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Aetna Ditches Obamacare Because the Health Law Is Broken

Aetna exits the exchanges, citing massive losses and structural instability.

Kris Tripplaar/Sipa USA/NewscomKris Tripplaar/Sipa USA/NewscomInsurance 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.

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  • Philadelphia Collins||

    Oh ye of little faith...

  • loveconstitution1789||

    Yup. Nothing more regulation, money and government force cannot fix.

  • ThomasD||

    "Moderate levels of instability are built into Obamacare's core policy scheme."

    Oh that's just rich.

    Moderate levels of instability are built into aerobatic planes. That's how they can be so maneuverable in the hands of an expert.

    "Moderate" levels of instability in a vast government program dominating about a sixth of the US economy is a terrible joke.

  • ||

    It's nonsense. You don't want instability built in to the core of a system by design, you want robustness to instability built in.

    However, I could be wrong considering that they're effectively powering healthcare coverage using an infinite improbability drive.

  • ||

    Now there's some Deep Thought.

  • Vapourwear||

    Maybe it'll be friends with them!

  • ThomasD||

    "... using an infinite improbability drive."

    Wrong decade.

    It's an Omega-13 Device.

  • Diane Reynolds (Paul.)||

    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.

    [...]

    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.

    It's a death spiral. If the insurers don't get their rate hikes, they'll bow out. If they do get their rate hikes, more people will drop out and pay the penalty, leading to yet more rate hike requests. That's a death spiral.

  • ThomasD||

    " Most of the non-profit insurers created under the law have failed and shut down."

    I guess that failure depends on what you think they were intended to accomplish.

    Because many of them sure managed to suck up a lot of Federal money, and more than a few politically connected cronies seemed to come out well in the black.

  • BYODB||

    'Non-profit' is a misnomer in my book when talking about the Federal Leviathan. Just because the organization isn't 'profit oriented' that doesn't mean that you personally can't get rich administering it with a six or seven figure salary.

  • BYODB||


    "Moderate levels of instability are built into Obamacare's core policy scheme."


    Understatement of the year, but I suppose that's all we'll get from Suderman.

  • albo||

    It was born broken. The ACA was the new car with the leaky windshield seal and the empty coke bottle rattling around inside the door from where a 1970s GM factory line worker put it.

  • Trigger Warning||

    Working as intended. The libtard narrative will be that Obamacare failed due to Republican obstruction corporate greed. The proferred solution will be more government regulation of healthcare in the form of single-payer, NHS-style government healthcare. And then we will be fucked, because once that happens, we are never getting rid of it without Civil War II.

  • Mark22||

    And then we will be fucked, because once that happens, we are never getting rid of it without Civil War II.

    You can get rid of something like that by inflating it away. That's what's happening in Europe. Of course, European countries actually have strict limits on debt and borrowing, so they can't keep borrowing to finance excessive social services.

  • loveconstitution1789||

    Yeah. This is what pisses me off about Republicans in Congress not just sucking up the short-term bad press of repealing ObamaCare. If the Republican buy it by altering it and keeping any parts, it belongs to the Republicans. Obama's failure will be blamed on Repubs.

    I though the Senate might do a sneaky move and rewrite the House health bill to completely repeal ObamaCare and thereby only needing a 51 vote majority. Like Reid did with the original ObamaCare bill from the House.

    Or the Senate should vote to lower all vote thresholds to 51 votes and in 2020, raise the vote threshold to 100 votes to pass anything and changing the rules requires 100 votes.

  • Bob K||

    See the free market doesn't work. We need single payer.

    - Prog

  • ForceApplied||

    The worst part about being called "Reason" is when you fail to use it, it undermines your whole image. Please use evidence and data, not ideology, when writing further articles.

    http://www.latimes.com/busines.....story.html

    To sum up: Aetna lied about its last withdrawal from the individual markets and was shown to be lying in a court of law back in January. They were in fact making money in several states and counties. They did it to improve their shot at a merger with Humana. When that failed, the real losses came from the merger flop, not the exchanges.

    http://www.modernhealthcare.co...../170509981

    Don't fall for their latest BS.

  • Trumptard||

    So they are dropping out of a business they are making money in? Brilliant!

