ObamaCare – The November Surprise

This is the time in every election cycle when the pundits begin drilling down on what possible “October surprises” might be lurking just around the corner to upend either of the presidential contenders. This year, will it be provocateur Julian Assange releasing embarrassing emails linking Hillary and the Clinton Foundation to some pay-to-play scandal?…or, maybe, some revelation that when Donald Trump files his tax return he doesn’t return any taxes with his return?

Actually, we’re not that focused on any anticipated October surprises this year. We’re, instead, rather intrigued by a probable November surprise. This won’t be a surprise sprung on the body politic by political dirty-trick operatives, but rather a surprise triggered by a provision embedded like a virus in the Affordable Care Act, aka, ObamaCare. You see, the open enrollment period for ObamaCare begins November 1, and that’s when most people will learn what their premium rates will be for the coming year. This year Election Day is November 8^th, and we suspect that millions of voters are going to suffer some sticker shock just before they go to the polls.

ObamaCare might be the real November surprise. That’s because, until now, insurance premiums have been held in check by three provisions of ObamaCare, two of which expire just before Election Day. These three provisions are: (1) Reinsurance – that safeguards insurance companies from the impact of insuring individuals with inordinately high medical expenses (high-risk individuals). Insurance companies were to be reimbursed a substantial portion of the costs of insuring policy holders whose medical expenses were inordinately high; (2) Risk Corridors – which requires profitable insurance companies to share a portion of their profits with insurance companies that realize losses on the policy holders they insure and, finally (3) Risk Adjustment – which assures that insurance plans serving a population with lower than average actuarial risk, makes payments to those plans that have higher than average risks. Two of these three risk-mitigation plans (reinsurance and risk corridors) expired this year, so premiums going forward must now be calculated without these artificial protections.

Many companies have already applied in the states where they do business for approval of their new rates for 2017 and, well, the party’s over. California is a good example. For the past two years Californians enrolled in ObamaCare policies boasted that the ObamaCare premiums were very modest, increasing only about four percent a year. Not anymore. Californians’ ObamaCare health coverage policies are now scheduled to rise by an average of 13.2% next year — more than three times the increase of the last two years, or well over 20% for the three years. There really is no free lunch and not very many bargain lunches either.

Blue Shield of California and Anthem Inc. will both get large increases next year — more than 19%, for Blue Shield and 16% for Anthem. Los Angeles and the rest of southwest Los Angeles County will see an average increase of almost 14%. A Blue Shield spokeswoman said Blue Shield’s average 19.9% premium increase was driven by the phase-out of the federal mechanisms that had kept rates down. Fortunately, 90% of Californians getting insurance through the exchange will have their premiums largely offset by taxpayer-provided premium subsidies.

Frankly, we don’t know why anyone should be surprised by the sticker shock they are experiencing or are about to experience. It was always clear, as we wrote in these essays, that a program mandated to take all comers, healthy or infirm, and to make no distinction in the cost of risk, would become burdened with sicker policy holders than actuarially sound underwriting would dictate We believed, as did any sensible observer, that such a program would require substantial subsidies, and that when many of the subsidies were substantially lifted, many of the premiums would substantially increase.

According to rating agency, A.M. Best, Blue Cross and Blue Shield plans, which dominate many state exchanges, saw profits plunge by 75 percent between 2013 and 2015. Health Care Service Corp (HCSC), which operates Blue plans in five states, dropped out of New Mexico’s exchange this year after regulators refused to approve rate adjustments the company felt were justified. In Texas, Illinois and two other states where HCSC does business, medical costs for individual customers exceeded premiums by more than $1.3 billion last year. Just over half of the 23 nonprofit startups financed with Obamacare loans have folded. The 11 surviving plans continue to struggle, losing more than $400 million last year. Even Oscar, the much vaunted, tech-savvy health-care startup financed with billions in venture capital dollars, is sputtering. Medical costs for Oscar’s individual customers in New York, outstripped premiums by nearly 50 percent last year.

