The Affordable Care Act Chokes on Costs, Drives Away Insurers

There is wide agreement that access to health care is important for everyone. A large segment of the 325 million US population is covered by government health programs such as Medicare (55.5 million enrollees in 2015), Medicaid and CHIP (74.5 million in 2017), and Veterans Health (about 10 million in 2013). These government run health programs serve 43% of the population. Another 48% of the population have private health care they buy as individuals or through an employer health plan. Within this 48%, 4% buy private insurance coverage through the Affordable Care Act (ACA) exchanges. Another 28.5 million (8.8% of the population) had no health insurance in 2015.

Through payroll taxes or through premiums, 96% of the population are forced to pay expenses incurred by the ACA subsidies, Medicare, Medicaid, and Veterans Healthcare plans, and on top of that they pay premiums for their own private insurance.

It is particularly galling to taxpayers that besides the involuntary duty to fund the ACA plan, we are burdened by the ACA’s stance on mandatory participation and its “essential” coverages conceit. There has been a persistent tear in the political adhesion caused by pass it so you can see what’s in it arrogance. It will take more than time to mend that affront.

It is not surprising that taxpayers resent funding yet another government health plan. There are already 3 major plans that work well enough, but the ACA was designed by command and control autocrats who show little respect for the public or its preferences. Many taxpayers endure financial strain to provide essentials for their own family, which they accomplish without government subsidy and without eligibility to participate in an existing government plan. So, when ACA exchange insurers march in exodus away from a huge revenue stream, there are clearly design flaws or operating errors at play.

Insurers leave the ACA exchanges because participation costs them too much and the future stability of ACA is very uncertain. Profits have rebounded for those insurers who left the ACA exchanges. The costs are too high because enrollees are sicker than had been anticipated and require more treatment than forecasted. Insurers were initially persuaded that a flow of younger, healthier enrollees would offset the treatment cost of the older, sicker enrollees who actually signed up.

Mandatory participation was upheld by the Supreme Court and was supposed to be enforced by the IRS. President Trump issued an executive order that gave IRS and others permission to roll back the obligations of “shared responsibility,” i.e., to pay the ACA premium or face a fine. When the IRS complies with the executive order, it will allow taxpayers to make an ACA participation decision without duress. The loss of younger, healthier enrollees has started a death spiral for the exchanges – their premiums will go up and those higher premiums will deter some enrollees from participating, which will increase the average cost of each enrollee.

Many consumers are choosing short-term health insurance policies that are much cheaper and that don’t satisfy ACA’s health insurance coverage mandates. A short-term policy, plus a fine for violating the individual mandate, is still cheaper than an ACA premium.

The “cost sharing reduction subsidy” explains much of insurers’ turmoil, but the cost sharing subsidy helps 7 million enrollees afford their premiums. Unfortunately for insurers, the White House has threatened to discontinue paying that huge subsidy, and almost no one can afford the ACA premiums without subsidies.

Risk corridors was another scheme embedded in the early ACA. Risk corridors would transfer some profits from successful insurers over to unsuccessful insurers. This communitarian promise was never practiced because no insurer earned a noticeable profit.

Another promise to help insurers mitigate losses was “reinsurance,” in this case a scheme that would pool the losses incurred by the costliest enrollees and share losses among participating insurers. The finances of the ACA system were to unhealthy to allow Risk Corridors and reinsurance to make a difference.

That background of losses, unreliable subsidies and promises, and a sicker than normal pool of candidates has pushed insurers to look for better marketplaces. Most customers in ACA have 2 or more insurers to choose from, but next year, 3 million customers will face just one choice, and some will have no choice. For the most part, ACA insurers who are leaving the exchanges are not vacating health insurance entirely – just the inhospitable ACA scheme.

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