Obamacare's crumbling facade
By John Daniel Davidson ? 1/27/16 12:02 AM
As the open enrollment period for Obamacare's health insurance exchanges comes to a close at the end of this month, grumblings from insurers indicate that part of the healthcare law is collapsing under the weight of the administration's desire to sign up as many people as possible, even if it means insurers lose money on the deal.
UnitedHealth, the nation's largest insurer, recently announced it expects to lose more than $500 million on the Obamacare exchanges this year ? after losing $475 million last year. In November, the insurer said because of higher-than-expected cost claims it was considering pulling out of the exchanges altogether in 2017.
Another major insurer, Humana, announced in a recent SEC filing that it also anticipates losses from its business on Obamcare's exchanges, and Aetna sent a letter to the Obama administration warning the exchanges could collapse next year "unless some fundamental flaws are corrected."
The problem is that customers are gaming the system to avoid the high cost of premiums for Obamacare-compliant plans ? a vicious cycle that's driving premiums up as insurers try to make up lost revenue and survive on the exchanges.
How do customers game the system? Through an array of loopholes and exceptions designed to maximize the number of insured people nationwide. Turns out, Americans are exploiting those loopholes the same way they do on their taxes ? and one can hardly blame them, since those shopping on the exchange are most likely subject to the individual mandate.
One aspect of the law, guaranteed issue ? prohibiting insurers from denying anyone coverage because of a pre-existing condition ? was tried in some states back in the 1990s and resulted in customers waiting to buy coverage until they needed care. This caused premiums to rise and more healthy people to leave the market, a phenomena called "adverse selection" that caused the collapse of individual insurance markets in the handful of states that tried it.
A slightly different version of adverse selection is playing out on the exchanges. Because Obamacare allows individuals who experience some life event, like moving or changing jobs, to sign up for coverage outside the normal enrollment period, healthy customers are waiting until they need care to sign up, and then citing one of many eligible "life event" exceptions that allow them to enroll whenever they want. According to a recent report in the New York Times, lawyers for the federal government said it wasn't easy to find a complete list of exceptions.
This is a huge problem for every major insurer on the exchanges, reports Politico. Aetna claimed a quarter of its exchange customers enrolled this way, and that those patients have higher costs. The Blue Cross Blue Shield Association echoed that claim, noting in a letter to the Obama administration that these customers are 55 percent more expensive to cover than those who sign up during the normal enrollment period. UnitedHealth says they are 20 percent more expensive, and that they expect 30 percent of their enrollments next year to come outside the normal signup period.
Another loophole is the 90-day "grace period" that allows customers to keep their coverage even if they've stopped paying their share of the premium. It didn't take long for many customers to figure out they only need to pay for nine months of coverage to stay covered for the year.
Insurers nationwide, including nonprofits like Kaiser Permanente, are calling on Obama administration officials to tighten the rules. Perhaps they will. But the rules were lax for a reason: The most important thing about health care reform to the White House wasn't whether insurers would lose money, but whether the president could claim victory by pointing to millions of newly insured Americans.
If our country's major insurers didn't realize that was the entire purpose of the Obamacare deal, they should have.
By John Daniel Davidson ? 1/27/16 12:02 AM
As the open enrollment period for Obamacare's health insurance exchanges comes to a close at the end of this month, grumblings from insurers indicate that part of the healthcare law is collapsing under the weight of the administration's desire to sign up as many people as possible, even if it means insurers lose money on the deal.
UnitedHealth, the nation's largest insurer, recently announced it expects to lose more than $500 million on the Obamacare exchanges this year ? after losing $475 million last year. In November, the insurer said because of higher-than-expected cost claims it was considering pulling out of the exchanges altogether in 2017.
Another major insurer, Humana, announced in a recent SEC filing that it also anticipates losses from its business on Obamcare's exchanges, and Aetna sent a letter to the Obama administration warning the exchanges could collapse next year "unless some fundamental flaws are corrected."
The problem is that customers are gaming the system to avoid the high cost of premiums for Obamacare-compliant plans ? a vicious cycle that's driving premiums up as insurers try to make up lost revenue and survive on the exchanges.
How do customers game the system? Through an array of loopholes and exceptions designed to maximize the number of insured people nationwide. Turns out, Americans are exploiting those loopholes the same way they do on their taxes ? and one can hardly blame them, since those shopping on the exchange are most likely subject to the individual mandate.
One aspect of the law, guaranteed issue ? prohibiting insurers from denying anyone coverage because of a pre-existing condition ? was tried in some states back in the 1990s and resulted in customers waiting to buy coverage until they needed care. This caused premiums to rise and more healthy people to leave the market, a phenomena called "adverse selection" that caused the collapse of individual insurance markets in the handful of states that tried it.
A slightly different version of adverse selection is playing out on the exchanges. Because Obamacare allows individuals who experience some life event, like moving or changing jobs, to sign up for coverage outside the normal enrollment period, healthy customers are waiting until they need care to sign up, and then citing one of many eligible "life event" exceptions that allow them to enroll whenever they want. According to a recent report in the New York Times, lawyers for the federal government said it wasn't easy to find a complete list of exceptions.
This is a huge problem for every major insurer on the exchanges, reports Politico. Aetna claimed a quarter of its exchange customers enrolled this way, and that those patients have higher costs. The Blue Cross Blue Shield Association echoed that claim, noting in a letter to the Obama administration that these customers are 55 percent more expensive to cover than those who sign up during the normal enrollment period. UnitedHealth says they are 20 percent more expensive, and that they expect 30 percent of their enrollments next year to come outside the normal signup period.
Another loophole is the 90-day "grace period" that allows customers to keep their coverage even if they've stopped paying their share of the premium. It didn't take long for many customers to figure out they only need to pay for nine months of coverage to stay covered for the year.
Insurers nationwide, including nonprofits like Kaiser Permanente, are calling on Obama administration officials to tighten the rules. Perhaps they will. But the rules were lax for a reason: The most important thing about health care reform to the White House wasn't whether insurers would lose money, but whether the president could claim victory by pointing to millions of newly insured Americans.
If our country's major insurers didn't realize that was the entire purpose of the Obamacare deal, they should have.
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