In many places, the situation is getting worse, because younger, often healthier people who would keep costs down are just not signing up In spite of all the hype only 12.7 million Americans signed up for Obamacare plans during the last open enrollment period. That’s far below the 22 million projected by the Congressional Budget Office, and it’s certain to decline because of rate hikes.

“The pool is far less healthy than we forecast,” said Brad Wilson, CEO of Blue Cross Blue Shield of North Carolina, which says it lost $400 million on its exchange business during the first two years and is weighing whether to compete for ObamaCare customers in 2017. “That’s an issue not just here in North Carolina, but all over. … We need more healthy people in the pool.”  The largest U.S. insurer, UnitedHealth, said  it would no longer sell exchange plans in New Jersey in 2017. It has now withdrawn from 27 states. Last year, UnitedHealth lost about $475 million on the exchanges; and this year it expects to lose $500 million.

Health insurance companies lost as much as 11% on their exchange plans last year. That’s more than double the amount they lost during the exchanges first year. So, no surprise—insurers are exiting the market. UnitedHealth is down to three states. Humana abandoned several markets after earnings dropped 46%. Premera Blue Cross is leaving Oregon and twelve counties in Washington State. Thirteen of ObamaCare’s 23 state-sponsored CO-OP health plans have failed, requiring three quarters of a million people to scramble to find new coveage.

Policyholders in Alabama and Alaska had access to at least seven insurers before ObamaCare. Now that’s down to one and the same pattern is emerging in many parts of Arizona, Kentucky, Mississippi, Oklahoma, and Tennessee. Insurers remaining on the exchanges are asking for double-digit premium hikes. UnitedHealth wants to raise premiums 45.6% for exchange clients in New York, where the average rate-hike request is about 20%. In Detroit, Humana is asking for a 50% premium increase for its “low-cost” silver plan.

The list goes on.  Double-digit premium increases in Oregon have become the norm. Humana is seeking an average hike of 65.2% in Georgia. If Highmark’s rates are approved in Pennsylvania, its customers will pay nearly 40% more.

And because insurers are losing so much money on the exchanges, state regulators will probably have to approve these rate hikes, or these insurers may also leave. Many supporters of ObamaCare simply shrug their shoulders. As a spokesperson for the Department of Health and Human Services said the final rates are “not a reliable indicator,” since Obamacare’s subsidies obscure the actual cost of a plan for many consumers. What ever happened to the assurance President Obama gave to the American people that rates would substantially decline during his first term in office?

Today, one in two disapproves  of the law. More than half of Americans rate the coverage they’ve gotten through ObamaCare as only “fair” or “poor.”

The risk corridor was designed as a method of risk-pooling for insurance companies to entice them to join ObamaCare’s marketplace exchanges in order to create a competitive marketplace where consumers would have ample choices. Remember, the basic idea of the risk corridor was that overly profitable insurers would put their “excess profits” into a fund that would, in turn, pay out funds to insurers that were losing excessive amounts of money. Insurers wound up applying for $2.87 billion due to excessive losses, but wound up receiving just 12.6% of what they requested. There just were not many companies with such excess profits.

Small wonder more than half of ObamaCare’s healthcare co-ops had closed as 2016 began. Twenty-three co-ops that were designed to be a low-cost alternative to national providers closed. Recently, three more healthcare co-ops — Healthy CT in Connecticut, Land of Lincoln Health in Illinois, and Oregon Health Co-Op — announced that they were also shuttering their doors. Sixteen of Obamacare’s 23 alternative health-plan options have now shut down, costing taxpayers more than $1.7 billion, and causing more than 800,000 people to look for a new health plan in the coming months.

What is, to us, the most aggravating aspect of this experience isn’t the difficulty in establishing such a transformative program, but, rather, the calculated misrepresentations that were made to “sell” the program to the American people. The people were never going to be able to keep their plan if they liked it, or keep their doctor if they liked him or her, or, perhaps most disingenuous, save $2400 in premiums during the President’s first term in office.

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