Are Obamacare exchanges on life support? Not at all

It seems that every time Obamacare gets a cold, experts call it pneumonia.

The high profile withdrawals of a few national insurers from Obamacare exchanges have some experts wondering whether the exchanges are entering a death spiral. The companies’ reports of large losses have led to speculation that the exchanges are unsustainable. If more insurers decide to withdraw, competition will decline and prices could rise to unaffordable levels.

In 665 counties, exchange markets may be down to only one insurance company in 2017. Only 225 counties were in this position this year according to the Kaiser Family Foundation. One Arizona county may be left with no insurers at all.

In announcing its plans to withdraw from 69% of the counties where it has been selling plans, Aetna pointed to losses of more than $430 million in the first half of this year. United Healthcare, which announced plans to leave most exchanges in 2017, reported losing $475 million last year. Humana is scaling back its participation in the face of $200 in losses.

Overall, health plans reported losses of $3 billion during the first year of exchange operations under the Affordable Care Act, and 23 nonprofit co-op plans have left the market after sustaining large losses.

So, is there hope that the exchanges will survive? For many reasons, there is.

Despite the recent withdrawals, some large insurers remain firmly committed to their Obamacare business. Cigna plans to expand its exchange presence to include more markets next year. Kaiser Permanente recently reaffirmed its commitment to the exchanges, in which it currently insures 860,000 people.

And despite the losses suffered by some insurance companies, many others are turning a profit according to a recent report by the consulting firm McKinsey & Company.

None of the national companies that are cutting back their Obamacare business have withdrawn from the exchanges completely. All are retaining a presence in a few markets, which suggests that they want to preserve the option of reentering some markets in the future.

And Aetna’s move seems to be more about litigation strategy than about market conditions. The Company’s CEO, Mark Bertolini, told the Justice Department in a letter in July that it would scale back its Obamacare business if the government filed suit to block its proposed merger with Humana. The announced exchange withdrawals followed the government’s decision to go ahead with its suit.

While Aetna may be sustaining losses on the exchanges, it is thriving on government health care programs overall. The company generated a record $6.5 billion in premiums from government programs in just the first quarter of 2016, an increase of 13% from the same period in 2015. Medicare and Medicaid business is hugely profitable for insurers overall, much of it from an increase in Medicaid managed care business that the ACA made possible. Selling insurance through government programs is clearly not the problem.

Losses sustained by some companies may actually be the result of Obamacare successes. Fewer employers than expected have dropped coverage, and many young people are remaining on their parents’ policies. This has kept many healthy people out of the exchange risk pools.

And in states that have not expanded Medicaid, some sick people who would have been covered by that program have instead entered exchange markets.

The volatility that Obamacare exchanges are experiencing was anticipated by the ACA’s drafters, who included a market stabilization mechanism in the law known as “risk corridors.” It was designed to reduce the losses of insurers with a large share of sick customers during the program’s first few years. Similar mechanisms helped to create stable insurance markets under the Medicare Advantage program and the Medicare prescription drug program. However, ACA opponents in Congress cut the funding needed for the mechanism to work.

Much of the ACA volatility could be easily fixed or greatly reduced. Congress could authorize funding for risk corridors. States could require insurers that participate in Medicaid also to offer coverage under their exchanges. And the mandate that everyone maintain coverage could be more vigorously enforced to bring more young healthy people into the risk pool.

The Obamacare exchanges are still an experiment in progress. But the concept worked in Massachusetts under a plan initiated by Governor Mitt Romney, and it is working as a private option under Medicare. Rather than jumping on every stumble as evidence of the law’s failure, politicians should be working on fixes.

In the long run, a stable market for individual health insurance that guarantees coverage for everyone will make all of us better off.

-----

Have a health care question or frustration? Share your story »

Read more of Health Cents »