When is President Obama Going to Admit Obamacare is a Colossal Failure?
Progressive supporters of health reform wanted a public plan option to compete with private insurers offering insurance in the state and federal health exchanges. To draw support from progressives, proponents of the Patient Protection and Affordable Care Act (ACA) created a type of nonprofit health insurance cooperative that would compete with established health insurers. Consumer Operated and Oriented Plans, or health insurance COOPs, as they are commonly known, were a political compromise for those who supported allowing non-seniors to buy their way into Medicare or a similar public program.
Advocates hoped COOPs would function similar to nonprofit, enrollee-owned mutual insurance companies that would put the needs of people ahead of profits. Proponents naïvely thought COOPs could outperform established, for-profit insurers and undercut their premiums. These member-led plans had little chance to succeed because their political agenda overshadowed economic considerations; COOPs had no competitive advantage and were doomed to failure.
The COOP program is plagued by numerous flaws. When COOPs were established, they had no customers and no historical actuarial data to assist in setting plan premiums. Startup funds and cash reserves were borrowed from the government, with funds allocated by the ACA. Many of their customers had gone without health insurance for years, until generous taxpayer subsidies became available to lower their premium costs.
Two-thirds of the COOPs have now failed. A University of Pennsylvania Wharton School health economics professor expects most of the remaining COOPs are likely to fail. His view is shared by many others, including members of congress. Today only eight of the original 23 health insurance COOPs are going concerns.
All told, about $2.5 billion in taxpayer funds have been squandered on loans to health insurance COOPs, three-fourths of which went to COOPs that have already failed. The likelihood of getting any of those funds back is nil. Although it varies by COOP, the losses were $100 per member per month for some plans.
Health insurance COOPs are but one example of Obamacare’s hubris. Obamacare changed the way individual health insurance is regulated. The goal was to expand coverage, make coverage more generous and remove the restrictions on applicants that insurers placed on them to avoid losses. With those restrictions gone, losses have mounted.
The non-profit Blue Cross Blue Shield Association found that Obamacare enrollees are about 22 percent more costly than people covered through employer plans. Indeed, the consulting firm McKinsey & Company found insurers lost money on individual insurance in more than 80 percent of the state marketplaces in 2014 — the first year Obamacare exchanges were open.
Health Care Service Corporation, the parent company of Blue Cross Blue Shield plans in five states, lost $767 million on individual insurance in 2014 and $1.5 billion in 2015. Another major insurer, UnitedHealthcare lost nearly half a billion dollars ($475 million) in Obamacare in 2015. The insurer’s losses are expected to nearly double to $850 million in 2016.
Why all the losses? Obamacare regulations create perverse incentives that boosted member costs by nearly 60 percent from 2013 to 2015. A working paper from the Mercatus Center estimates insurers likely lost about $400 per enrollee in 2014. Poorly conceived regulations also allowed individuals to game the system, signing up late, getting expensive care and bailing out early after care is received.
But at least Medicaid expansion is cheap. Right? No, not really. As recently as fiscal year 2011, Medicaid covered adults cost $3,247 per individual while children cost only $2,463. However, a new report from the U.S. Department of Health and Human Services found Medicaid expansion enrollees are 50 percent more expensive than originally projected. New Medicaid expansion enrollees’ costs were $6,366 in 2015.
When state regulators turned down a rate increase of 52 percent for the Blue Cross plan in New Mexico for 2017, the insurer decided to pull out of the market. The Blue Cross plan in Texas recently file requests for rate increases of up to 60 percent.
UnitedHealthcare recently announced it would stop offering coverage in 2017 in many of the exchanges where it is losing money. Taken together, these facts can only mean Obamacare is failing. It’s not just exchange plans. All individual coverage sold has to meet the same regulations.
The logical question is: how many more billions of dollars do American consumers, taxpayers and publicly traded corporations have to forfeit down a rat hole before the Obama Administration admits its signature legislation is a colossal failure?
A version of this Health Alert originally appeared in Town Hall.
Devon, you write, “Medicaid expansion enrollees’ costs were $6,366 in 2015.”
That is $25,464 a year for a family of 4 to get a Medicaid HMO. Sounds like huge corruption to me.
President Trump’s tax credits for the poor to purchase Individual Medical (IM) will help solve this problem where politicians are bribed by Medicaid HMOs for government contracts. Trump is right–the system is RIGGED!
