Oh, what a difference a year makes. Around this time last year the pundit class was out in force to publicize Obamacare as the greatest policy success story of modern times.
“Obamacare Has Been Even More Successful Than Expected,” the New York Times blared. “The success of the Affordable Care Act is a hugely inconvenient truth for its opponents,” Jared Bernstein wrote in the Washington Post. “In conservative media, Obamacare is a disaster. In the real world, it’s working,” argued a Vox headline.
“The bottom line is this for the American people: the Affordable Care Act, this law, is saving money for families and for businesses. This law is also saving lives,” the president said. “It’s working, despite countless attempts to repeal, undermine, defund and defame this law. It’s not the ‘job killer’ that critics warned about for five years … It’s not the fiscal disaster critics warned about for five years.”
Obama didn’t stop there. In a speech to the City Club of Cleveland, the president poked fun at Republicans’ criticisms.
“Every prediction they made about it turned out to be wrong. It’s working better than even I expected. It’s working better than even I expected. But it doesn’t matter. Evidence be damned. ‘It’s still a disaster.’ But why?”
Just one year later we have a clear answer to that question: Because you can’t force companies to sell a product for less than it costs. At its core insurance functions like most other products. The premiums that insurers collect must exceed the medical claims they pay. Healthy, low risk individuals (most of whom are young) who consume few services offset the costs of unhealthy, high risk patients who consume a lot of services.
Prior to Obamacare insurers were free to sell plans somewhat based on the relative risk of the customer. In general, younger adults paid less and older adults paid more. But Obamacare dramatically limited insurers ability to price based on these age bands, a result that arbitrarily increased the price of insurance for young people.
The entirely predicable result, exacerbated by a weak tax penalty for remaining unsinured, was that young adults didn’t sign up. This drove premiums even higher for healthier individuals, which further pushed them from the market, which put continual upward pressure on prices.
Unfortunately for insurers, there’s a time lag to the delivery of these price signals, meaning they lose oodles of dollars every year while trying to guess what the erosion of their risk pool looks like. And by oodles we mean that Aetna suffered losses of $430 million since the exchanges opened, UnitedHealthcare lost $475 million in 2015 and expects to lose $650 million in 2016, Health Care Services Corp. lost $1.5 billion in 2015, Highmark Group lost $266 million in just the first nine months of 2015, and Blue Cross Blue Shield plans have been losing hundreds of millions in many of their markets (e.g. $400 million in North Carolina, $300 million in Tennessee, $135 million in Alabama).
So it wasn’t exactly a surprise when these insurers decided to either dramatically scale back their offerings or pull out of Obamacare altogether. But it was fascinating to watch the same publications that proclaimed the law’s success a year ago have to explain just precarious a position the law now finds itself in.
“Obamacare Marketplaces Are in Trouble. What Can Be Done,” asks the New York Times, admitting that “choice is disappearing,” “prices are rising,” “the market is too small,” and the “rules are complicated.”
“Aetna decisions exposes weaknesses in Obama’s health-care law,” sighs the Washington Post, writing that insurers’ financial losses are “heightening concerns about the long-term stability of a key part of Obama’s domestic policy legacy.”
And Vox, in its typical style, has a story: “What’s going wrong with Obamacare, explained in under 400 words,” which could really be boiled down into these 60:
[I]t’s still true that the law is a far cry from what health wonks envisioned just a few years ago when they saw the health care marketplaces reshaping the industry. And if your key priority with Obamacare was building a more consumer-centric insurance marketplace, then the law is quite clearly falling short — and possibly on the path to failure.
From “more successful than expected” to “possibly on the path to failure” in less than twelve months. We hate to say we told you so.