Obamacare Doomed As Insurers Lose $2 Billion On Plans In 2016 (Prompting 2017 Rates To Soar)

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Tyler Durden:

The typical rosy Democrat narrative on Obamacare highlights the decline in uninsured Americans as evidence of its great “success” while conveniently ignoring the fact that most of the “newly insured” are actually coming from the expansion of Medicaid.  The fact is that Obamacare is a debacle and is on the verge of collapse (see our previous post “Obamacare On “Verge Of Collapse” As Premiums Set To Soar Again In 2017“).

Our reasoning is quite simple and is the same reason Obamacare was doomed from the start.  As we’ve pointed out numerous times in the past, the true downfall of Obamacare will be in its inherent “adverse selection bias.”  “Sicker/older” people have every incentive to enroll while “younger/healthier” people, the ones that were supposed to subsidize everyone else by buying policies they didn’t need, are choosing to simply pay their penalties instead. So what you’re left with is a pool of “sicker/older” people who consume a massive amount of healthcare but whom don’t pay “their fair share” because Obamacare specifically caps the rates that can be charged to the “sicker/older” people at 3x the rates charged to “younger/healthier” people (who cares if they consume 20x more healthcare…3x just sounded about right). 

And as a recent article from Bloomberg confirms, the negative impacts of “adverse selection bias” are playing out in insurers’ financials.  Per Bloomberg, the major U.S. insurers are set to lose roughly $2BN on Obamacare in 2016.  UnitedHealth has announced they lost $850mm on Obamacare in 2016 while Aetna, Anthem and Humana are expected to lose about $300mm each.

Obamacare advocates had hoped that big government subsidies to consumers would persuade healthy people to sign up for the ACA plans. But the policies have largely been taken out by older, less healthy people who are more expensive to insure.What we are left with … is a highly subsidized program for relatively low-income people,” says Dan Mendelson, the CEO of consulting firm Avalere Health. “We’re not getting to the broader vision of a robust private market structure that enables a broad swath of Americans to purchase their insurance.

In the end, the fate of Obamacare boils down to simple math.  Each person that signs up for insurance has some expected present value of future healthcare consumption…believe it or not the insurers are pretty good at calculating these values.  Insurers agree to post significant sums of capital to underwrite those future healthcare costs but expect a return on that capital.  Now, in theory, the insurers don’t really care whether premium dollars come from the “sicker/older” people or the “younger/healthier” people so long as the aggregate dollars collected meet their minimum return on invested capital thresholds.  That said, with rates capped on “sicker/older” people and the absence of “younger/healthier” people signing up, there simply aren’t enough dollars in aggregate being collected to provide that return to insurers.

So, insurers are left with 2 options: (1) pull out of Obamacare or (2) implement massive premium hikes.  Well, turns out they’re actually doing both.

Per Bloomberg, UnitedHealth has announced plans to exit 31 of the 34 states where it currently offers ACA policies, Aetna is dropping 11 out of 15 states and Humana is reducing it’s offerings to just 156 counties down from 1,351 a year ago.  Meanwhile, insurers are also hiking premiums by 24%, on average, for the remaining states in 2017 (see our previous post: “Obamacare Sticker Shock: Average 2017 Premium Surges 24%“).   Despite Obama’s promise that Obamacare would increase options and lower costs, it is, in practice, doing the exact opposite as Cynthia Cox of the Kaiser Family Foundation points out that “as many as a quarter of all U.S. counties, mainly in rural areas, are at risk of having just a single insurer for next year.

On Aug. 15, Aetna said it will stop selling Obamacare plans in 11 of the 15 states where it had participated in the program, reversing its plan to expand into five new state exchanges in 2017. “The exchanges are a mess as they exist today,” says Aetna Chief Executive Officer Mark Bertolini. “They’re losing a lot of money for a lot of people.

Actually, there was also a 3rd option proposed by insurers to cut ACA losses.  Insurers also attempted mergers as a way to reduce costs and alleviate some of the profitability pressures inflicted by Obamacare but Obama’s Justice Department isn’t too keen on the idea.  Per Bloomberg:

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Aetna is trying to buy Humana; however the FTC has blocked the deal. Now Aetna threaten to cut dramatically idiot care coverage. So Aetna and Humana are both cutting coverage but the blackmail card iin the deal is that Aetna will reduce coverage-sweet. need to read this past weeks WSJ to see the blackmail.

All is progressing as was forseen.

The leftist clamoring for the government to take over healthcare is going to become louder and more obnoxious, with willful blindness to the fact that government meddling is causing significantly higher increases than were happening before the deceitful obamacare was crammed down the nation’s throat by a party-line vote using dubious legislative “reconciliation” tricks. Despite the fact that everything Obama and the left lied about – that it wasn’t a tax (until arguing its constitutionality by calling it a tax), keeping your doctor and your plan if you liked them, cutting the average cost for annual premiums for a family of 4 by $2500, bending the cost curve down, that only states that set up their own obamacare exchanges would get federal subsidies, that abortion would not be covered, and that illegals would not be covered, along with everything else – the left would have us believe that the collosal failure of this national socialist healthcare powergrab somehow proves we should double down on such gross incompetence by fully nationalising medicine.

We can all look forward to the same political bullying we saw from the IRS against conservative nonprofits, complete with more destruction of hard drives, as well as the corruption and poor service exhibited by the VA.

And when the government achieves the ignominious goal of taking over medicine, there will be a ramp up of media stories about how US doctors are “overpaid”, along with a bureaucratically imposed enslavement of physicians in service to the “right” of medical care for whatever government set compensation rates politicians deem “fair”.

The impact of such leftist tyranny over medical care can be seen – for those not willfully blind – in the ongoing government-induced crisis in Venezuela.

Looks like we ran out of other peoples money!