Politics & Policy

Offering Poor Value, Obamacare Exchanges Have Become Medicaid-like Ghettos

(Dreamstime image: Greg Spivey)
Narrow provider networks, rising premiums, and high deductibles discourage prospective enrollees.

The October surprise that Washington knew about all along finally arrived yesterday, as the Obama administration announced that premiums would increase by nearly 25 percent nationally for Obamacare’s individual insurance. With the exchanges already struggling to maintain their long-term viability, the premium increases place the administration in a political vise, as it tries to encourage people to buy a product whose price is rising even as it presents a poor value for most potential enrollees.

In the 40-page report the Department of Health and Human Services (HHS) released, breaking down premium and plan information for 2017, one interesting number stands out. Among states using Healthcare.gov, the federally run exchange, the median income of enrollees in 2016 topped out at 165 percent of the federal poverty level (FPL). In other words, half of enrollees made less $40,095 for a family of four. And 81 percent earned less than $60,750 for a family of four, or less than 250 percent of the FPL.

The new data from the report further confirm that the only people buying exchange plans are those receiving massive subsidies — both the richest premium subsidies, which phase out significantly above 250 percent FPL, and cost-sharing subsidies, which phase out entirely for enrollees above the 250 percent FPL threshold. If the House of Representatives’ suit challenging the constitutionality of spending on the cost-sharing subsidies succeeds, and those funds stop flowing to insurers, Obamacare may then face an existential crisis.

Even as it stands now, however, the exchanges are little more than Medicaid-like ghettos, attracting a largely low-income population most worried about their monthly costs. To moderate premium spikes, insurers have done what Medicaid managed-care plans do: Narrow networks. Consultants at McKinsey note that three-quarters of exchange plans in 2017 will have no out-of-network coverage, except in emergency cases. And those provider networks themselves are incredibly narrow: one-third fewer specialists than the average employer plan, and hospital networks continuing to shrink.

In short, exchange coverage looks nothing like the employer plans that more affluent Americans have come to know and like. Case in point: At a briefing last month, I asked Peter Lee, the executive director of Covered California, what health insurance he purchased for himself. He responded that he was not covered on the exchange that he himself runs but instead obtained coverage through California’s state-employee plan. Which raises obvious questions: If Covered California’s offerings aren’t good enough to compel Lee to give up his state-employee plan, how good are they? Or, to put it another way, if exchange plans aren’t good enough for someone making a salary of $420,000 a year, why are they good enough for low-income enrollees?

Therein lies Obamacare’s problem — both a political dilemma and a policy one. Insurers who specialize in Medicaid managed-care plans using narrow networks have managed to eke out small profits amid other insurers’ massive exchange losses. As a result, other carriers have narrowed their product offerings, making Obamacare plans look more and more alike: narrow networks, tightly managed care — yet ever-rising premiums.

#related#While restrictive HMOs with few provider choices may not dissuade heavily subsidized enrollees from signing up for exchange coverage, it likely will discourage more affluent customers. The exchanges need to increase their enrollment base. The combination of high premiums, tight provider networks, and deductibles so high as to render coverage all but useless will not help the exchanges attract the wealthier, and healthier, enrollees needed to create a stable risk pool. By reacting so sharply to its current customer base, insurers on exchanges could well alienate the base of potential customers they need to maintain their long-term viability. In that sense, Obamacare’s race to the bottom could become the exchanges’ undoing.

Most Popular

Politics & Policy

Demagoguery Is Not Leadership

The government of Prime Minister Jacinda Ardern in New Zealand has, with the support of the opposition, decided to enact fundamental changes in the nation’s firearms laws less than a week after the massacre at two Christchurch mosques. This is the opposite of leadership. It is also an example of why ... Read More
White House

The Media’s Disgrace

There will soon enough be an effort to memory-hole it, but the media coverage of the Russia investigation was abysmal and self-discrediting — obsessive and hysterical, often suggesting that the smoking gun was right around the corner, sometimes supporting its hoped-for result with erroneous, too-good-to-check ... Read More
Politics & Policy

What Was Trump So Annoyed About?

One of the stranger arguments that I heard throughout the Mueller saga -- and am hearing today, now that it's turned out to be a dud -- is that Donald Trump's irritation with the process was unreasonable and counterproductive. This tweet, from CNN's Chris Cilizza, is a nice illustration of the genre: Donald ... Read More
U.S.

Political Theatrics

EDITOR’S NOTE: The following is Jonah Goldberg’s weekly “news”letter, the G-File. Subscribe here to get the G-File delivered to your inbox on Fridays. Dear Reader (Including all you whippersnappers under the age of 50), I’m writing this from somewhere over the Atlantic. At least I hope that’s ... Read More