This week’s announcement of large premium hikes across the health insurance marketplaces has brought another round of Obamacare hand wringing. The average premium on silver plans on exchanges across the country is set to rise by 25 percent this year. Worse, competition is dwindling on the exchanges, as one in five shoppers will have to choose from plans offered by only a single insurance company.
This has left many once again wondering what the problem is with Obamacare, and whether the law is failing. And once again, the core problem with Obamacare comes down to politics.
Obamacare has achieved remarkable successes. It has driven the uninsurance rate to historic lows. Between the law’s Medicaid expansion, marketplace enrollment, and adult children remaining on their parents’ insurance plans, 20 million people have gained coverage from Obamacare, with another million expected to sign up during the coming enrollment period. The law guarantees a right to purchase insurance for those with preexisting conditions, and outlaws insurer-imposed caps on annual coverage. It has also corresponded with a dramatic slowdown in U.S. healthcare spending.
But there is persistent unease (to put it mildly) on the law’s health exchanges. Big insurers have found it hard to create financially viable exchange products, and the exchanges are quickly turning into marketplaces for Medicaid-type plans and customers. The recent premium spikes just add to the exchanges’ struggles.
Now it should be noted that most Obamacare customers will not pay the full sticker price of these increases. The increases reported are before federal subsidies kick in. These subsidies will insulate most shoppers from major premium shock. Moreover, enrollees in previous years have proven remarkably willing to change plans in response to price changes, and could do so again this year.
Still, the pre-subsidy premium increases do reveal an ongoing turmoil in the marketplaces. There are four principal reasons for rising premiums:
1) Insurers systematically underpriced premiums during the first years of enrollment. Premiums rose by just 2 percent in 2015 and 7 percent this year. By jacking up premiums this year, insurers are bringing prices in line with earlier expectations. In fact, average premiums for 2017 are now in line with Congressional Budget Office forecasts before the law was enacted.
2) Important insurer protections in the law were allowed to lapse, exposing participating insurers to higher costs and risks. The law’s risk adjustment mechanisms insulated insurers from higher-than-anticipated costs from a sicker population enrolling in their plans. This encouraged insurer participation and kept premiums low. However, Republicans latched on to risk adjustment as an insurer bailout. Senator Marco Rubio, looking to bolster his anti-Obamacare cred, maneuvered a repeal of risk insurance through Congress this year. The lack of risk adjustment is now reverberating into insurers exiting the marketplaces and customers facing higher premiums. (Good job, Marco!)
3) The mix of customers on the exchanges is older and sicker than expected. The administration originally hoped that young adults would account for 38 percent of all enrollees. Their actual share of enrollment has only would up being just 28 percent. Enrollment in general has been lower than the administration predicted. But a relatively older and less healthy population of enrollees incurs higher costs for insurers, causing premiums to increase.
4) There is less competition on the exchanges than anticipated. Some insurers are finding it hard to turn a profit and exiting the exchanges altogether. More and more parts of the country are being left with fewer and fewer choices. Without competitive pressure, insurers can raise prices without losing enrollment, essentially controlling the market.
There are relatively straightforward solutions to these problems. We should restore risk insurance mechanisms. And to encourage enrollment (particularly among the young and healthy), we could stiffen the individual mandate penalty, while simultaneously sweetening the law’s subsidies and cost-sharing benefits. And to generate competition, we should create a public option, at least in those states with too few private insurance offerings.
Paul Waldman relays several more good ideas for improving the law from Paul Starr of the American Prospect, including:
- “Require all insurers who want to sell in the individual insurance market to offer their plans through the exchange, so they couldn’t cherry-pick individuals outside the exchange . . .
- “Reduce the waiting period for those on disability insurance to get Medicare coverage from two years to six months to move some of the very high-cost enrollees out of the individual-market pool.
- “Require any insurer that wants to offer a Medicare Advantage plan in an area also to offer a plan in the marketplace for under-65 enrollees.
- “Have the federal exchange adopt the procedures used by California in actively bargaining with plans instead of acting as a passive clearinghouse[ ].
- “Create a public option for those aged 55-64 clearly identified as an early buy-in to Medicare.
- “Create a second federally run public option for enrollees from 18 to 54.
- “Restore the risk corridor and reinsurance provisions that have expired that were intended to protect exchange plans against adverse selection.”
These are all positive solutions to Obamacare’s woes. Expanding Medicare eligibility for near retirees and the newly disabled would help remove some high-cost patients from the exchanges, thereby taming premiums for everyone else. California actively negotiates better prices for consumers as a condition for insurers to list on its exchange. Because of that, premiums in California are rising by just 5 percent this year. Letting the federal exchange negotiate too would put downward pressure on premiums for more customers in more states.
But while these ideas are great in theory, most have little plausible path to becoming law. Hillary Clinton hopes to build on Obamacare by increasing subsidies and creating public options. Yet Republicans in Congress have little interest in doing anything to shore up the law. Six years after passage, the conservative anti-health reform fever has yet to break, and massive resistance remains firmly in place.
The conceptual foundations of Obamacare are not broken; only its politics are. We know what we need to do to improve the law, but the logjam of health politics in Washington has locked the rushed, imperfect bill passed in 2010 into a stasis that hasn’t been imposed on any other piece of major social legislation in American history. Big laws need tweaking and fixing along the way, but Congress just won’t do that for Obamacare.
Jonathan Chait is right when he argues that Obamacare has been a policy success but a political failure. But it’s more complicated than the law being a substantive triumph with a public relations problem. Obamacare’s PR problem is now actively hindering its substantive real-world success. If the law had broader political support, reasonable reforms could get passed, and its exchanges would be made more functional.
So for all the actuarial and wonkish analysis of what ails Obamacare, its core problem remains political. Republicans have no interest in rectifying the law, and many probably actively hope it crumbles from wont of legislative care and maintenance. Obamacare does not require a fundamental overhaul or a desperate rejiggering. What it needs is a legislative majority interested in its success.