Ron, Oddly enough, many people thought Obamacare would destroy employee health coverage by providing an alternative. That’s hasn’t happened. I talked to a reporter the other day who suggested that employee coverage is even more coveted today than before the ACA because Obamacare has destroyed the market for individual medical insurance.
Now employer-based health insurance companies can raise prices at work because the Individual Medical market is destroyed. That was the goal.
Looks like Mr .Waffles AKA Johnathan Gruber
would disagree with your assessment .
“Any objective analysis of the ACA will find that it vastly improved the lives of millions of Americans who could not previously rely on the security of employer or government-provided insurance — while leaving the vast majority of Americans able to still rely on the insurance arrangements that they enjoy. And that should be no surprise.”
Jonathan Gruber is Ford Professor of Economics at the Massachusetts Institute of Technology.
Obamacare necessarily is a bad deal for most people so a few less healthy individuals get coverage they otherwise could not afford. This transfer of wealth from healthy to less-healthy; and from insurers to policyholders has resulted in high premiums and high deductibles. Millions of insured people can expect to pay all their annual medical bills out of pocket. That doesn’t strike me as increasing the collective utility. It strikes me as taxing the majority to benefit the few.
When Single Payer healthcare takes over which was th true intent of the calamity called Obamacare – to be so disastrous that even single payer seems better than the monstrosity he had created.
Some of this disaster (not all of it) could have been avoided if the ACA planners had made the following realistic actuarial assumptionsL
1. Going to guaranteed issue would drive up insurance premiums by at least 40%. This happened at least 8 straight times when various states like NJ and NY went to guaranteed issue after 1980,
2. People who have been uninsured a long time will have higher costs for at least 4 years after they get coverage, due to unmet needs beforehand.
3. Health insurance companies need millions of dollars in reserves to stay in the business….not a piddle of loans and grants.
4. Most health insurers do not make large profits as a percentage of cash flow….so going to non-profit status will not magically produce low rates.
None of the above guides required an Einstein. Any veteran actuary could have cited them with his morning coffee.
It was pretty obvious to economists and actuaries — everyone with a lick of sense — except supporters of the ACA that the scheme was destined to fail. Prior to the ACA, the premiums for individual coverage in New York and New Jersey were something like three-to-five times the rates in Iowa.
When I retired at the end of 2011, I needed five months of COBRA coverage for my wife until she aged into Medicare. The cost was $437 per month for my employer’s self-funded community rated plan that covered its active workforce. Retirees were in a separate pool. It’s worth noting that my employer’s active workforce is approximately 80% unionized. Many of these workers work in steel mills which is often a hot, dirty and dangerous environment. Plenty of these people live less than healthy lifestyles as well. One coworker described them as part of the “shot and a beer” crowd.
Since this pool struck me as less healthy than average, I thought my wife might be able to get a better deal from Horizon Blue Cross so I suggested that she call them. Their quote for a plan that wasn’t as good as my employer’s plan: $722 per month. Guaranteed issue doesn’t come cheap. That’s for sure.
Obamacare is Obama’s signature legacy in the WH. He’ll never admit its failure, nor will most of its cowriters.
The fundamental flaw that Gruber and all the public health advocates who supported the ACA had was assuming people actually wanted health coverage badly enough to pay something for it. When I took finance in college, the professor referred to insurance as an “unsought good” because you had to convince people there was a risk they needed to pay to mitigate.
There is another fundamental flaw in the fact that businesses need to turn a profit. It amazes me that they are still insisting that it is working.
Ezekiel Emauel was on a morning show this morning stating its only been a few years and its working like it was designed. Maybe someone should show him all of the companies pulling out of the individual market.(not just the exchange, the MARKET). I’m surprised that the NCPA has not been telling people the ACA is much much worse off than people think. when United health care announced they were not going to participate in the exchange it got some press but no one explained to the public that they were pulling the plans that are off the exchange as well. Humana and Coventry have followed suit. its only a matter of time before there are no individual plans available.
That’s what happened in many of the states that implemented the regulations, guaranteed issue/community ratting, back in the 1990s.
The cheerleaders like Emmanuel and Gruber know nothing about the insurance industry, and probably assume that there is an inexhaustible number of local carriers ready to jump in as the national carriers jump ship.
Actually that has happened in some states so it is not a completely idiotic assumption….but it is starting to happen less already.
Gruber is sort of half right that the ACA has expanded Medicaid and has covered sick people, without a big income tax increase and without disrupting the employer market. This is a partial achievement.
