posted at 9:21 am on October 14, 2016 by Ed Morrissey
Insurers have begun bailing out of the ObamaCare system they helped create. In dozens of states, withdrawals from the markets will leave consumers without a plan to renew, forcing them to look for other plans that will cost more — in some cases, much more. Bloomberg reports that 1.4 million ACA customers will get orphaned in the upcoming open enrollment — more than 10% of current ACA enrollment nationwide:
A growing number of people in Obamacare are finding out their health insurance plans will disappear from the program next year, forcing them to find new coverage even as options shrink and prices rise.
At least 1.4 million people in 32 states will lose the Obamacare plan they have now, according to state officials contacted by Bloomberg. That’s largely caused by Aetna Inc., UnitedHealth Group Inc. and some state or regional insurers quitting the law’s markets for individual coverage.
Sign-ups for Obamacare coverage begin next month. Fallout from the quitting insurers has emerged as the latest threat to the law, which is also a major focal point in the U.S. presidential election. While it’s not clear what all the consequences of the departing insurers will be, interviews with regulators and insurance customers suggest that plans will be fewer and more expensive, and may not include the same doctors and hospitals.
In other words, the mandated product that government forces people to buy will get more expensive and less valuable. Let’s see how many people out there still recall how a market works. What happens when a product or service rapidly increases in price while declining in value? Sales generally plummet, at least when markets are voluntary, but it looks like the same will happen even in a mandated economy. S&P forecasts that ObamaCare enrollment next year will stall and could even decline — far short of the HHS goals for the signature law from Barack Obama and Democrats:
Enrollment in the Obamacare insurance marketplace is likely to stall or even decline for 2017 as higher premiums drive away people who aren’t eligible for government subsidies, according to S&P Global Ratings forecasts.
“Our forecasted modest-to-negative growth is clearly a bump in the road, but doesn’t signal ‘game-over’ for the marketplace,” S&P analyst Deep Banerjee wrote in a report released Thursday.
This November will be the fourth open enrollment period for individuals to choose insurance plans under the Affordable Care Act, President Barack Obama’s signature health-care law. The “significant slowdown” predicted by S&P would be another setback for ACA’s government-run insurance markets, after big insurers pulled out of many states because of mounting losses.
ACA enrollment will range from 10.2 million to 11.6 million people after 2017’s enrollment season, which starts Nov. 1, S&P said. The lower end of the forecast range implies a decline of 8 percent compared with 2016 and the higher end a 4 percent gain.
That’s a far cry from the projections made by Democrats and the Obama administration when it first rolled out ObamaCare four years ago. The projections from HHS predicted that 26 million people would purchase insurance from ACA exchanges by 2017. In 2015, the projection for 2016 was 22 million, a goal that got reduced by 40% in actual enrollments to less than 13 million Even that number has declined as consumers failed to pay ever-increasing premiums to the current 11.1 million on the eve of the next open enrollment period.
As bad as those enrollment numbers have been, at least the White House could claim some forward momentum. Enrollment has increased by about 2.5 million in both of the last two years, going from 6.3 million in 2014 to 11.1 million in 2016. The final boost last year came as the tax penalties came into full play, but that’s played out — and it’s clearly no longer moving the needle. S&P calculates that the average premium in the ObamaCare exchanges will go up 25% over last year’s rates, and that will have people looking at the cost-benefit analysis of paying the fine and going retail instead.
Let’s lay that out. Minnesota House speaker Kurt Daudt told me about a local farming family of three that has to pay $2300 a month in premiums for 2016 for a policy with a $13,000 deductible. That’s $40,000 out of pocket before the first benefit outside of a standard wellness check (~$500 per person tops) gets covered. For some reason, they stuck with the insurance this year, but Minnesota’s rates will be going up 50-67% in 2017. On the low end, that’ll make their premiums $3450 a month, which escalates that threshold to over $54,000 with premiums and deductibles added together. That’s more than some hospitalizations would cost, so … why would they stay in the exchanges?
The drop in enrollment will come mainly from those who see no pressing need for utilization, which will accelerate the destabilization. I described the problem in my column at The Fiscal Times yesterday:
The biggest problem for insurers in these markets is the unstable utilization rates, which prevent them from accurately calculating risk to set a tenable premium price.
The reason for that instability is that higher prices are disincentivizing healthier consumers from buying expensive comprehensive insurance policies as they opt instead to pay out of pocket for their minimal utilization and pay the tax penalty for non-coverage instead. Thanks to skyrocketing premiums and deductible thresholds, the likelihood of many consumers to have benefits applied to anything but a basic wellness check is remote at best, which makes the risk worthwhile.
As prices go up, the risk for healthier consumers gets lower and lower, which means more of them will opt out rather than pay thousands of dollars every year for benefits they never use. As that continues, utilization rates for the sicker and older consumers who have incentives to stay in the system continue to escalate, necessitating even higher premiums. Eventually, the system exhausts itself and collapses. That “death spiral,” long predicted by Obamacare critics, would have arrived in Minnesota now except for the approval of astoundingly high premium hikes – an event that political realities will almost certainly keep from being repeated. …
The White House solution consists of larger subsidies, tax credits, and restoring access to the general fund for risk-corridor repayment programs to insurers – a government bailout of the sector’s Obamacare losses. None of that addresses the perverse incentives and fatal structural flaws of the ACA; in fact, bailouts and increased subsidies will only perpetuate them and do more damage.
Make no mistake — a decline in enrollment will accelerate this process and lead to that “death spiral” of the individual insurance markets. Even a government mandate can’t save a product whose price has long outstripped its value.