Insurers won’t stay in Obamacare for the privilege of losing money

UnitedHealth announced that it will pull out of Obamacare’s exchanges in all but a handful of states. The head of the country’s largest health care provider explained that the move was due to “the smaller overall market size and shorter term, higher risk profile within this market segment”.

In other words, not very many people buy coverage through the Obamacare exchanges, and those that do tend to have more health problems.

Not surprisingly, the UnitedHealth exit is being colored pretty differently depending on people’s views on Obamacare. To skeptics of the law, it’s proof the exchanges will yet collapse. To defenders, including the Obama administration, it’s much ado about nothing. UnitedHealth only represented 6% of the exchange market, an administration spokesman said, and some say its plans weren’t priced to attract more customers.

UnitedHealth announced already last fall that it might leave the exchanges, and other companies are exploring it as well, including Blue Cross/Blue Shield Association members. Some have viewed these announcements as threats to get proposed premium increases approved by regulators. UnitedHealth’s exit from the market shows these aren’t all bluster. Regardless of the intent, premiums are expected to rise significantly next year.

Not hard to fathom
The reason behind UnitedHealth’s decision is obvious; it was losing money in the exchanges, something around $1 billion in two years. In 41 states, in fact, insurers lost money in 2014 by participating in the exchanges, according to a McKinsey & Company report. They’re not going to stay in the market long-term if that remains the case.

Insurers are seeking premium increases because they’re losing money. Because so many of the exchanges’ customers are subsidized, increasing those subsidies to keep up with rate increases will make Obamacare even more expensive for taxpayers. That will be a tough sell in a Congress where at least one house is majority Republican.

You can craft a law that aims to extend coverage to millions more people; you can craft one that aims to lower health care costs. It’s awfully difficult to do both. The president made a lot of promises when pushing Obamacare, but clearly the law is much more focused on broader coverage than on making health care more affordable. $2,500 a year in savings? It was a ridiculous claim then, and it’s clearly untrue now.

It’s going too far to suggest, as some are, that the Obamacare exchanges are on the brink of collapse. It’s true, however, that insurers aren’t going to stay in the exchanges for the privilege of losing money. As the market adjusts itself, largely through premium increases, we’re getting further and further away from the president’s promises about more affordable health care.
-Rob McKenna

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Rob McKenna
Rob served two terms as Washington’s Attorney General, from 2005 to 2013. He successfully argued three cases before the U.S. Supreme Court and negotiated three of the largest consumer financial protection settlements in national history, all involving mortgage lending and servicing. He is a recognized leader in the development of consumer protections on the internet, in data protection and privacy regulation.