But destroying the rest of the individual market is the big negative, that Gruber glosses over because it would make him look bad.
Devon, let me comment on one key phrase that you used in one of the above responses……….where you complained that the ACA was “taxing the majority to benefit the few…..”
Here is my comment.
If we are going to provide any form of life-saving care to our citizens, beyond what they can pay for in cash, then we are going to be taxing the majority to benefit the few.
We tax all workers to pay for all the surgeries and intensive care that are undergone by Medicare beneficiaries. We tax the majority just by using fire departments to rescue desperate homeowners, or using the Coast Guard and National Guard during floods.
What is wrong with the ACA, in one respect, is that the people being taxed to pay for the sick are the other 5-7 million persons in the individual market — who must pay higher premiums.
I would not be opposed to a high risk pool that relied on a national increase in payroll or income taxes. That would share the cost more broadly.
But the ACA drafters were not allowed to consider a broad based tax increase. Instead, the individual market was in a sense told to subsidize itself.
Devon, let me comment on one key phrase that you used in one of the above responses……….where you complained that the ACA was “taxing the majority to benefit the few…..”
Here is my comment.
If we are going to provide any form of life-saving care to our citizens, beyond what they can pay for in cash, then we are going to be taxing the majority to benefit the few.
We tax all workers to pay for all the surgeries and intensive care that are undergone by Medicare beneficiaries. We tax the majority just by using fire departments to rescue desperate homeowners, or using the Coast Guard and National Guard during floods.
What is wrong with the ACA, in one respect, is that the people being taxed to pay for the sick are the other 5-7 million persons in the individual market — who must pay higher premiums.
I would not be opposed to a high risk pool that relied on a national increase in payroll or income taxes. That would share the cost more broadly.
But the ACA drafters were not allowed to consider a broad based tax increase. Instead, the individual market was in a sense told to subsidize itself.
I would be happy if democrats admitted that PPACA had passed and is now law. They still go on talking about how the USA does not provide universal access to healthcare like those good developed countries. You have to break the law to not have health insurance in the USA today, which means that you really do not value health insurance much. BTW those without it often could get is at a subsidized cost.
Increasingly, only the poor can afford coverage that is not subsidize through a job. Moderate-income households qualify for Medicaid or exchange subsidies. The cost of individual coverage is so high compared to the benefits that middle-class families find it costs more than a mortgage.
The problem in the ACA is not just the premiums, but also the lack of subsidies.
Let me explain.
The average family premium in large corporate plans is about $18,000 or $1,500 a month.
I sell ACA insurance, and the average premium for comparable non-corporate plans is $1,200 to $1,400 a month
The corporate plans roll on and on, with very few employers dropping out.
Yet a cheaper policy is judged a big waste of money by Devon and many others.
The difference is that the self-employed person has to pay the whole premium themselves! Then they have to judge its value. A corporate employee just accepts what they are given, and why not?
The bottom line is that comprehensive insurance policies are not affordable without subsidies. Corporate employees get subsidies, and lower income persons on the ACA get subsidies.
The one group that gets no subsidies is enraged, and who can blame them?
The flat tax credits proposed by some Republicans would perhaps make a dent on this problem. Another dent would be make by extending the current subsidies to everyone at any income, as the Urban Institute has proposed.
If ACA premiums were capped at 9.5% of income with no income ceiling, subsidies would phase out for family coverage costing $1,400 per month at a MAGI of $176,842 per year or roundly 750% of the FPL as compared to 400% of the FPL under current law. I think that’s reasonable and wouldn’t add that much to federal spending in the scheme of things.
If federal taxes went up a bit to cover this and to address the federal deficit, it wouldn’t be the end of the world.
Barry, I have an appointment in 20 minutes with a TEXAS school teacher and it is $1,100 a month to add her husband and child to the school’s health insurance. My cost for STM is less than $300 a month for them.
Her family gets no subsidy from the employer or from Obamacare.
She should let me insure them and save enough money to purchase 4 new cars.
Of course this option will soon be gone in the land of the FREE and not one non-taxed think tank will say a word during the 60 day comment period.
TRUMP is right – the system is RIGGED!
I cannot speak as to its long terms fiscal sustainability; however, as someone who tracks advertising and is monitoring the healthcare insurance industry’s reaction to ACA I can tell you that the insurers themselves, with a few exceptions, have either embraced it or accepted it as a fait accompli.