UnitedHealth Group Losing Big Money and Threatening to Leave the Obamacare Exchanges--Because the Obamacare Insurance Business Model Does Not Work

It's official. The Obamacare insurance company business model does not work.

UnitedHealth Group just announced they expect to lose $700 million in the Obamacare exchanges and are seriously considering withdrawing from the program in the coming year.

This morning, the Wall Street Journal reported just about everybody else is losing their shirts in Obamacare as well:

Several other big publicly traded insurers also flagged problems with their exchange business in their third-quarter earnings Anthem Inc. said enrollment is less than expected, though it is making a profit Aetna Inc. said it expects to lose money on its exchange business this year, but hopes to improve the result in 2016. Humana Inc. and Cigna Corp. also flagged challenges...

There are signs that broad pattern has continued--and in some cases worsened--this year. A Goldman Sachs Group Inc. analysis of state filings for 30 not-for-profit Blue Cross and Blue Shield insurers found that their overall company wide results were "barely break-even" for the first half of 2015.

Goldman analysts projected the group would post an aggregate loss for the full year--the first since the late 1980s. The analysis said the health-law exchanges appeared to be a "key driver" for the faltering corporate results, and the medical-loss ratio for the Blue insurers' individual business was 99% in the first half of 2015--up from 91% at that point in 2014, and 82% for the first six months of 2013.

Every health plan I talk to tells me that they don't expect their Obamacare business to be profitable even in 2016 after their big rate increases. That does not bode well for the rate increases we can expect to be announced in the middle of next year's elections.

And, then there are the insolvencies of 12 of the 23 original Obamacare co-op insurance companies--the canaries in the Obamacare coal mine--with almost all of the rest of the survivors losing lots of money.

Why is this happening?

Because nowhere near enough healthy people are signing up to pay for the sick.

This from The Robert Wood Johnson Foundation (RWJF) and The Urban Institute (UI) in their October 2015 policy brief regarding the Obamacare insurance exchange enrollment:

We estimate that just over 24 million people were eligible for tax credits for health coverage purchased through Affordable Care Act's (ACA) health insurance marketplaces in 2015. As of the beginning of March 2015, 10 million people eligible for tax credits had selected marketplace plans, representing a plan selection rate of 41 percent of the population estimated to be eligible for tax credits. By the end of June, 2015, 8.6 million had actually enrolled in marketplace coverage with tax credits, representing an enrollment rate of 35 percent.

In recent post at Forbes, Has the Obama Administration Given Up on Obamacare?, I made the point that the Obama administration's 2016 almost flat enrollment estimate would constitute only a small fraction of the potential market--I estimated less than 40% of those eligible for a subsidy.

But who am I?

Now, The Robert Wood Johnson Foundation and the Urban Institute have come to largely the same conclusion--enrolling a total of 10 million in the exchanges, based on historic trends, would mean only about 9 million of them would be subsidy eligible. That would amount to only 38% of the 24 million people eligible for a subsidy.

And, don't forget that the only place a subsidy eligible person can get an Obamacare subsidy is in the state and federal exchanges. They can't get subsidized commercial health insurance anywhere else.

And, I suggested in the same post that such a poor 2016 open enrollment would be way short of the market share required to create an efficient risk pool--having enough healthy people paying into the pool to support the sick at affordable rates. I also argued that such low enrollment rates could never make the new health insurance law politically sustainable.

That the Affordable Care Act's individual market risk pool is so far unacceptable was reinforced by a recent McKinsey report that health insurers lost an aggregate $2.5 billion in the individual health insurance market in 2014--an average of $163 per enrollee. They reported that only 36% of health plans in the individual market made money in 2014--and that was before they found out that the federal government was only going to pay off on 12.6% of the risk corridor reinsurance payments the carriers expected and many had already booked.

Because the risk corridor program is revenue neutral, the fact that the carriers in the red are only going to collect 12.6% of what they requested means that the carriers losing money did so at a rate eight times greater than the carriers making money!

I have also regularly argued that the reason that the take-up rate among most of those eligible is so low is that the policies are still too expensive and the deductibles and co-pays are too high for other than the poorest.

