Critics of Obamacare, President’s Obama’s signature health-reform law, have sounded all kinds of exaggerated alarms over damage the program might cause. But one worrisome prediction may be coming true, in some places: the descent into an economic spiral that could render the program unviable.
Higher-than-expected costs have led several insurers such as Aetna (AET), UnitedHealth (UNH) and Humana (HUM) to pull out of marketplaces established under the Affordable Care Act, while others have scaled back coverage. That’s leaving more markets with just one or two insurers offering plans under the ACA—the point at which competition peters out and the cost of premiums potentially soars. Since Obamacare relies mostly on competition to keep costs manageable, a withdrawal of carriers in some markets could drive patients away and undermine the program.
Nobody knows where that point might be, but the trend is troubling. New analysis by the Kaiser Family Foundation estimates that 19% of Obamacare enrollees seeking coverage in 2017 will be in a market with just one insurer, up from just 2% this year. Another 19% will have access to just two carriers, up from 12%. Those able to consider plans from three or more insurers will drop from 85% this year to 62% next. “It’s certainly not ideal,” says analyst Gary Claxton of KFF. “If the program gets over this set of troubles, it could do well. If it doesn’t, we could end up with more consolidation.”
Obamacare has been a political football from the beginning, and it’s getting kicked around as much as ever in the 2016 presidential race. Republican nominee Donald Trump calls the ACA “disastrous” and blames it, with characteristic hyperbole, for virtually every major healthcare problem in the United States. He has seized on news of steep premium hikes in some areas as one of many reasons to repeal the ACA. Democrat Hillary Clinton wants to expand the ACA and find new ways to lower costs. Americans remain conflicted, with slightly more opposing the law than supporting it.
Obamacare as a whole is far from doomed, and in places such as Indianapolis, Los Angeles and Seattle, premium hikes have been small and the ACA seems to be working. But in other areas, the pullout of insurers could push costs up by enough to discourage people from signing up, which in turn would make cost problems worse. In general, the ACA has attracted more sick people seeking more costly care than expected. Insurers set their rates for 2014, the first full year of Obamacare coverage, based on what they thought their costs would be. On average, they raised their premiums by 2% in 2015 and 5% in 2016, according to KFF. For 2017, the nonprofit group predicts a 9% increase in premiums for a typical plan.
That trend is obviously worsening, dramatically so in some places, such as Tennessee. Rising costs have led three insurers operating in the state—BlueCross BlueShield, Cigna and Humana—to ask state regulators for premium increases ranging from 44% to 66% for 2017. The state can say no, but the insurers are free to pull out of any market where they feel they can’t make a profit. “I felt like I didn’t have any choice but to allow them to [raise] their rates,” state insurance regulator Julie Mix McPeak told the Tennessean newspaper recently. She described the ACA in her state as “very near collapse.” Some analysts feel she’s overstating the case, pointing out that Tennessee had unusually low premiums at the outset of Obamacare, and is now catching up.
Turbulence in the ACA marketplaces reflects skyrocketing healthcare costs overall, and the difficulty of gauging how much healthcare millions of people who didn’t have insurance before would use once they signed up for the ACA. Some big insurers essentially guessed too low when they set rates for the ACA’s inaugural year, 2014, and have had no choice but to hike rates or exit unprofitable markets. “It’s a complicated program and it’s taking a while for people to figure it out,” says Claxton. He predicts problems will fade if enrollment picks up in 2017 and beyond, which it certainly could; even though 20 million adult Americans now get coverage through the ACA, roughly 27 million remain uninsured.
Individuals enrolled in insurance through Obamacare don’t feel all the pain heralded by alarming newspaper headlines. Since lower-income enrollees get subsidies to help pay for care, their costs don’t rise as much as headline premiums. But not everybody gets subsidies, and even who do often watch healthcare costs grow much faster than their paychecks. Trump and other ACA critics have ample ammunition.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.