by Doug Badger | National Review Online
Andy Slavitt will step down as the government official overseeing Obamacare on January 20. He should be charged with leaving the scene of an accident.
Obamacare’s individual markets are a twisted wreckage. Insurers are fleeing them, consumers are shunning them, and Democrats are looking for someone to blame.
They’ve found their culprit in Donald J. Trump.
To hear Obamacare enthusiasts tell it, the exchanges were and are vibrant marketplaces where young and old, healthy and infirm, rich and poor find affordable coverage that meets their needs. Then voters went off their meds and elected Mr. Trump. His pledge to repeal and replace the law threatens to kill these thriving enterprises in their prime.
Even ACA critic Robert Laszewski appears to be peddling that line. Speaking on behalf of his insurance-industry clients in a Vox interview last week, Laszewski said that if Congress and the new administration were to pursue plans to repeal and replace the law, “the Trump administration will have put it in a death spiral.”
Laszewski is wrong. Obamacare already is in a death spiral that is fast approaching its terminal point.
That is because, despite billions in individual and corporate subsidies, insurers are bleeding money. CMS quantified insurers’ 2015 losses in its recent report on “risk corridors.” The risk-corridor program transfers “excess gains” made by some insurers that market Obamacare policies to their competitors who suffer “excess losses.” CMS data showed that insurers’ losses in the individual market eclipsed gains by $5.2 billion in 2015, more than twice the 2014 deficit of $2.2 billion. Losers outnumbered winners by more than five to one. In California’s individual market, touted as an Obamacare success story, excess losses outpaced excess gains by a ratio of 282 to 1.
And 2015 will be remembered as Obamacare’s good old days. Since then, four of the country’s five largest insurers — Aetna, Humana, Cigna and UnitedHealthcare — have all but abandoned the exchanges. The fifth, Anthem, saw its stock price spike upwards last month minutes after its CEO told investors that his company might pull out in 2018.
Blue Cross plans in several states have bolted the market, and most of those that remain have substantially increased their premiums. Blue Cross of Texas, after reporting nearly $884 million in excess losses in 2014 and 2015 and threatening to leave the exchange in 2017, agreed to stay only after it coaxed regulators into approving a rate increase of 44 to 48 percent.
The insurer exodus has left more than one in five Americans with an exchange in which only one company participates. The consequences of dumping all the bad risks onto a single insurer are entirely predictable — that insurer will drop out of the market, leaving no insurers in the exchange.
The program’s death spiral is irreversible. The presumption, which seemed sensible enough, was that subsidies would prevent the program’s collapse. Obamacare exchanges would be the walking dead, sustained by an intravenous drip of government cash. But in order for subsidies to work, there has to be a product to subsidize. Without insurers, there is no insurance market.
In order for subsidies to work, there has to be a product to subsidize. Without insurers, there is no insurance market.
Laszewski’s Vox interview suggests that industry executives are blaming this death spiral on Trump’s plan to repeal and replace it. If so, it is a false narrative. Hillary Clinton’s election would not have forestalled Obamacare’s collapse. She would have used the crisis as a pretext for making government-run health plans available in the exchanges. Trump’s election offers an opportunity to move instead toward market-based solutions.
The industry can play a constructive role in that process. It should begin by stating publicly that the program as we know it is dead, and that GOP plans to repeal and replace it didn’t kill it. Industry executives should also announce their support for Obamacare repeal and commit to working with the new administration and congressional leaders on a replacement bill.
Such legislation should draw on the lessons learned from Obamacare. Its collapse has laid waste to a central assumption of health-policy experts: that a combination of subsidies and penalties could create a viable individual market even within a regulatory framework that attenuated the relationship between premiums and risk.
Obamacare has dealt a blow to those theories, to which I once subscribed. Demand for health insurance simply is not as great as many of us thought, and consumers are shrewder than we’d imagined. Millions of healthy people realized almost immediately that the law’s prohibition of medical underwriting, coupled with a requirement that insurers cover pre-existing conditions of new enrollees, made it a no-brainer to delay purchasing health insurance until they require medical care. Tax penalties couldn’t bully them into buying a product they neither want nor feel they need.
The program has consequently become a money pit that subsidizes coverage of the near-poor and those who require expensive medical care.
Obamacare’s failure should puncture our Washington-knows-best conceit. It is sobering to reflect on how successive federal incursions into health-insurance regulation (ERISA, HIPAA, ACA) have inflicted near-term damage and introduced longer-term distortions into health-insurance markets.
Those markets are local, not national, and states are better positioned than is Washington to regulate them. In addition to devolving regulatory authority to the states, federal policymakers should consider providing them with resources to reform markets and subsidize coverage. Instead of writing suffocating rules and enlisting the Internal Revenue Service to distribute subsidies and exact penalties, the federal government should set states free to innovate and hold them accountable for results.
And while they’re at it, they might also think about ceding to states more control over the program of federal–state arbitrage known as Medicaid. That program has plumbed new levels of dysfunctionality, as Washington imposes ever more onerous regulations on states, which devise new schemes to fleece their federal overlords. Congress can end this mutually destructive dynamic by providing states with capped allotments, along with authority to restructure the program in ways that are fairer to taxpayers and more responsive to consumers.
Obamacare as we know it is dead. Donald Trump didn’t kill it. Its failure is a teachable moment for policy experts, affording them a rare second chance at health-care reform.
— Doug Badger is a former White House and U.S. Senate policy adviser and currently a senior fellow at the Galen Institute.