THE PUBLIC OPTION REARS ITS HEAD
It’s been a bad year for Obamacare. James Capretta at NRO cites the following news items from the spring and summer:
Aetna announced that it is pulling out of eleven of the 15 states where it currently sells products on the ACA’s exchanges because of continued large financial losses from these products. The company has lost $430 million since January 2014 on insurance plans sold through Obamacare, with more losses coming through the remainder of this year.Other major national insurers have also pulled back substantially from their participation in the ACA. United Healthcare has lost $1.3 billion so far on the exchanges and will reduce its participation in the program from 34 states to just three in 2017. Humana is reducing its participation in the program from 19 to eleven states.Blue Cross Blue Shield of Tennessee estimates that it will have lost $500 million on the state’s exchange by the end of 2016. The insurer asked and received permission from the state’s insurance regulator to hike premiums 62 percent for 2017. The other major insurers in the state — Cigna and Humana — have received permission to raise premiums by 46 and 44 percent, respectively.
Texas Blue Cross has lost $1 billion on the ACA exchange in two years, and has asked for a 60 percent premium increase for 2017.Blue Cross and Blue Shield of Minnesota has largely pulled out of the insurance exchange for 2017 because of $500 million in losses during the first three years. The Blues plan in North Carolina has lost $400 million on the ACA exchange and is currently evaluating whether to continue participating in the program in 2017 and beyond.The average premium increase nationwide for plans offered on the ACA exchanges is 24 percent for 2017. In California, where premium growth for insurance plans offered on the state’s exchange was relatively modest in 2015 and 2016, the average increase for 2017 will be 13 percent.The consulting firm McKinsey estimates that between 12 and 17 percent of exchange customers will be picking from plans offered by only one insurer in 2017.
It’s true that some plans are doing okay. However, as Capretta explains, as the big national insurers pull back from participating in the exchanges, their high-expense enrollees will have to go somewhere to get coverage.
Most likely that means enrolling in plans that, so far at least, haven’t experienced large losses. With more high-cost enrollees shifting their way, their profits may well vanish.
Even strong defenders of Obamacare see the difficulties. In response, says Capretta, they are offering a three-part plan:
First, they are calling for a concerted marketing campaign aimed at persuading the young and healthy to sign up for coverage on the exchanges. Second, they propose deducting student-loan payments from the income calculation used to determine the subsidy amounts available to insurance enrollees. This would presumably benefit mainly younger applicants. Third, and most significantly, they want to resurrect the idea of a “public option” competing alongside the private plans.
The first two approaches hold little promise. Insurance offerings on the exchanges just aren’t very appealing to large numbers of the young and healthy. The government can’t substantially change this reality.
What about the public option? It certainly gets around some of the problems of the exchanges. Capretta explains:
Unlike a private-insurance plan, there’s no particular reason why a publicly run product couldn’t experience ongoing losses, so long as the law provided for direct or indirect taxpayer subsidization. The Medicare program itself is funded heavily by taxpayer subsidies.The most consequential difference between public and private insurance is the ability to regulate prices. Private insurers must negotiate contracts with their networks of hospitals and physicians. Public insurance, like Medicare, is in the business of regulating prices, not negotiating them. Medicare, for instance, sets regulated prices for the services it covers on a take-it-or-leave-it basis. Because Medicare is so important to the bottom lines of many providers, they have no choice but to take what Medicare pays, even though it is usually well below what private insurers pay for the same services.
However, government-imposed price controls means a reduction in the number of those willing to supply the service at the regulated price. We see this with Medicaid where, says Capretta, enrollees often have much more trouble accessing care than do patients with private insurance.
The upshot is that the public option will attract plenty of enrollees given its lower premiums. However, they will get inferior health care.
In theory, it makes sense to offer people this trade-off. The problem is that the public option will further undermine the exchanges. It may become the only realistic option.
This, Capretta points out, has been the left’s goal all along. President Obama has always favored public over private insurance, as do most of those who supported the legislation. The only reason they didn’t include a public option in Obamacare was because a sufficient minority of Democrats in Congress feared the idea would sink the entire bill.
Now that reality seems to be sinking Obamacare, the stage is set for Democrats to push for the public option.
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