumers whose income falls below a certain level. The law also stipulates that all people must be covered, or they face a penalty. This so-called individual mandate also guaranteed business for the , because it led healthy people into the risk pool.

To entice insurers into the market, the ACA also offered well-established methods to reduce risk. For example, it built in protections for insurers who enrolled especially sick people. It also provided back-up payments for very high-cost cases and protected against big losses and limited big gains in the first three years.

These steps worked well in establishing a stable market for Medicare drug plans when this program started under President Bush in 2006. Competition there is vigorous, rates are lower than estimated and enrollees are satisfied. In other words, the market works well.

Congress did not honor the deal

But when the time came to pay up for risk reduction in the Obamacare exchanges, Congress reneged and paid only 12 percent of what was owed to the insurers. So, on top of the fact that the companies had to bear the risk of unknown costs and utilization in the start-up years, which turned out to be higher than they expected, insurers had to absorb legislative uncertainty of whether the rules would be rewritten.

It is no wonder that this year they have dramatically increased premiums, averaging 20 percent, to compensate for the extra risk they didn't factor into the original lower rates. In contrast, underlying health costs are rising at about 5 percent.

Repeal and replace?

And now comes the reality of the "repeal and replace" initiatives from the Republicans. If the uncertainty of this market was large before with the ACA, it is almost unknowable under whatever comes next. Thus the initial exit of some latecomers, including United Healthcare, and undercapitalized minor entrants, such as nonprofit co-ops, is almost certain to become a flood of firms leaving the exchanges. They have little choice since the risks are too large and the actuarially appropriate rates are still not obvious given the political turmoil and changing rules.

Some in Congress seem to think that passing the "repeal" part immediately but delaying its implementation for two or three years will somehow leave everything as it is now. But this naïve notion misses the fact that the riskiness of the Obamacare individual insurance exchange markets will have been ramped up to such a level that continuing makes no sense.

Even if a company reaches break-even in the "delay" years, it will lose when the repeal is effective. If the premium subsidies now available to lower-income enrollees go away immediately and the mandate to sign up for an insurance plan disappears, then the number of people purchasing individual policies on the exchanges will drop like a rock. In fact, it is clear that even debating this scenario is likely to be self-fulfilling, since insurers must decide on their participation for 2018 by the late spring of 2017. Look for many to leave then.

When risks are too high, just exit

It is easy to leave a market when things look bad. The health plan I oversaw, although top-rated by JD Powers, was losing huge amounts when I took over. Part of the turnaround we put into place was to withdraw from a number of counties where most of the losses were occurring. The same will be the case in the ACA exchanges.
It is easy to predict that this induced uncertainty from Congress will effectively kill the exchanges even if it delays the implementation of repeal. As a result, all of the individuals who have benefited from coverage and subsidies will lose out. They will either not be able to gain insurance because of a preexisting condition, or they will not be able to afford the higher premiums.

When they leave the market, it is also easy to guess that the political and economic price will be substantial in terms of patient access, provider uncompensated care costs and employment in the health sector – a major job creator. It is hard to predict these costs, but they could be into the billions of dollars. And, the health of millions could be jeopardized.

Is there any way out of this dilemma for those who don't like Obamacare? Clearly the first principle, since all of the solutions suggested rely on , is to reduce the level of risk for them – the opposite of what we are doing now! Even House Speaker Paul Ryan's proposals rely on private firms which will be loath to trust the game they are asked to play because of the dramatic changes to the rules.

If we want them to continue to do the good things required by the ACA, we can't make it so uncertain. What this means is that the mechanisms designed to reduce risk and a stable set of operating arrangements must be reaffirmed as core principles of all reform and replace efforts. This shouldn't be hard for market-oriented Republicans, if they can leave behind their political baggage. Blind talk of repeal with no clear way to build confidence among the private , which will be needed in the replace phase, leads to market failure.

Like the dog that finally caught the car it had been chasing and doesn't know what to do, what comes next for the administration and Congress is not clear. But we shouldn't fool ourselves to think it will be easy or painless. Otherwise, it may be that the great experiment trying to establish a viable for individual insurance – ironically long a conservative objective – will end in the chaos of what came before.