In another recent post, Why the Affordable Care Act Isn't Here To Stay--In One Picture, I pointed to an Avalere Consulting analysis that showed that while three-quarters of the poorest of those eligible for the exchange subsidies have signed up, only 20% of those making between 251% and 300% of the poverty level had so far enrolled.

What did the Robert Wood Johnson Foundation and The Urban Institute find on this count?

They found almost exactly the same thing--the poorest are buying Obamacare and the vast majority of the rest--even if they are subsidy eligible--are not:



And the reason the working and middle-class are not buying it? This from the RWJF/UI policy brief:

The uniformity of 2015 marketplace plan selection rates at different income levels across the 37 states using HealthCare.gov is striking. In part, it may reflect people's judgments about the affordability of marketplace coverage at different income levels. Premium tax credits, cost sharing reductions, and actuarial value levels are the same across the states, so marketplace enrollment data may provide valuable information on people's willingness to pay for marketplace health coverage. This conclusion is reinforced by several studies that have shown many people who shopped for marketplace coverage did not choose a plan, considered the available options to be unaffordable.

When are Obamacare apologists going to stop spinning the insurance exchange enrollment as some big victory that is running smoothly? Yes, Obamacare has brought the number of those uninsured down--because of the Medicaid expansion in those states that have taken it and because the poorest people eligible for the biggest exchange subsidies and lowest deductibles have found the program attractive.

But that Obamacare has been a huge failure among the working class and middle-class--not to mention those who make too much for subsidies and have to pay the full cost for their expensive plans--has once again been confirmed.

How does the Obama administration spin 2015's unacceptably low health insurance exchange take-up rate of 35% and their projection that it will hardly grow in 2016?

Here is what HHS Secretary Burwell recently said about that:

This open enrollment is going to be a challenge but having fewer uninsured Americans to sign up is a good problem to have.

The arrogance in this spin is astounding.

When will the denial, over the real shape Obamacare is in, end?

The Robert Wood Johnson Foundation and Urban Institute findings have now given additional credibility to the very same conclusion many of us have been trying to make since the Obamacare launch: The Obama administration has NOT been so successful in enrolling those eligible--they've got more than 60% of the group remaining!

If the Obama administration signs up the 10 million they are estimating they will sign-up during the current open enrollment, based upon the historic number that are subsidy eligible, they will have less than the 9 million of the 24 million RWJF and UI estimate are in the potential exchange subsidy market--just a 38% success rate. And, that is nowhere near where they will have to be to make these risk pools sustainable for the insurance companies or politically sustainable in the country.

Or keep the likes of UnitedHealth Group in the program.

How can Obamacare be fixed?

First, the Obama administration can improve, but not completely solve, their Obamacare problems by dramatically revisiting their regulations so as to give health plans the flexibility they need to better design plans their customers want to buy as well as tightening up the special enrollment periods that let sick people join the day they need it.

But that would only be a first step.

Here is an op-ed I did on the subject of the complete overhaul Obamacare needs at USAToday.

Crocodile Tears Over the Failing Obamacare Co-Ops--The Canaries in the Obamacare Coal Mine

I can't believe what I've been hearing recently from Obamacare defenders over the failing Obamacare co-ops--the most recent count has eight of them going bust.

The biggest complaint seems to be that those mean Republicans forced these co-ops out of business because of a provision they included in the last budget.

Read my post at Forbes

Flat Enrollment Estimates For 2016--Has the Obama Administration Given Up on Obamacare?

On Thursday, the Obama administration said they expect to have 10 million people enrolled on the Obamacare insurance exchanges in 2016. They further said they expect to sign-up only one in four of those still uninsured and eligible during the 2016 open enrollment scheduled to begin on November 1.

These are astonishing admissions.

In 2013 the Congressional Budget Office (CBO) estimated that the Obamacare insurance exchanges would enroll an average of 22 million people during 2016.

Given the original expectations how can we now not say this program is a terrible failure?