  • XM||

    "If" the judge is right, then Aetna pulled out to improve their chances to merge with humana, not out of purely economic reasons. But that doesn't mean they're struggling financially, which explains this apparent stunt.

    Aetna only increased revenue thanks to higher fees (insulated by subsidies, meaning taxpayers effectively prop them up) and medicaid and medicare business. They're still losing members and their plans on he exchange aren't viable.

    http://www.modernhealthcare.co...../170509981

    "Making money" is not the same thing as profit margin or long term viability. If you're spending 80 cents for everyone dollar you make, (and the government will take their share), you'll be in the red sooner or later.

  • XM||

  • Mark22||

    To sum up: Aetna lied about its last withdrawal from the individual markets and was shown to be lying in a court of law back in January. Don't fall for their latest BS.

    The only reason we have to talk about this BS at all is because of the ACA and the crony capitalist incentives it gives to corporations like Aetna.

    In a free market for healthcare, the government would simply let them throw their temper tantrum and not give a f*ck because Aetna couldn't extract money from taxpayers that way.

    Whichever way you look at it, it's the fault of the ACA and regulators.

  • Quo Usque Tandem||

    This article make a lot of general and vague statements along the lines of "poorly designed structure," "the market is fundamentally flawed" cites "the politics of health care" without offering anything of substance to explain or support those claims.

    Fundamentally, ACA is anything but affordable. I am a health care provider and I can tell you that over 90% of the patients I see with this type of coverage are either heavily subsidized with tax dollars [by 80% or more of the premium] or more commonly have expanded medicaid. No one will buy this at market price because it costs too much for too little benefit.

    Also it was set up [intentionally or otherwise] to promote adverse selection. Young and healthy people stay away in droves because of the cost [and not being sick or disabled they most likely work and don't qualify for aforementioned subsidies]; this means that a high percentage of participants have health problems and there aren't enough of the healthy [upon which the success of ACA was predicated by then POTUS Obama on many occasions].

    That is why it is fundamentally flawed. Insurances are businesses, if they are going to lose money in buckets they are going to pull out.

  • JFree||

    This adverse selection (which is the obverse of cherry-picking elsewhere) in the individual pool is the core of the problem. Essentially we decided that the uninsured should alone be structurally be responsible for care of other uninsured - as if the uninsured are actually a single 'pool' in any sense other than that they are uninsured. But they are at minimum two starkly different pools - those who can't afford to pay what they know they need - and those who don't use medical care at all so don't want to pay anything.

    All the games we are playing are pointless. We've got to stop with all this separate pool nonsense. The only risk pool is the entire population. And that is going to mean fixing Medicare, employer plans, Medicaid so that they don't beggar each other - cuz the entirety is absolutely a zero-sum game as long as we have mandated 'annual' changes. No one has the will/honesty to do any of this.

  • Sevo||

    ForceApplied|5.11.17 @ 6:59PM|#
    "The worst part about being called "Reason" is when you fail to use it, it undermines your whole image. Please use evidence and data, not ideology, when writing further articles."

    "Evidence" that a company drops out of a profitable market?
    Where did you major in "Stupid"?

  • Len Bias||

    "Obamacare's individual market has been under strain for years."

    Since it's inception, in fact.

  • Quo Usque Tandem||

    I suppose you can thank Gruber's "stupid American voters" for that.

  • JFree||

    Aetna's exit is yet another reminder of the growing instability that exists within the individual market system created under Obamacare,

    This is silly. The individual market has been broken for decades. And it will ALWAYS be broken as long as it is simply a 'remainder' pool - ie what's left after the big volume - employer-based, retirees, destitute - takes care of itself. And by 'taking care of itself' via cherry-picking the pool and cost-shifting the jello elsewhere - that simply means the remainder pool is completely screwed - pays the highest prices, gets the adverse selection that is a consequence of the cherry-picking elsewhere, and has the least resources.

    It cannot be solved by treating it as some separate pool. THAT was the failure of Obamacare - but it is also the failure of every 'alternative'.

  • Blue Star||

    In 1999 my broker could shop my company's health plan among 15-16 insurers. By around 2007, there were only 5-6.

    That number has dwindled to 3-4.

    Whatever is causing Aetna to bail, it isn't Obamacare and now that Drumpfcare is right around the corner, fun times ahead.

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