By Peter Sullivan
Health insurance companies are amplifying their warnings about the financial sustainability of the ObamaCare marketplaces as they seek approval for premium increases next year.
Insurers say they are losing money on their ObamaCare plans at a rapid rate, and some have begun to talk about dropping out of the marketplaces altogether.
“Something has to give,” said Larry Levitt, an expert on the health law at the Kaiser Family Foundation. “Either insurers will drop out or insurers will raise premiums.”
While analysts expect the market to stabilize once premiums rise and more young, healthy people sign up, some observers have not ruled out the possibility of a collapse of the market, known in insurance parlance as a “death spiral.”
In the short term, there is a growing likelihood that insurers will push for substantial premium increases, creating a political problem for Democrats in an election year.
Insurers have been pounding the drum about problems with ObamaCare pricing.
The Blue Cross Blue Shield Association released a widely publicized report last month that said new enrollees under ObamaCare had 22 percent higher medical costs than people who received coverage from employers.
And a report from McKinsey & Company found that in the individual market, which includes the ObamaCare marketplaces, insurers lost money in 41 states in 2014, and were only profitable in 9 states.
“We continue to have serious concerns about the sustainability of the public exchanges,” Mark Bertolini, the CEO of Aetna, said in February.
The Aetna CEO noted concerns about the “risk pool,” which refers to the balance of healthy and sick enrollees in a plan. The makeup of the ObamaCare risk pools has been sicker and costlier than insurers hoped.
The clearest remedy for the losses is for insurers to raise premiums, perhaps by large amounts — something Republicans have long warned would happen under the healthcare law, known as the Affordable Care Act (ACA).
“The industry is clearly setting the stage for bigger premium increases in 2017,” said Levitt of the Kaiser Family Foundation.
Insurers will begin filing their proposed premium increases for 2017 soon. State regulators will review those proposals and then can either accept or reject them.
Michael Taggart, a consultant with S&P Dow Jones Indices, pointed to data from his firm showing per capita costs for insurers are spiking in the ObamaCare marketplaces.
“We made a significant change in the rules with the ACA, and we’re still working through the process to see how that market stabilizes,” Taggart said at a panel on Wednesday. “Is [a death spiral] a possibility? Sure it’s a possibility. I wouldn’t attempt to put a probability on it, because I think there are a lot of things going on.”
One factor helping to prevent a death spiral is ObamaCare’s tax credits, which cushion the impact of premium increases on consumers.
“What we’re likely to see is more of a market correction than any kind of death spiral,” Levitt said. “There are enough people enrolled at this point that the market is sustainable. The premiums were just too low.”
Dr. Mandy Cohen, the chief operating officer of the Centers for Medicare and Medicaid Services (CMS), said in an interview that there is “absolutely not” a risk of a death spiral or collapse in the ObamaCare marketplaces.
While acknowledging that “companies are needing to adjust” to the new system, she pointed to the 12.7 million people who signed up this year, 5 million of whom were new customers, as a sign of success.
“What brings us the most confidence about the long term stability and health of the marketplace is its growth,” Cohen said.
Another risk, should regulators reject large premium increases, is that insurers could simply decide to cut their losses and drop off the exchanges altogether.
“Given that most carriers have experienced losses in the exchanges, often large losses, it only makes sense that most exchange insurers will request significant rate increases for 2017,” said Michael Adelberg, a former CMS official under President Obama and now a consultant at FaegreBD.
“Market exits are not out of the question if an insurer is looking at consecutive years of losses and regulators are unable to approve rates that get the insurer to break-even.”
The most prominent insurer eyeing the exits is UnitedHealth, which made waves in November by saying it was considering whether to leave ObamaCare in 2017 because of financial losses. The company last week announced that it is dropping its ObamaCare plans in Arkansas and Georgia, and more states could follow.
The Department of Health and Human Services argues that the attention on UnitedHealth is overblown, given that the insurer is actually a fairly small player in the marketplaces.
It’s more important to watch what happens with Blue Cross Blue Shield plans, which are the backbone of the ObamaCare marketplaces.
There have been some rumblings of discontent from Blue Cross plans. The plan in New Mexico already dropped off the marketplace there last year after it lost money and state regulators rejected a proposed 51.6 percent premium increase. Now, Blue Cross Blue Shield of North Carolina says that it might drop out of the marketplace because of its losses.
Blue Cross of North Carolina CEO Brad Wilson said in an interview that the company had lost $400 million due to its ObamaCare business.
“We’re not alone, and I think that that also is evidence to suggest that there are systemic and fundamental challenges that we all need to have a civilized conversation about,” Wilson said.
He said a key factor in the decision on whether to stay in the market next year will be whether regulators approve whatever premium increase the company ends up proposing so as to try to make up for its losses.
Asked about the risk of a death spiral, Wilson said he is not worried about that happening “tomorrow,” but has concerns if the situation does not change over time.
“There’s not going to be something magical happen that will cause this to turn around,” Wilson said. He is pressing for changes like further tightening up extra sign up periods that insurers say people use to game the system and repealing the Health Insurance Tax, which could help lower premiums.
Cohen of the CMS said that her agency is in close touch with insurers and Blue Cross Blue Shield of North Carolina in particular. But she pushed back on talk of Blue Cross of North Carolina dropping out of the marketplace, stating flatly, “I have no concerns about them leaving the market.”
She referred to problems the company has had with its computer systems that have led to some people being enrolled in the wrong plan, along with other issues that have added to the company’s administrative costs.
“I know that they have struggled with some of their internal operations … but that is not related to anything to the health of the market itself or the risk pool,” Cohen said.
Overall, while the system set up by ObamaCare itself might be resilient, premium increases are sure to fuel Republican arguments that the law simply isn’t working.
“There’s more political risk here than anything else,” Levitt said.