Insurance giant Aetna announced yesterday that it would cease selling health coverage in Obamacare's insurance exchanges entirely.
The reason, according to a statement from the company, was the projection of continued massive financial losses, and the poorly designed structure of Obamacare's exchanges. The company, which had already announced plans to scale back participation in the law, said it was projecting losses of about $200 million this year, and that "those losses are the result of marketplace structural issues that have led to co-op failures and carrier exits, and subsequent risk pool deterioration." The individual market created by Obamacare relies on the participation of both individuals and insurers. But Aetna, at least, is arguing that the market is fundamentally flawed—and refusing to participate as a result.
Aetna's exit is yet another reminder of the growing instability that exists within the individual market system created under Obamacare, and the long term problems the program's shakiness is likely to cause under nearly any circumstance.
Obamacare's individual market has been under strain for years. Most of the non-profit insurers created under the law have failed and shut down. Beyond Aetna, most of the nation's major insurance companies have scaled back participation in the exchanges. In states such as Maryland, Virginia, and Connecticut, health insurers have already put in requests for large rate hikes during the coming year. In much of the country, there is only one insurer selling plans under the health care law.
Whether or not Obamacare's exchanges are in a death spiral, technically speaking, it's clear that there is a tremendous amount of volatility in the system. That volatility is likely to result in widespread disruption to individual health coverage arrangements, whether through higher rates or lost coverage and forced plan switching. What that means is that Obamacare is almost certainly not sustainable in its current form, because the politics of health care revolve—arguably more than anything else—around the disruption of health coverage and services. If current levels of instability persist, public dissatisfaction will almost certainly force change on the system.
This is one reason why the House GOP's legislation, which would rewrite Obamacare while leaving the core structure of its individual market mechanisms in place at the federal level, is so problematic. Its reforms would do little to quell Obamacare's instability. It might even exacerbate the health law's existing problems. And it would do so in a way that addresses few if any of the deeper structural issues with the American health care system.
But the same dynamic can also prevent change, as Republicans facing protesters angry about the passage of the House health care bill this week are discovering. At the same time, the complexities of health care politics also make it equally difficult to imagine permanently propping up Obamacare via additional government funding. Any effort to do so would amount to simply funneling money to health insurance companies—in effect, buying them off in order to stay in the exchanges and keep rates low. The Trump administration, for example, has prevaricated about whether or not it will continue to fund Obamacare's cost-sharing reduction (CSR) subsidies, which are paid directly to insurers in order to offset the costs of lower-income beneficiaries. The uncertainty about whether or not those payments will be made is now priced into the system. It is making insurers less inclined to participate, and more inclined to charge higher premiums when they do.
But uncertainty about those payments would exist even if Hillary Clinton was in the White House. That's because congressional Republicans filed suit against the Obama administration for making the payments, and a federal judge agreed with the GOP that the payments, which were not appropriated by Congress, violated the constitutional separation of powers. That lawsuit was put on hold after Trump won the election, but it would almost certainly be proceeding if Clinton had won—meaning that insurers would have been working under the threat of losing those subsidies via judicial order.
Moderate levels of instability are built into Obamacare's core policy scheme. From the beginning, that instability has been exacerbated by the political environment in which it was passed and implemented. Niether Republicans nor Democrats appear to have a workable solution in the pipeline. So in the long run, even moderate levels of instability are likely to prove crippling.