Last week, President-elect Donald J. Trump called Obamacare “a complete and total disaster,” and pushed for a swift repeal of the Affordable Care Act and a replacement within weeks. But at the moment, there is no workable replacement. So what happens to the individual insurance market — whose problems did not start with the Affordable Care Act and will not be easily solved — when it is destabilized so dramatically?
From my point of view as a former health insurance company chief executive, “total disaster” would also describe any Republican repeal-and-delay plan. Although my former colleagues in the insurance industry are too cowed by the president-elect to say so, Republican insistence on repeal without having a meaningful replacement at the same time will drive most insurers out of the individual market and leave the 10 percent of Americans now covered by some aspect of the A.C.A. without coverage — especially if Medicaid expansion is rolled back as well.
The proportion of uninsured Americans, which has dropped to less than 9 percent, the lowest on record, will at least double. By April, when filings from insurance company plans and premiums for 2018 are due, there will be a sizable exit — of insurers running away from the greatly increased and unpredictable risk and of individuals not able to afford insurance without the subsidies.
Of course, the A.C.A. has a number of flaws, and repair is critical. But delay is not an option if the replacers really want to use private insurers to meet society’s goals of access, affordability and quality in health care. All known Republican alternatives envision heavy reliance on the same insurers that are now ready to bolt and leave a total mess rather than a defective but repairable market.
After they leave, the damage will spread to doctors and hospitals, whose bad debt will skyrocket when patients miss copays and drop coverage while providers and hospitals still must continue care.
This is not speculation but based on my experience in the industry and as a member of the board of a public hospital that stands to lose substantial Medicaid payments if the state expansions are rolled back.
Let’s go back for a moment to pre-Obamacare days. Why did insurers refuse to cover individuals with pre-existing conditions, cancel policies if customers used them too much, set high premiums for women and old people, and so forth? These tools were the only way to limit risk when insurers didn’t have a ready-made pool of sufficient size to balance the sick and well as employer-sponsored plans do.
Refusing coverage and the like was good business, but it did not serve small businesses, the self-employed or other people unable to get the insurance they wanted. The Obamacare exchanges tried to fix this by requiring everyone to join the pool, providing premium and cost-sharing subsidies geared to income (the “affordable” in the law’s name) and limiting risk to insurers to entice them to offer policies.
It’s a tricky business to fine-tune a market and encourage buyers and sellers to do the right thing — both providing access to individuals in need and encouraging enough insurers to join to make competition work. But George W. Bush, with some bipartisan support, did it not so long ago with the Medicare drug plans.
But unfortunately, the A.C.A. law created by Democrats in Congress had several big flaws. Pricing restrictions — which essentially mandated that insurers overcharge younger customers relative to older ones — created the wrong incentives, and so too many older, sicker individuals joined, and younger, healthy people were discouraged.
This was compounded by a Republican Congress that reneged on its promise to help insurers in the first years of the program by limiting risk. Congress allowed only 12 percent of the backup that was promised to companies when they set their premiums on the Obamacare exchanges. This ramped up their risk dramatically.
If you’re wondering why insurers substantially increased premiums for this year, even far beyond the underlying health care inflation rate — now at around 4 percent — this shell game with risk is your answer.
Ultimately, if the risk is too high, exit is inevitable. That is what my top-rated plan, Qualchoice, did in Ohio in the late 1990s to stem multimillion-dollar losses from its participation in the Medicaid Advantage managed care program. It’s also what United Healthcare did and most others will do this spring when faced with the uncertainty of delay.
Finally, none of the participants, in government or business, want to recognize that in many parts of the country, only one insurer or a highly consolidated health system dominates, which eliminates meaningful competition and choice.
Since 2010, Republicans have made political hay by demonizing the mandate to buy insurance, subsidies to make it affordable and taxes on employers, suppliers, insurers and especially the wealthy to finance it. But now they own the problem and must fix it or do something better.
Obamacare, or any plan that replaces it that is reliant on private insurers and individual enrollment, will succeed only under the following conditions: a meaningful incentive to purchase insurance (the individual mandate or equivalent); help to make it affordable; risk reduction for insurers to stabilize premiums; and enough funding to pay for it all.
If any replacement plan doesn’t include these elements, private insurance will revert to the chaos of the pre-A.C.A. market. In business, managing risk is important; in insurance, it is everything. Whoever plays games with it — knowingly or inadvertently — is playing with fire.
If we manage this risk badly through repeal and delay, the damage to insurers, individuals, hospitals and professionals will be profound.