President Trump seems gleeful every time the Affordable Care Act, aka Obamacare, encounters some new difficulty. But these are now becoming Trump’s problems, not his predecessor’s, and he’s likely to get most of the blame if some 20 million Americans who get health coverage under the ACA suffer from the program’s demise.
Humana cited an “unbalanced risk pool” as its reason for withdrawing from the ACA, which is insurerspeak for too many sick people buying insurance and pushing up costs. This has been a problem for the ACA in general, which is one reason premiums under the program have shot up. Insurers initially underestimated the costs these new customers would impose, and set premiums too low. When ACA customers turned out to be sicker than expected, insurers had to compensate by raising premiums.
This in itself doesn’t mean Obamacare is failing. What it means is that insurers have to reprice their products in some markets to make sure they’re profitable. The bigger problem comes when insurers feel they can’t be profitable in certain markets, and simply leave. And that could eventually threaten the whole program.
The Kaiser Family Foundation reports that 21% of people who enrolled in the ACA in 2017 had only one insurer to choose from. That’s up from just 2% in 2016. The pullout of all but one insurer is arguably the threshold for “failure,” since the ACA relies on competition to keep prices down. When there’s just one provider, premiums soar.
These developments reflect inherent weaknesses in the design of the ACA. But they’re happening under President Trump, not President Obama. And further fractures in the ACA are possible, given that Trump and his fellow Republicans in Congress want to “repeal and replace” the entire law.
Humana is a small player in the ACA, with other insurers such as Aetna (AET), Cigna (CI) and Blue Cross/Blue Shield offering much broader coverage. So Humana’s departure won’t pull the whole house down. And bigger insurers might step in where Humana pulls out, perhaps because they have the scale to be profitable where smaller Humana doesn’t.
Uncertainty for insurers
Trump’s ongoing threat to kill the ACA is a bigger concern for insurers. Businesses famously hate uncertainty, and it’s hard to imagine a more uncertain environment than offering a product to millions through a government-sponsored exchange the president and a majority of members of Congress have vowed to kill.
The question now is what the Trump administration and Congressional legislators will actually do, regardless of what they say. And Trump may be hinting that he’s willing to stabilize the ACA until his administration devises a viable replacement. The agency that oversees the ACA recently proposed a new rule, which insurers had been asking for, that’s meant to encourage people to sign up for “continuous coverage” and penalize those who only take out a policy when they’re sick. This might address the unbalanced risk pool Humana complained about, and give insurers a stronger reason to stick with the ACA. Some ACA critics also see this concept as preferable to the mandate for every adult to buy insurance, or else pay penalty fees.
Some ACA critics still think the program is headed for failure, however. Aetna (AET) CEO Mark Bertolini said recently that the ACA is headed for a much-hyped “death spiral,” as costs escalate, customers and insurers bail and the law’s underlying economics crumble. One key factor involves federal subsidies, which the majority of people with coverage under the ACA get to help offset the cost of premiums. Those subsidies are key to insurer participation, because they’re a kind of free money that flows through lower-income people to insurers. “As long as the Trump administration continues to fund the cost-sharing subsidies, this may be enough to keep most insurers in for 2018,” says Gary Claxton, vice president of the Kaiser Family Foundation. “But insurers may be wary if they feel the future will be very different and that the transition may put them at risk.”
If Barack Obama were still president, he’d have some limited leeway to tweak the ACA to make it work better. Hillary Clinton, who lost to Trump, said she’d fix what wasn’t working in the law but generally keep it intact. Trump is running the show, however, and presidents in general get credit or blame for what happens on their watch–even if the seeds of change were planted before they took office.
If the ACA implodes, its many critics will undoubtedly blame inherent flaws Trump inherited from Obama. But their opinions will matter less than the people who will lose coverage if Obamacare fails. They’ll see a simple cause and effect—Trump took office, and then they lost coverage—and the media will jump all over the sagas of victims who suddenly couldn’t get a needed procedure or medication, and suffered some harm as a result.
So Trump owns Obamacare, whether he wants to or not. He has promised a replacement that will be “terrific” and offer “insurance for everybody,” which almost certainly will turn out to be Trumpian hyperbole. Meanwhile, neglecting the existing problems with the ACA could push its eventual decline further and further into Trump’s presidency, when it will be even harder to blame his predecessor. Deepening problems with the ACA aren’t good news for Trump. They’re the beginning of a self-inflicted political crisis, if he does nothing but delight in their occurrence.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.