Read my post at Forbes

Ohio Governor John Kasich's Medicaid Expansion: Successful Governance is Very Hard Work

Presidential candidate John Kasich (R-Ohio) has taken a lot of criticism on the campaign trail for expanding Medicaid under Obamacare. But if his Medicaid expansion isn’t an extraordinary example of successful conservative governance I don’t know what would be.

See My Post at Forbes

Has Obamacare Really Reduced The Uninsured By 16 Million And Continued To Show Strong Growth?

Recent reports have touted a significant drop in the number of uninsured and generally credited Obamacare for it. And, other reports have recently highlighted about 950,000 more people signing up for Obamacare since the 2015 open enrollment closed but haven’t said anything about the number of people who dropped their coverage during the same period.

Many of these reports may be technically correct but hardly give an accurate picture.
See my post at Forbes

Health Insurer Merger Mania -- Muscle-Bound Competitors And A New Cold War In Health Care

It is doubtful that the dramatically escalating consolidation in both the health insurance industry and among hospitals and doctors will make our health care system either more efficient or more competitive.

This reminds me of the Cold War. Each side gets more powerful so that the other side can’t come to dominate it. The two sides finally get so big and powerful they reach a point of détente—let’s just agree to get along. Or, in the case of the Cold War, one side just ultimately spends the other side into submission.

That kind of environment doesn’t create more efficiency or innovation but undermines real competition just like you would expect one oligopoly facing off against another to do. We just end up with a few muscle bound players creating sizable barriers for new innovative and disruptive players to enter.
Read more on my Post at Forbes

California Senate Votes To Open Up Obamacare To 2.5 Million Illegal Residents

King V. Burwell Opponents Said Killing Subsidies Would Blow Up Obamacare­­––Now They Want To Open Up Unsubsidized Care To Illegal Californians

And consider this. Passage of the California legislation that has already cleared the Senate (SB 4) could be a real boon to the business of health care delivery in California. California’s impressive medical system could be the leader in international medical tourism. SB 4 would also make it clear that a foreign person could land at LAX, give Covered California a call and sign up for an almost full pay Platinum plan for a few hundred dollars a month, on the first of the following month when their coverage became effective show up at Cedars-Sinai Medical Center and have thousands of dollars of treatment, get back on the plane and go home, and then drop the coverage.

See my post at Forbes

Could Humana Grovel Any More To Get the Aetna-Humana Merger Approved By the Obama Administration?

See my post at Forbes

Why The Affordable Care Act Isn't 'Here to Stay'­­­­--In One Picture

Why is Obamacare still so unpopular? Why aren’t the working class and middle-class signing up for it? Why is the Obamacare population sicker and causing so many big rate increases a year earlier than expected? Is Obamacare financially sustainable in its present form? Is it politically sustainable as it is?

Here is one picture that tells you just about everything you need to know to understand where Obamacare stands--politically and financially.

See my post at Forbes

The King V. Burwell Decision

First, as any of us who know the market can appreciate, the Court just saved the Republicans from themselves. They were in no way ready to avoid the crisis that would have engulfed the individual market––half of those people on the exchange who would have lost their subsidies and the other half off-exchange that would have seen 30% to 50% rate increases––on top of the big increases already announced––without a quick fix.

Does this mean that Obamacare has cleared its last major hurdle?

Not a chance.

Obamacare has only enrolled about 40% of the subsidy eligible market in two years worth of open enrollments. That level of consumer support does not make Obamacare either financially sustainable or politically sustainable. The surveys say the 40% who have enrolled like their plans. Of course they do, they are the poorest with the biggest subsidies and the lowest deductibles. The working and middle-class have most often not signed up for Obamacare because it costs too much and delivers too little.

That Obamacare is not financially sustainable is evidenced by the first wave of big 2016 rate increases by so many large market share insurers. The next wave of rate increases a year from now will also be large and will be in the middle of the 2016 election.

These rate increases will further undermine the political sustainability of the law that has been reflected in five years of polling.

The attempt to scuttle the law through the Supreme Court was ill conceived and Republicans are very lucky it did not happen.

