In September, 2009, President Obama delivered a primetime address to a joint session of Congress making his pitch for the health care law that we now know as Obamacare. Among the problems that Obama said the law was supposed to address was a lack of competition in the individual insurance market.
"Consumers do better when there is choice and competition," Obama said. "That's how the market works." He lamented, however, that "in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company." The inevitable result was more expensive insurance and worse quality coverage. It was easier for insurers to take advantage of customers.
Obamacare was to solve this problem by creating insurance exchanges—state-based marketplaces where individuals would be able to shop for insurance. These marketplaces would be attractive to insurers. "Insurance companies," Obama said, "will have an incentive to participate in this exchange because it lets them compete for millions of new customers."
Almost seven years later, Obamacare is the law of the land, and in several exchanges, the number of insurers is dwindling. In April, after months of warnings, UnitedHealth, the nation's largest health insurer, announced that it would pull out of the most of the state exchanges where it is now operating. Weeks later, another insurer, Humana, announced that it was quitting exchanges in Alabama and Virginia.
What this means is that in many rural areas, Obamacare's exchanges will be served by one and only one insurer. A recent report by the Kaiser Family Foundation found that some 650 counties in states like Kentucky, Tennessee, Mississippi, Arizona, and Oklahoma were likely to have just one carrier next year. In Wyoming, Alaska, and Alabama—yes, the same state that Obama highlighted in his 2009 speech—the exchanges will feature no competition anywhere in the state. In places like these, Obamacare has not solved the problem of too little competition in the health insurance market; it has allowed it to continue, and perhaps even contributed to it.
Yesterday, President Obama put forth another solution—a reform to his original health care reform. In an article for the Journal of the American Medical Association, the president reviews Obamacare's performance, highlighting the law's success in increasing health insurance coverage rates. But the article also serves as a tacit admission that the law is not working as intended, particularly when it comes to competition. Naturally, it proposes further government intervention in the health care sector.
In the JAMA article, the president proposes creating a government run insurance plan, or a "public option," that would exist alongside private health insurance, at least in the mostly rural areas where competition is sparse or nonexistent. "Congress," he wrote, "should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited."
The public option is an idea that goes back to the original debate about Obamacare. A government-run insurance plan, sold alongside private plans in the exchanges, was high on the progressive wish-list for the law. President Obama raised the possibility of public option in his September 2009 speech, and dismissed critics who argued that it would be a federally funded boondoggle, saying that any "public insurance option would have to be self-sufficient and rely on the premiums it collects."
Ultimately, though, it passed without one.
Instead, the law included a compromise: $6 billion worth of government-backed loans to fund the creation of a system of non-profit health insurers known as co-ops. (That amount was later reduced to $2.4 billion in separate negotiations with Congress.) The administration pitched the co-ops as essentially interchangeable with the public option. "You could theoretically design a co-op plan that had the same attributes as a public plan," then-Health and Human Services Secretary Kathleen Sebelius told Bloomberg News in 2009. Around the same time, President Obama told Time, "I think in theory you can imagine a cooperative meeting that definition" of a public option.
Obamacare resulted in the creation of 23 co-ops across the nation, some of which served hundreds of thousands of customers. As of this month, however, only 10 remain fully operational. The other 13 have either shut down, or announced that they plan to by the end of the year.
The reason for every closing has been the same: Premiums were set too low to cover the cost of medical expenses. The losses mounted. The co-ops couldn't make the finances work. With each closing, tapayers have had to swallow losses for the loans that funded their operations.
Democratic proponents of the plans have argued that Republicans sabotaged them by cutting their funding. But the point of these plans—just as Obama promised of the public option—was that they would be independent and self-sufficient. If the argument is that they could not survive without injections of federal funding, without payments from federal funds to backstop their operations, without political support when they struggle with finances, then the argument is that they cannot compete. There is little reason to believe that a full-fledged public option, entirely run by the government, would fare any better. It would, however, be much harder to shut down, and much more likely to be propped up by additional federal funding if it failed to completely cover its expenses on its own—leaving an ongoing cost to taxpayers rather than the one-time hit incurred by the failures of the co-ops.
To be fair, it is not clear that private insurers are well-suited to compete in the exchanges either. UnitedHealth and Humana are pulling out of the exchanges because they are unprofitable. A small number of companies with backgrounds in Medicaid managed care—where private corporations take over Medicaid caseloads—have been successful in the exchanges so far. But the rest of the market is struggling to break even. Earlier this year, the top official at Aetna, the third largest health insurer in the nation, said that his firm has "serious concerns about the sustainability of the public exchanges." Obamacare's exchanges, in other words, may be inherently flawed in ways that the addition of a new, government-run insurance plan won't fix.