The Corner

Economy & Business

With Obamacare, the Worst Is Still Yet to Come

Remember when we were promised that Obamacare would solve so many of our health-care problems? Instead, we get this

Insurers have begun to propose big premium increases for coverage next year under the 2010 health law, as some struggle to make money in a market where their costs have soared.

The companies also have detailed the challenges in their Affordable Care Act business in a round of earnings releases, the most recent of which came on Wednesday when Humana Inc. said it made a slim profit on individual plans in the first quarter, not including some administrative costs, but still expects a loss for the full year. The Louisville, Ky.-based insurer created a special reserve fund at the end of last year to account for some expected losses on its individual plans in 2016. …

Humana said it would make changes to its exchange offerings for next year “to retain a viable product for individual consumers, where feasible,” and its moves may include “statewide market and product exits both on and off exchange, service area reductions and pricing commensurate with anticipated levels of risk by state.” Humana sold plans on exchanges in 15 states this year.

Humana’s announcement follows a disclosure from UnitedHealth Group Inc. last month that, amid deepening losses, it will next year withdraw from all but a handful of the 34 states where it was offering exchange plans

And it could get worse. A new study by my colleague Brian Blase looks at what will happen when some of the large subsidies–the reinsurance and risk corridor programs–end this year:

The study, authored by myself, Doug Badger of the Galen Institute and Ed Haislmaier of the Heritage Foundation contains two key findings. First, insurers incurred substantial losses overall despite receiving much larger back-end subsidies per enrollee through the ACA’s reinsurance program than they expected when they set their premiums for 2014. Second, we estimate that in the absence of the reinsurance program insurers would have had to set premiums 26% higher, on average, in order to avoid losses—assuming implausibly that the overall health of the risk pool would not have worsened as a result of the higher premiums. Our findings raise serious questions about the ACA’s future, particularly when the reinsurance program ends and premium revenue must be sufficient to cover expenses. 

As Blase concludes:

The reinsurance and risk corridor programs expire at the end of this year, which means that in 2017, for the first time, premiums must cover expenses. In order to reverse their losses, insurers will undoubtedly have to raise premiums and redesign plans to make them less generous. Of course, these changes, particularly the premium increases, will make the coverage look less attractive for those who insurers most need to sign up. 

The bottom line is that after slow start, insurance companies find themselves having to increase premiums a fair amount. It seems that while for now subsidies may cover the pain for individuals, they probably won’t be able to after this year, at which point insurance companies will have to stomach the full cost of their losses due to the expiration of the reinsurance and risk-corridor programs. There soon won’t be enough subsidies to offset the premium hikes. 

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