Another large insurer says it can't sustain losses from people who were sicker than anyone imagined. Leaving unprofitable markets doesn't answer the question of how to pay for their care.
Aetna announced Monday it would withdraw from most states where it operates on the healthcare exchanges, reducing its footprint from 778 to 242 counties, primarily in Delaware, Iowa, Nebraska, and Virginia.
While Aetna was not the first large insurer to make this move—United Healthcare made a similar announcement in April—the news was an especially crushing blow, given Aetna’s previous support for the exchanges. Its announcement said as much, reading in part: “As a strong supporter of public exchanges as a means to meet the needs of the uninsured, we regret having to make this decision.”
As more insurers vacate more areas of the country, citing mounting losses and a failure of the federal government to limit adverse selection by consumers, questions are being asked: Is Obamacare failing? If so, what can be done?
Aetna says the pullback is due to a second-quarter pretax loss of $200 million, and total pretax losses of more than $430 million since January 2014. The insurer said, as others have, that it is being pummeled by losses from patients who are far sicker than anyone expected, alongside what it called, “the current inadequate risk adjustment mechanism.”
That second part is behind the failure of 16 of the 23 co-ops that were set up under the ACA. Co-op managers have complained bitterly that a system that was supposed to protect insurers who took care of the sickest patients is instead being gamed by the biggest players at the expense of small ones.
Reaction to these developments is mixed: ACA critics are saying, “We told you so,” while others say the insurers brought this on themselves. Insurers, writes Michael Hiltzik of the Los Angeles Times, viewed the new enrollees for their profit potential, and they killed off the public option that could have balanced competition in some areas. At the same time, Hiltzik writes, the ACA left intact payers’ ability to manage the giant groups of Medicaid and Medicare clients. He finds it unfair that insurers can abandon the exchanges but keep these taxpayer-funded profit centers.
In the other corner, Forbes contributor Sally Pipes of the Pacific Research Institute wrote, in the wake of the United Healthcare news, “Obamacare Is Failing—on Purpose?” Pipes opined that progressives were “secretly delighted” with the problems, because they would open the door to their long-term goal of a single-payer system.
Losses at Aetna, United Healthcare and elsewhere reveal an important truth: high losses from caring for previously uninsured patients—some bills exceed $1 million—show that there were a lot of very sick people in America. Leaving markets is not going to change that. ACA contained provisions for sharing risk from these patients, but the mechanisms are either flawed or have been purposely constrained. Most notable was Congress’ decision to block any new funding for risk corridors, which were to serve as a backstop in the ACA’s early years.
It’s also worth noting that arrival of the ACA coincided with an expensive new cure for hepatitis C virus, a spiraling opioid epidemic, and a host of new cancer drugs. Express Scripts reported that 2014, the year the full ACA took effect, marked the highest spike in prescription drug spending in a decade. A major criticism of the ACA is that it extended coverage to millions who previously lacked insurance while doing nothing to rein in drug costs.
What can be done? HHS is taking steps to make it harder for consumers to game the system by waiting until they are ill to seek insurance, only to later cancel policies. But any “fix” of the exchanges requires a long-term solution to the problem of how to pay for the sickest among us.
An idea from Alaska is being touted by Kevin Counihan, CEO of the Health Insurance Marketplace, on The CMS blog. That state is redirecting $55 million in premium taxes, once used to fund its high-risk pool, to reinsure its individual market. Alaska acted after Premera, its Blues insurer, reported that a quarter of its costs for the first half of 2015 came from just 37 people. Counihan writes that 35 states “have similar opportunities” to find a new purpose for these funds, which once covered care for people the commercial payers refused to insure.
Critics say it’s just the federal government pushing risk back down to the states. Maybe so, but it could have the desired effect: creation of the reinsurance fund prompted Premera to cut is proposed 2017 rate hike by three-quarters of what was planned.
Whatever the solution, the challenge of paying for really sick people will confront the next president and the new Congress. Going back to the old way—not covering the sick—leaves preventive services and chronic disease management off limits, which means this population will be even more ill when they reach Medicare. Today, chronic disease accounts for $3 of every $4 spent on healthcare, and diabetes alone accounts for $1 of every $3 spent in Medicare. Not covering the sickest among us means the millions spent on their care since 2014 may be wasted.