There are two things that health insurance companies hate to do the most – take risks and pay claims. Unfortunately, these are the only things their business revolve around which.
Nevertheless, focusing too much on either will make them broke, and less will make the customers find a better policy. The balancing isn’t that tough given that the company has a pool enough to cope with difficult situations. A former CEO of one of these firms was found revealing all the nitty-gritty of the health insurance industry.
Employee-sponsored health insurance plans have always proved to be a good suit, offering good stability, and reasonable predictability. However, individual health insurance plans have never worked well.
The existing model has always forced insurers to assume fewer risks so that they can profit. They used to do this via excluding pre-existing conditions and mitigating claims. Such a market has always abused individual policy buyers. They paid a lot more than those in an employee-sponsored plan for the same coverage.
Obamacare (the Affordable Care Act) changed everything. All the health insurance companies had to do away with the evil practices. In exchange for assuming more risk from unhealthy clients, they were going to get more business and more potential clients.
Under the Affordable Care Act, the federal government offers subsidies to individuals with low-income levels. Obamacare also makes it mandatory to get health insurance, failing to which results in penalty. The law, in a way, guaranteed business for the insurance companies since it led the healthy folks into the risk pool.
To entice the providers, Obamacare offered genuine plans to reduce risks. For instance, if offered protections for carriers who enrolled sick people. It offered backup support for not-notch cases, protection against huge losses, and limited big gains in the first three years.
The program worked well when it started under the rule of President Bush in 2016. Competition was huge, rates were far below than the estimated ones, and enrollees were satisfied.
But when it was time to pay up to reduce risks in the Obamacare exchanges, Congress welshed on and paid only 12% of what was actually owed. Consequences were havoc for the companies. They had to bear the risk of unknown costs and utilization during the beginning years. They also had to take in the legislative uncertainty of whether the rules would be rewritten.
As a result, they drastically increase premiums in 2016 – averaging 20%, to mitigate the additional risks they had to bear. While in contrast, underlying health costs are rising at about 5%.
Repeal and replace is naive
Now he talks about the bankability of the ‘repeal and replace’ initiative from the Trump camp. If the market was uncertain before the ACA, it will remain so even if a replacement takes place.
Hence, a few latecomers namely United Healthcare and undercapitalized minor entrants who opted out initially are definitely going to become a flood of firms leaving the exchanges. They seem to have no choice left because of the high risks and the actuary rates are still not obvious given the political turmoil and changing rules.
Few in Congress are in favor of passing the repeal now and delaying the implementation by a couple of years. They think that will leave everything as it is now. However, this naive notion misses that very fact that the riskiness of the Obamacare individual insurance exchange markets will have been ramped up to such a level that continuing makes no sense.
Even if a company reaches the break-even point during the time of the implementation, it will lose when the repeal is effective. If the subsidies now available to lower income bracket people and the mandatory health insurance rule vanish all of a sudden, individual policies on the exchanges will drop beyond imagination.
When there are exorbitant risks, just exist
It’s easy to leave when everything goes gloomy. The health plan that the CEO was overseeing, though best-rated by JD Powers, was facing heavy losses when he took over. They withdrew from many counties with heavy losses as part of the change. Something similar is going to be the case in the ACA exchanges.
It’s not difficult to predict that the induced uncertainty from Congress is going to kill the exchanges even if it takes time for the implementation of the repeal. Consequently, the beneficiaries from coverages and subsidies will lose out. Either, they won’t be able to avail coverage because of pre-existing conditions, or they won’t be able to afford the higher premiums.
And once they leave the market, the political and economic price of the same will be havoc as long as patient access, provider uncompensated care costs, and jobs in the sector are concerned. It’s very hard to predict the losses clearly, but they would surely be in billions of dollars. Besides, millions could lose health coverage.
What options do those have who hate Obamacare? All the solutions suggest to rely on private insurance, and to reduce the risk factors for them. However, we are exactly doing the opposite now. If we want them to continue the good works under Obamacare, we need to make things clear and certain. We need to reaffirm the mechanisms designed to reduce risk and a stable set of operating arrangements as core principles of all repeal efforts.