Obamacare markets face fresh troubles
US president’s signature healthcare reform is showing signs of strain
From Donald Trump to Ted Cruz to Marco Rubio, the Republican presidential contenders are united in wanting to tear down President Barack Obama’s signature healthcare reforms. But if some diagnoses are right, they may not need to, because a key part of Mr Obama’s legacy is in danger of unravelling on its own.
At the heart of the new Obamacare insurance system were government-backed online shopping centres, or exchanges, set up to help consumers secure low-cost private insurance, often for the first time. But doubts are growing about the exchanges’ viability.
Mr Obama has been a passionate champion of their role in helping 17m previously uninsured Americans secure health coverage. Fortunately for him, memories have faded of the botched 2013 launch in which the healthcare.gov website that led to the marketplaces malfunctioned disastrously.
But according to health insurance practitioners and former policymakers, Obamacare is facing a fresh round of more fundamental troubles that lie with the insurance markets themselves.
“It’s a thrown-together system that is showing some signs of failing,” says Joe Minarik, a senior economist in President Bill Clinton’s White House and who is at the Committee for Economic Development, a business-led think-tank.
At issue is the balance that insurers need to make their businesses work between healthy customers and those making claims. The Obamacare formula was that first-time customers on the exchanges would draw in the insurers, and competition among insurers would push down premium rates for customers.
But the worry today is that Obamacare has a potentially unsustainable mix of too many sick people and too few affordable healthcare plans.
UnitedHealth, the US’s biggest private insurer, lost $720m on the government-backed exchanges last year and is debating whether to abandon them entirely. Other insurers have increased premiums while complaining clients are less healthy than expected. And in a blow to hopes for more competition, 11 of 23 new insurance start-ups fostered by the reform legislation have failed.
Nick Gerhart, Iowa’s insurance commissioner, became the first person to shut down one of the start-ups as it spiralled into a cash flow crisis on Christmas Eve 2014. “The real issue is: are the premium rates that have increased on the health plans attributable to pent-up demand, or is it just a more chronic pool of folk?” he says. “I don’t know if we have that answer yet.”
It’s a thrown-together system that is showing some signs of failing
In the cut and thrust of the campaign, the presidential candidates have breezed past such complex questions. The Republicans say Mr Obama’s overhaul is simply proof of the harmful mess that big government programmes create. They want to replace it with market-based solutions, although Mr Trump, the frontrunner, is an outlier who says public funding should play an important role.
On the Democratic side, Bernie Sanders, the leftwing senator, advocates banishing private insurers and creating a universal healthcare system funded by taxpayers. Hillary Clinton, her party’s frontrunner, is the biggest supporter of Obamacare but says more must be done to reduce the costs of treatment and drugs that consumers end up paying themselves.
Ron Williams, who was chief executive of the big health insurer Aetna until 2010, says he has not heard any substantive policy discussions among the candidates. “I seriously doubt that the campaign arena is going to produce anything meaningful.”
Kay Hagan, a former Democratic senator who lost her North Carolina seat in 2014 to an opponent who attacked her for supporting Obamacare, says: “What you’re bumping up against is the fact the Republicans just want to repeal healthcare reform. It’s hard to … really have a substantive debate if there’s no common ground as to what we need to do to make it better.”
On the exchanges, healthcare experts say two weaknesses in particular are beginning to show through. The first is size. They are divided up by state and some states have such small populations — less than 600,000 people, for example, live in Wyoming — that they are not necessarily attractive to insurers, says Mr Minarik.
The second weakness is a set of generous rules that let people sign up for insurance the moment they need treatment rather than in advance. This has wreaked havoc with insurers that find themselves with too many customers making claims.
Mr Williams supports the goal of broadening access to health insurance but says: “What we are seeing the federal government struggle with is finding the right balance between the solvency of insurers and protecting consumers.”
The Obama administration has acknowledged concerns about the viability of the exchanges. Andy Slavitt, who oversees them as acting head of the Centers for Medicaid & Medicare Services, said this month he was seeking to create more stable and balanced “risk pools” on them. He announced steps that included tightening enrolment rules and improving the redistribution of funds to insurers taking higher risks from those that were more cautious.
Some 32m Americans were still uninsured in 2015, according to the Kaiser Family Foundation, but Mr Slavitt said more healthy consumers under the age of 35 were being pushed into the market by the threat of a tax penalty.
It was too late for Jerry Burgess, head of a start-up insurer called Consumers’ Choice health plan in South Carolina, which last October become one of the latest to be closed by regulators.
He blames Republicans in Congress — including Mr Rubio, the Florida senator — for killing his business by blocking government payments intended to help new insurers in 2014.
But he also disputes Mrs Clinton’s complaint that insurers ask their customers to contribute too much. Giving people “skin in the game”, he argues, encourages judicious healthcare choices. “To tell you the truth,” Mr Burgess says, “I’m sort of tired of both parties.”
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