Affordable Care Act Entering Death Spiral

Affordable Care Act Entering Death Spiral

Follow up to Dr. Moghim's blog article, Physician's Message to Obamacare: We Are Not On Board 

 

For many of the country’s more astute health care experts, the day when the Affordable Care Act was no longer viable was an inevitability.  They recognized early on that artificial constraints like the individual mandate were not realistic substitutes for consumer-driven selection, and that, eventually, the market would become unsustainable.  It appears that day has finally arrived.

In recent weeks, Aetna has announced that it will halt expansions to health plan offerings in new states while it reexamined its current participation in the ACA health insurance exchanges. Aetna reported that it had lost more than $300 million over the past year through exchange policies.  The company currently covers almost 838,000 Americans through exchange-issued policies.

Aetna’s very public misgivings follow the actions of many rivals. Largest health insurer UnitedHealth Group is preparing to leave almost all of the state exchanges in the coming year after losing almost $1 billion from the exchanges. Humana has decided to exit the exchanges in many states in an effort to become more profitable. Many of Anthem’s subsidiaries have also reported significant losses (although the company has not announced product cuts); Highmark reported losses of almost $773 million over two years, and Blue Cross Blue Shield of North Carolina lost $282 million in 2015.

There is widespread unprofitability in the exchange-driven markets primarily due to the excessive costs associated with covering policyholders with pre-existing conditions. A new study from Blue Cross Blue Shield found that ACA enrollees averaged almost $559 in monthly care costs while those in employer plans averaged only $457 per month. 

These costs for insurers are supposed to be offset by the healthier enrollees, but these enrollees are rapidly exiting the insurance marketplaces. The primary reason for this mass exodus is the growing deductibles for many marketplace policies.  Almost 43 percent of marketplace enrollees had an average deductible of at least $2,500.  This is an enormous financial burden for most low or middle income families, forcing them to shop for coverage elsewhere.

While various tax credits and federal out-of-pocket expense caps are helping many lower income enrollees remain on these exchange policies, many middle income enrollees—specifically those earning more than $29,700 annually—must pay their full deductible. This is not only shrinking marketplace participation, but it is also contributing to diminished care, which can create a ballooning cost when serious health issues arise in the future.

The loss of these insurers in some markets has severely diminished competition which is, in turn, raising premiums.  Although many federal agencies are unwilling to face this reality of escalating insurance costs, President Barack Obama recently wrote in the Journal of the American Medical Association that there should be government-run health plans to strengthen competition in these markets.

One of the primary points of contention among insurers is the diminished barrier for people to terminate their policy and sign up again if they get sick. In response, insurers are raising premiums or increasing deductibles, in an attempt to recoup losses from sicker policyholders.  However, this is only squeezing out healthier enrollees.  Mark Bertolini, CEO of Aetna, recognizes this issue and suggests: “Rather than transferring money among insurers, the law should be changed to subsidize insurers with government funds. It needs to be a non-zero sum pool in order to fix it. Right now, insurers that are less worse off pay for those that are more worse off.”

 

Article written by:
Robert Moghim, M.D.
CEO, Onyx M.D.

Disclaimer: The views expressed in this article are the personal views of Robert Moghim, M.D. and do not necessarily represent and are not intended to represent the views of the company or its employees.




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