Explore further: Study: 'Obamacare' repeal-only would make 30M uninsured

Related Stories

Study: 'Obamacare' repeal-only would make 30M uninsured

December 7, 2016
Repealing President Barack Obama's health care law without a replacement risks making nearly 30 million people uninsured, according to a study released Wednesday.

With Trump in charge, what's the prognosis for Obamacare?

December 8, 2016
(HealthDay)—President-elect Donald Trump's oft-stated pledge to repeal and replace the Affordable Care Act suggests big changes lie ahead for the health insurance marketplace and Americans who rely on it.

As Obama's term winds down, resistance to Obamacare diminishes

December 8, 2016
(HealthDay)—Public support for full repeal of Obamacare is softening, with most Americans saying they'd rather leave the law as is or have it improved by changing some parts of it, according to the latest HealthDay/Harris ...

Opinion: What's ailing the ACA—insurers or Congress?

August 24, 2016
Since the Affordable Care Act – or what many call Obamacare – has been labeled a failure since the day it started, according to some political types, it's difficult to know if the recent defections by large insurance ...

Obamacare 2017: A peek behind the numbers

October 31, 2016
(HealthDay)—As President Barack Obama prepares to leave the White House, his administration is gearing up for another open-enrollment period under the Affordable Care Act (ACA), perhaps the hardest-fought initiative of ...

Study: Premium hikes add $10B to taxpayers' health law tab (Update)

December 15, 2016
Taxpayers will fork over nearly $10 billion more next year to cover double-digit premium hikes for subsidized health insurance under President Barack Obama's law, according to a study being released Thursday.

Recommended for you

Expert: Be concerned about how apps collect, share health data

October 20, 2017
As of 2016 there were more than 165,000 health and wellness apps available though the Apple App Store alone. According to Rice University medical media expert Kirsten Ostherr, the Food and Drug Administration (FDA) regulates ...

More teens than ever aren't getting enough sleep

October 19, 2017
If you're a young person who can't seem to get enough sleep, you're not alone: A new study led by San Diego State University Professor of Psychology Jean Twenge finds that adolescents today are sleeping fewer hours per night ...

Across Asia, liver cancer is linked to herbal remedies: study

October 18, 2017
Researchers have uncovered widespread evidence of a link between traditional Chinese herbal remedies and liver cancer across Asia, a study said Wednesday.

Eating better throughout adult years improves physical fitness in old age, suggests study

October 18, 2017
People who have a healthier diet throughout their adult lives are more likely to be stronger and fitter in older age than those who don't, according to a new study led by the University of Southampton.

Global calcium consumption appears low, especially in Asia

October 18, 2017
Daily calcium intake among adults appears to vary quite widely around the world in distinct regional patterns, according to a new systematic review of research data ahead of World Osteoporosis Day on Friday, Oct. 20.

New study: Nearly half of US medical care comes from emergency rooms

October 17, 2017
Nearly half of all US medical care is delivered by emergency departments, according to a new study by researchers at the University of Maryland School of Medicine (UMSOM). And in recent years, the percentage of care delivered ...

1 comment

Adjust slider to filter visible comments by rank

Display comments: newest first

Osiris1
not rated yet Dec 30, 2016
Radical 'Republicans' have made the vicious slogan 'repeal Obamacare' a mantra of their obsession with not caring for our sick and elderly. Now many millions owe their health and security, financial and medical, to Mr. Obama's 'Affordable Health Care Act'. Just dogmatically 'repealing' without replacing it with a workable alternative will be disastrous for the nation, and lead to this overt act of radical republicans becoming a a proverbial albatross around the neck of whatever 'Jonah' that tries it.

Unfortunately for the 'tea party' radical faction with the republicans, there is no other workable plan that still preserves the insurance monopoly. The reaction to this foolhardy repeal will be predictable unless the radicals also plan to end elective democracy as we know it...mass defeat of the fools that spawned the coming chaos in the healthcare industry. AS Sheila Copps of Canada once said: "The American healthcare system is a $4 trillion ripoff of American care consumers!"

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.