I know, I know. I haven’t written a blog post in forever. Life’s been tied up with writing grant proposals and sending manuscripts out for peer-review. You know, the things people actually pay me to do. But every once in a while, something pretty big happens in the world of healthcare, and I feel compelled to dust off my keyboard and draft a quick post. After all, what would a few dozen of you do without my thoughts on the matter?
The event in question is Aetna’s announcement that it will no longer be participating in 11 of the 15 state insurance exchanges it currently serves come next year. And Aetna’s not the only one–just the most recent. UnitedHealth and Humana have also announced plans to pull back substantially. In fact, right now Anthem is the only one of the four largest insurers in the country that hasn’t said it will be exiting the exchanges. From the insurers’ point of view, the logic is straightforward: They’re losing a lot of money on the exchanges–hundreds of millions of dollars each–even as they continue to make billions of dollars in profits overall as this Bloomberg article reports.
Why are they losing money? The short answer is that the people who are signing up for insurance coverage are sicker than expected, while healthier individuals have opted to forego coverage or have obtained it outside of the exchanges. In response, the insurers have raised the cost of their products, and that has further served to keep the sickest individuals enrolled, while healthier individuals seek other options or drop their coverage. It is what health economists call a “death spiral.”
Whoa. A death spiral?! Sounds serious. Yeah, it is. Potentially. While a recent editorial from The New York Times expressed confidence that Obamacare will be just fine, that’s only true if somebody does something to fix this. Otherwise, the price of insurance on the exchange will continue to climb until it reaches a point that it becomes unsustainable for the people purchasing it or the government subsidizing it, and the insurance market will collapse.
So how can we fix it? Well, first, that assumes you want to fix it. If you’re the GOP, you hope that this doom and gloom culminates in Trump winning the White House, and Republicans keeping control of Congress, leading to repeal of the ACA. However, if you’re more interested to practical solutions to problems, there are a few things that can be done. One is to increase the penalties for not having insurance, making that a much less palatable choice for healthy individuals to make. Similarly, the federal government can increase the size of exchange subsidies. Together, these two steps would probably go a long way in getting healthier individuals to sign up for an exchange-based insurance plan, which would even out the risk pool and steady the market. Alternatively, the government could provide some sort of stop-loss or reinsurance to insurers offering plans on the exchanges who encounter higher-than-expected utilization among their beneficiaries. Finally, there’s the notion of reintroducing the public option. Yeah, you remember, that thing that Joe Lieberman pretty much singlehandedly removed from the ACA? Proponents suggest that a public option plan would work by creating more competition in the exchanges, which could keep costs down and encourage healthier individuals to sign up. I’m not terribly optimistic here, because as much as I love the notion of the public option and competition, there is a very real sense in which the public option would have the ability to artificially lower prices, meaning insurers would still be hemorrhaging cash and would likely exit the exchanges anyway. Besides, I’m not at all convinced that the political will exists to enact the public option. That said, if we had a public option and insurers still wanted to exit the exchanges, we’d be much closer to the possibility of a single-payer system than we are today.
Of course, this may all be a bit overblown. Sure, Aetna and others are losing money on the exchanges, but they can afford to. They’re still making billions of dollars every year. And Jonathan Cohn and Jeffrey Young did some sleuthing to discover that Aetna’s withdrawal from the exchanges may have less to do with losing a few hundred million dollars, and more to do with trying to manipulate the federal government. In a letter to the Department of Justice, the CEO of Aetna essentially said “Approve our merger with Humana, or we’ll leave the exchanges.” The DOJ didn’t approve the merger, calling Aetna’s bluff, and Aetna proved it wasn’t bluffing. If that’s the case, it tells you an awful lot about the motives of private insurers in the United States. But sure, if it makes you feel better, go ahead and blame Obamacare. Meanwhile, I just hope our policymakers have enough common sense to take action when it is so clearly warranted.