Now Obamacare has to stand on its own going into the 2016 elections and the growing evidence is that won't be any easier.

The Republican Proposals to Extend the Obamacare Subsidies If the Supreme Court Ends Them Would Create a Huge Market Mess

While both the House and Senate plans would create a means for people to continue to be covered in the wake of any Supreme Court finding that ended the subsidies in the federally run states, what we so far know about these proposals is clearly unworkable in the market and would lead to very big and unfortunate unintended consequences.

See my post at Forbes

Why Are the Proposed 2016 Obamacare Rate Increases So Large?

Why The Big Obamacare Rate Increases Have Begun a Year Early?

One state after another is reporting big Obamacare rate increases––particularly from many high market share health insurers who have the best claim data.

Where are the rates going up and by how much?

Will regulators cut these rate increases back as they often did last year?

What is causing this a full year before the insurance company "3Rs" claim and risk corridor support payments are set to go away?

Are carriers just being conservative worried about the upcoming Supreme Court decision?

I tried to answer these questions and more in my latest post at Forbes.

The Eye Popping 2016 Obamacare Rate Increases Are Out

The Big Rate Increases Are Coming a Year Early

The Obama administration has posted the 2016 rate increases in excess of 10% that the Obamacare health plans are requesting.

There are a lot of them.

All of the federally run states have been posted and some for the state exchanges as well. Both California and New York do not have their rates on this site yet.

Some will quickly argue that many of these rate increases are subject to regulatory approval and can be rolled back. That's right. But this year the health plans have hard claim data to show the regulators and a 35% rate increase is hardly going to be rolled back to 5%.

Big rate increases like this are driven by a lot of claims experience––a lot of really lousy claim experience.

You will also notice that this list most often includes the big market share players, such as the Blues plans, in each of these states. These are the players with the best data.

That these big rate increases are coming a year before the "3Rs" reinsurance program is to end, that was supposed to subsidize the health plan's high claims experience, is not good news.

You can access the administration's website and look at all of them by state here.

To quickly see all of the 10%+ rate increases in a particular state just click on the state and enter a date range of 01/01/2016 to 01/01/2016. Leave the company field blank.

If you leave the dates blank, you can see the carriers' rate submission history since 2013. It's interesting to see what a particular carrier increased rates at the time of Obamacare's original launch and what they have layered on to costs since.

If you click on the company name on the left side, you will see a brief description of their justification for the rates.

For example, Blue Cross of Texas commented that it covered 730,833 individuals in 2014 with premium of $2.1 billion and claims totaling $2.5 billion––for a medical loss ratio of 119%. The plan further commented that, after the "3Rs" reinsurance adjustments, they lost 17% to 20% of premium in 2014––that would be more than $400 million. And, they are only asking for a 20% rate increase.

The Columbia Journalism Review: "Why We Need Stronger Coverage of Covered California"

The California Press Gets a Critique It Has Long Deserved

Covered California, the Obamacare state-run health insurance exchange, has long been the subject of occasional posts on this blog––none of them flattering.

The constant spin in the face of facts that comes out of Covered California and the way the press, particularly in California, has often just reprinted that spin hasn't been appreciated here.

I am happy to report––and admittedly relieved––that it isn't just me that thinks the reporting has been less than objective.

But would you believe that conclusion would have come from the esteemed Columbia Journalism Review (CJR) in a story titled, "Why We Need Stronger Coverage of Covered California"? The journal is part of the Columbia Graduate School of Journalism.

In past months I have pointed out that:

• Covered California enrollment "increased by only one percentage point this year, despite a big investment in outreach."
• Total enrollment has stalled out at 40% of potential enrollment.
• Yelp gives Covered California a single-star rating based upon almost universally highly critical consumer reviews.

And then there was former CBS News Emmy winning investigative journalist, Sharyl Attkisson, with her two part expose, "Incompetence, Mismanagement Plague California's Obamacare Insurance Exchange" and "Insider's Detail Culture of Secrecy at California's Obamacare Exchange" on The Daily Signal, that filled in the details behind all of the high expense, poor consumer service, and now dismal enrollment results for the more than $1 billion taxpayers spent in California on that Obamacare exchange.

