By Brian Blase of Mercatus.
"Outside the legal challenges it previously faced, the Affordable Care Act has never been as threatened as it is right now.
President
Barack Obama’s signature law has so destabilized the individual market
for insurance that three large companies have announced they are better
off not participating in the exchanges.
Aetna
earlier this week announced it will exit 11 of the 15 states where it
has offered plans through ACA exchanges, while UnitedHealthcare plans to
exit 30 of its 34 states, and Humana is pulling out of 88 percent of
the counties where it offered coverage.
While
these big players are cutting their ACA losses, they’re fortunate
enough to have other business lines to fall back on. Without those
buffers, the new health insurance cooperatives that started with funding
through the ACA have mostly collapsed. To date, 16 of 23 have failed,
taking billions of dollars in taxpayer loans with them.
As
insurers exit and fold, the choices available to people will plummet
next year. Before Aetna’s announcement, there were at least 650 counties
with only one insurer slated to offer exchange coverage. After Aetna’s
decision, it’s possible that there will be more than 1,000 counties with
just one insurer and several counties without any.
Insurers
were hopeful that the ACA could offer a major profit opportunity for
them. They were set to receive tens of billions of dollars in several
types of government subsidies as well as the enactment of an
unprecedented federal penalty if people failed to purchase their
product. Washington delivered the subsidies — in some cases more than
Congress authorized — and the penalty survived a major constitutional
challenge. But, the law is producing large insurer losses and
significant instability in the individual market. Why?
The explanation is simple: The coverage is extremely unattractive to the vast majority of potential buyers.
Every
plan covers an extensive list of services, some of which are unwanted,
and the plans generally have very large premiums and deductibles.
For
example, the cheapest unsubsidized bronze plan (covering about 60
percent of expected health care expenses) available to a family in
Winston-Salem, N.C., has a yearly premium of $11,760 and a $13,700
deductible. The cheapest unsubsidized silver plan (covering about 70
percent of expected health care expenses) has a yearly premium of
$13,872 and a $10,000 deductible. In addition to high premiums and
deductibles, far fewer doctors and hospitals are covered by exchange
plans relative to other types of plans.
As
a result, only two groups of people are buying plans to a significant
extent: The first group includes single people with income below about
$24,000, who receive very large subsidies to reduce premiums and
deductibles. The second group includes people who expect to use a lot of
health care services.
The
rest of potential buyers, generally middle-class people without
insurance through the workplace, are making an economically rational
decision to remain uninsured. For the most part, the ACA has made them
much worse off. The only plan they can buy is expensive and provides low
value relative to the price. And they must pay higher taxes to finance
the law’s massive new spending. This includes the penalty for remaining
uninsured, which is expected to equal about $1,000 for the typical payer
in 2016.
Another key problem
that worsens the viability of the exchanges is that people have figured
out how to game the new rules. Since the ACA requires insurers to offer
coverage to applicants without varying premiums based on their health,
the law incentivizes people to wait until they are sick to purchase
coverage. Controls put in place by the law and by regulators to minimize
this behavior have not worked thus far.
The
Obama administration has attempted to prop up insurers with as much
taxpayer money as possible, including roughly $7 billion in payments in
2014 and 2015 that a federal judge ruled unconstitutional because the
funds were not appropriated by Congress. The subsidies and corporate
welfare have not worked. As choices diminish and premiums soar — they’re
likely to rise by an average of 25 percent next year — people will
rightly demand change.
The
change shouldn’t be more corporate welfare, subsidies, mandates and
rules. Instead, policymakers could repeal the law’s insurance market
regulations and allow people to purchase plans that appeal to them. As
demonstrated throughout the rest of the economy, letting people make
decisions uninhibited from Washington rules and complicated subsidy
structures will almost certainly lower prices and increase quality
throughout the health care market."
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