American consumers figured out from the beginning that Obamacare wasn’t worth buying. Now insurance companies are wising up. Aetna is withdrawing from Obamacare exchanges in 11 states, following United Healthcare Group’s decision last April to leave 34 states. Which will be the next domino to fall?
In a well-functioning insurance market, such as for automobile accidents, insurance carriers craft countless plans to meet exactly the needs of millions of different individuals. Typically, only catastrophic unexpected events are covered, not the predictable oil changes. Automobile insurance is real insurance, and automobile owners as well as insurance companies eagerly participate.
Not so for Obamacare, which is not insurance at all. Under Obamacare annual physicals, which are predictable and routine, are covered without charge, but major surgery requires payment of a $6,000 to $12,000 deductible.
Aetna spokesman T.J. Crawford said on August 16, “This is a business decision based on higher-than-projected medical costs that resulted in a second-quarter pretax loss of $200 million in our individual products, which we project will grow to in excess of $300 million by the end of the 2016.”
Insurance companies are making losses because fewer Americans are signing up for Obamacare than were predicted, and these Americans are sicker than average. Premiums rose in some markets by 20 percent in 2016, leading to more healthy people dropping out of plans or not enrolling, accelerating the financial imbalance. Premiums are expected to rise by a similar amount—or more—in 2017.
Young, healthy people are not signing up in great numbers for the expensive policies, even with the threat of penalties. Insurance companies and politicians thought that the premiums from these young people, who do not use much health care because they are rarely sick, would be used to pay for the care of the old and the chronically-ill.
Rather, young people are either on their parents’ plans, or on employer plans, or going without insurance and paying the penalty.
So far Congress has not bailed out the insurance companies. Last year the Department of Health and Human Services moved $362 million to insurance companies to cover losses, rather than the $2.9 billion that they requested. The Congressional Research Service and the U.S. Government Accountability Office have ruled that a congressional appropriation is required before federal agencies can bail out insurance companies for their Obamacare losses.
The Obamacare model is not workable, as I wrote in a 2009 column. It requires an expensive, comprehensive plan that obligates participants to purchase coverage for maternity care even if they have finished having children, pediatric dental care even if they are childless, mental health coverage even if they do not need it, and drug abuse coverage even if they have never taken any drugs.
People are not allowed to buy a simple plan that covers major illnesses such as heart disease, cancer, or falling off a bike in traffic. Furthermore, the deductibles—the amount that has to be spent before people can use the insurance—are so broad as to make coverage practically useless. For 2016, the average deductible for singles for the lowest-cost bronze plan is $5,700, and for families, it is $12,000.
That is why those who are on the exchanges are disproportionally sicker than average and have chronic health conditions that make them more expensive to insure.
Obamacare is collapsing as health insurance companies continue to withdraw from the exchanges. What then? Congress will either convert Obamacare into a public plan—such as Medicare for all—or repeal it altogether.
The path to repeal and reform has been laid out by Speaker Paul Ryan and Republican presidential candidate Donald Trump. Both plans include returning flexibility to insurance companies over what plans are offered while insuring that once people are in the insurance system, they cannot be dropped.
Rather than hire the same academic consultants who designed the non-insurance program called Obamacare, the next administration would be well advised to listen to the real expert on medical insurance: the American consumer. That consumer is very happy with a wide range of well-functioning insurance markets such as automobile insurance, home-owners insurance, and life insurance. So too are the insurance companies that provide the insurance, all without a dime of federal subsidy.
There is a simple logic to insurance markets. Let businesses freely compete to provide services to consumers with sensible regulations but without government support, and both consumers and insurance companies are well off. In contrast, when real insurance is outlawed, and only non-insurance can be sold, neither consumers nor insurance companies benefit. That’s where America is today.
Diana Furchtgott-Roth, former chief economist of the US Department of Labor, is an unpaid adviser to Donald Trump.
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