All of this time hardly a critical peep came from the California press and it sure looked to me like they were all happier just to reprint Covered California's upbeat press releases.

In her Friday story, the Columbia Journalism Review's Trudy Lieberman said the following:

In recent months, Covered California has cited each of these measures ["good" enrollment news] to tout its success. And though outside analysts have raised some notes of caution, press coverage has largely followed the lead set by the exchange. The result is coverage that has too often been reactive, short on enterprise, and with missed opportunities to ask some necessary questions. Covered California may ultimately have a success story to tell––but it will need to face some sharper skepticism before we can be sure.

And also from the CJR story:

It can be exhausting to sort out all of the different metrics, and the state's healthcare reporters have had plenty of other stories. But going forward, the exchange warrants closer scrutiny than, for the most part, it got this year. And while reporters should definitely be attentive to outside evaluations both critical and positive...there is a role for journalists to play, too, in getting out there and talking to people...

With all due respect to Lieberman, I would have said it more succinctly to the press: Just do your job.

Republicans Would Extend Obamacare Subsidies If the Supreme Court Strikes Down State Exchange Payments––But With Lots of Conditions

The Republicans should offer an unconditional subsidy extension if the Supreme Court strikes them down

Wisconsin Senator Ron Johnson (R) has offered a plan to extend the Obamacare state exchange subsidies into 2017 if the Supreme Court strikes them down this summer. The Republican Senate leadership is supporting his bill.

But Johnson has some pretty big conditions:

• Existing subsidies in the federally run exchanges would continue until September 1, 2017.
• The individual mandate would be struck down.
• The employer mandate would also be repealed.
• Obamacare's benefit mandates––the essential health package requirements––would be struck down enabling insurance companies to market any health insurance plans that complied under state law. 
• Consumers could keep any pre-Obamacare policies still in effect.
• The subsidy extension would not apply to new enrollees––just those individuals and families getting subsidies at the time the Senator's bill became law.

On the face of it, Republicans are smart to demand the most unpopular parts of Obamacare should be immediately scrapped.

But, Democrats just aren't going to go for this. They will point out that while the individual mandate was being struck down the guarantee issue provisions of Obamacare would still be intact leading to significant anti-selection and problems for the health insurance markets without at least a viable alternative to the individual mandate.

$1 billion in Federal Tax Dollars and a One Star Rating on Yelp––Quite an Expose––Behind the Scenes at Covered California

California's Obamacare Insurance Exchange Posts Poor Results and is the Subject of an Expose

What a difference a year makes.

Last year the California Obamacare insurance exchange, Covered California, was touted as the poster child for the Obamacare launch. Supporters said it worked well, enrolled lots of people, and was off to the kind of start that proved how successful Obamacare could be.

But after the second open enrollment new sign-ups have hit a wall, customer renewal rates are among the worst in the country, and consumer complaints are growing:

• Covered California enrollment "increased by only one percentage point this year, despite a big investment in outreach."
• Total enrollment has stalled out at 40% of potential enrollment.
• Yelp gives Covered California a single-star rating based upon almost universally highly critical consumer reviews.

Wisconsin Governor Scott Walker's Medicaid Policy––and Now His Position Not to Save Insurance Subsidies if the Supreme Court Strikes Them Down––Says a Lot About How He Would Govern as President

Speaking to a conservative group in Wisconsin this week, presumptive presidential candidate Scott Walker said he would not move to establish a state exchange in order to preserve the Obamacare federal insurance exchange subsidies if the Supreme Court strikes them down in an expected June ruling:

We're going to push back. The President of the United States––they've got to come up with a solution...They're going to try to put pressure on us but we need to put the pressure right back on them.

The 186,000 Wisconsin residents now getting subsidized health insurance from Wisconsin's federally run exchange would lose their premium support if and when the Supreme Court strikes down the Obamacare subsidies.

This isn't the first time Walker has tried to clearly establish himself as the candidate with the strongest conservative credentials––and biggest opponent to Obamacare.

