What happens to a universal healthcare system dependent on private insurers when those insurers don’t show up? The good people in Pinal County, Arizona, may be about to find out.
On Monday, Aetna announced that it was withdrawing from two-thirds of the states where it had previously been selling Obamacare plans on state marketplaces. This threatens to leave many communities with much slimmer insurance options, and Pinal County without a single insurance offering available on its health exchange in 2017.
Amazingly, Obamacare never anticipated this circumstance. Its drafters assumed that at least some insurers would sign up to sell insurance everywhere in the country. And they didn’t create any kind of fail-safe or backstop in the event that private insurers bailed en masse. The only mechanism the federal government has to enlist insurers into Pinal County (or any market, for that matter) is to plead and cajole.
Sure, Pinal County is just one unfortunate insurance black hole for now. But Aetna has reported the same struggles that a number of other insurers (but by no means all) have had in the marketplaces: sicker than expected enrollees, and insufficient risk compensation. As more and more insurers head toward the Obamacare exit, more states and counties will be left with one or no insurance choices. So Pinal County may just be the tip of the iceberg.
There are a number of ways we could shore up the health exchanges to avoid this dilemma. The fundamental problem Aetna and other insurers have encountered is that Obamacare enrollees have been disproportionately sicker and expensive to insure. To stabilize the marketplaces and make insuring these enrollees a viable business, one (or both) of two things needs to happen: the exchanges need to enroll more healthy people, or else insurers need to be compensated for taking on the risk of insuring a sicker population.
To enroll Obamacare’s relatively healthy opt-outs, policymakers could take two different tracks. For one thing, they could make the penalty for going without insurance stiffer. Raising the cost of disregarding the individual mandate will, naturally, persuade more people to comply and buy insurance.
For another, policymakers could make the insurance offerings on the exchanges more appealing. Many people fall between a rock and a hard place under Obamacare. Bronze plans provide cheap but flimsy coverage, with low premiums and high out-of-pocket costs. Silver plans, on the other hand, provide better coverage but are more expensive. At the same time, the government kicks in cost-sharing subsidies for silver plans but not bronze. This is meant to encourage more people to spring for better coverage, but also creates a gulf between the silver and bronze plans that many people seem to be falling into.
So some of the uninsured are logging on to their state’s exchange and seeing a silver plan they can’t afford and a bronze plan with outrageous deductibles. Faced with this unpleasant choice, some consumers are just throwing their hands up and walking away. And those most likely to say “thanks but no thanks” are the young and healthy, who feel the safest to gamble by going uninsured. These are the exact consumers insurers need to draw in to stabilize their marketplace business.
There are clear ways to close this gulf and make Obamacare’s plans more attractive to more people. We could make the law’s tax credit subsidies more generous to make silver plans more affordable. Or we could extend cost-sharing subsidies to bronze plans to help cushion the cost of deductibles and co-pays.
The problem is that either of these things requires legislative action to constructively improve the law—something that Congress has shown no appetite for. Instead, it has gone the other direction entirely, voting over and over and over to repeal the law in total.
While repeal efforts have failed, congressional Republicans have succeeded in weakening the law in ways that have made it harder for insurers to operate. For instance, the law originally provided several mechanisms to compensate insurers if the marketplaces’ first few cohorts of enrollees proved to require more care (and therefore more costs) than anticipated. Republicans slammed these mechanisms as an insurer bailout.
Eager to rack up some anti-Obamacare bonafides during his failed presidential campaign, Senator Marco Rubio succeeded in gutting one of these risk adjustment provisions. This crippled a number of the law’s insurers, and particularly the non-profit co-op start-up companies authorized by the law as a replacement for the abandoned public option idea. Now, even Aetna attributes part of its decision to exit on the law’s “current inadequate risk adjustment mechanism.”
So the health exchanges could be shored up by making insurance more desirable for more people, and by boosting (rather than kneecapping) the law’s compensation for insurers that take on added risk. But perhaps a deeper structural fix is needed. Even these reforms still leave universal coverage dependent on the voluntary participation of private insurers. By letting the private sector provide a fundamental right, the government leaves itself vulnerable to demands and rent-seeking from for-profit corporations (which some speculate is already happening).
Michael Hiltzik argues that insurers shouldn’t be able to cherry-pick only the lucrative public health programs. “If you want to reap the profits from participating in public health programs,” he writes, “you’ll have to participate in the Affordable Care Act too.”
That’s one option. But there’s another option that has a history of bipartisan support, and that’s providing a public health insurance option in markets without enough (or any) private offerings. It’s an idea that was supported during the law’s drafting by both Republican Sen. Olympia Snow and Obama’s then-Chief of Staff Rahm Emanuel. Obama himself recently seemed to revive something like this as a way to contend with lagging competition across the exchanges.
This would reconceive the public option as a backstop—as an insurer of last resort in communities that aren’t adequately served by the private market. It would inject competition and keep prices low. And unlike private insurers, the public plan could be regulated from monopoly pricing if it’s the only insurer in town. So if all else fails, consumers would at least be able to buy affordable coverage from a publicly-run insurer.
And indeed, Obamacare should have this kind of backstop. Universal healthcare shouldn’t be left at the mercy and whims of private insurers, and shouldn’t be subject to the veto of countless decisionmakers. That’s why Obamacare created the fallback option of federally-run exchanges if states refused to create state marketplaces (as 37 ultimately did). Consumers in those states shouldn’t lose out on affordable health insurance just because their elected officials decided not to participate in Obamacare.
The same is true within the exchanges. Private companies shouldn’t get the final say on whether universal healthcare gets to be actualized. That was never in the intent or spirit of the law, but it’s what you get when you graft a universal health insurance program on to a predominantly privately-run system with no general public fallback. Now that insurer non-participation is becoming a live reality, Congress must step up and create the fallback option that should have been there in the first place.
Like all major new social insurance systems, Obamacare, in its extraordinary complexity, needed tweaking after enactment. But Congress has adamantly refused to do this, continuing to attack the law’s very existence.
Aetna held the door open for one day returning to the Obamacare business, saying that it “may expand [its] footprint in the future should there be meaningful exchange-related policy improvements.” We know what those improvements are, but we just aren’t doing them. There are flaws in Obamacare’s design, but those aren’t what are truly getting in the way. The real problem with Obamacare is our broken political system.