In 2013, Walker refused to expand Medicaid in Wisconsin under Obamacare and instead came up with a plan of his own.

About Walker's Medicaid alternative, the Milwaukee Journal Sentinel––which has supported his candidacy for governor––wrote in a recent editorial:

For the governor, it was about a conservative standing firm against Obamacare. But for taxpayers, it was about losing the chance to save up to $345 million over the next two years...

Walker's decision cost taxpayers more than $100 million in the current two-year budget. An estimated 84,700 more people could have been covered under BadgerCare [Medicaid] had he taken the additional federal money.

And, for what? To make a political statement. Wrong. Wrong. Wrong.

Two years later just how well has Walker's Medicaid alternative done? See my op-ed in Forbes here.

Headline: "Exchanges Struggle to Enroll Consumers As Income Increases" It's Because of the Obamacare Dichotomy

Here is an excerpt from a post on this blog from June 21, 2014:

Kaiser Family Foundation Survey Finds Most People Who Bought Health Insurance on the Exchanges Are Happy With It

This week the administration reported that 76% of those who received a subsidy paid less than the full premium for the plans they selected. And, 69% are paying less than $100 after the subsidies––46% are paying $50 or less.

It would appear from this data that it is the lowest income people who are most often signing up for coverage. They are the ones who get the biggest premium subsidies as well as the reductions in their deductibles and co-pays.

So, the Kaiser Family Foundation has found that these people who are having their premiums and deductibles disproportionately subsidized are happy with their coverage. Hardly a surprise. If you paid for most of my insurance and cut my deductibles from the standard levels I'd be pretty happy too.

My sense has always been that Obamacare appeals to people very differently depending on their incomes. I will call it the Obamacare dichotomy: Poorer people get by far the lowest premiums and deductibles from Obamacare and working class/middle class/wealthier people, who pay very high premiums for high deductible plans, get relatively very little from it.

Why do most people express dissatisfaction with Obamacare in most of the polls? Why did Obamacare fare so badly in the last election? It seems to me that all of this has to do with who benefits and who does not.

This week consulting firm Avalere found the same enrollment breakdown I pointed to last June between the poor and the middle class after analyzing the most recent enrollment reports from the government:

The New York Times: Has Obamacare Enrollment Stalled?

Readers of this blog know that I have made a number of points about Obamacare in recent months:

• The number of people signing up for Obamacare is well below the level necessary to make the rates stable over the long-term––the longstanding insurance industry standard calls for getting 75% of an eligible group in order to have enough healthy people in the pool to pay the costs of the sick people. I have reported to you that less than half of the subsidy eligible have signed up so far.
• The Obama administration's enrollment estimates, that they now use to celebrate their 2015 enrollment results, were low ball estimates that aren't close to the kind of enrollment they need to make the program both politically and financially sustainable.
• Obamacare's overall enrollment is coming up way short of original projections and has slowed down considerably in the most recent second open enrollment.

In the face of these comments you have likely noted any number of press reports in the past weeks pointing out just how well Obamacare has been doing.

But now none other than the New York Times has picked up the same themes I have been talking about for months.

The Obamacare Supreme Court Subsidy Challenge––Surprising Comments From Anthony Kennedy and Maybe a Way Out for John Roberts

The Supreme Court heard oral arguments yesterday in the King v. Burwell case that would throw out the Obamacare subsidies for millions of people now receiving them in the federally run health insurance exchanges.

It sure sounded like perennial swing vote Justice Anthony Kennedy is ready to save the subsidies and Obamacare given his comments suggesting a finding for the plaintiffs would end up coercing the states into building an insurance exchange––something that would present Kennedy with a "serious constitutional problem."

But I was also struck by this line in a Washington Post article about the oral arguments: "More than the other justices, Kennedy is the one most likely to think out loud during oral arguments, trying out various theories and posing quandaries for lawyers."

Translated: It ain't over til it's over.

At one point, conservative Justice Samuel Alito asked if perhaps the Court could delay the effect of a ruling ending the subsidies thereby giving the Congress and the states time to remedy the fallout.