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Is the Obamacare Insurance Exchange Doomed?

Photo by Lubo Minar on Unsplash

The Affordable Care Act’s passage five years ago laid the foundation for the health care exchange that millions use today. If you can’t get insurance through your employer, you can go to healthcare.gov and shop on the exchange for a plan. To sweeten the pie, fairly generous federal subsidies are offered to those with lower incomes. For many who were unable to purchase insurance due to pre-existing conditions or couldn’t afford a plan, healthcare reform has been a godsend.

But while many are pleased that they can now purchase coverage, the fate of the federal marketplaces is uncertain.  Low enrollment and growing losses are a huge problem for the exchange, and it’s causing some insurance companies to get cold feet. The world of publicly-traded insurances companies has been shaken by the announcement that UnitedHealthcare is considering exiting the market in 2017. The CEO of UnitedHealthcare has made some pretty bold statements, including that “the medical costs of new consumers are unsustainable.” He has since added that he regrets ever entering the market, and said that their participation in the exchange has led to half a billion dollars in losses.  Now analysts are closely watching other insurance companies who currently do business on the exchange. There could be severe consequences to the availability of insurance if the larger players on the exchange choose not to stick around.

The problem with the Obamacare health insurance exchange is fairly straightforward. Insurance companies are paying out a lot more than they anticipated in claims for exchange-purchased policies.  According a recent study by Truven Health Analytics, people who purchased their insurance from the exchange are older and sicker than those insured outside of the exchanges. Unfortunately, the sagging enrollment rates in exchange plans means that the statistical picture and profitability may not improve. The young and healthy that were supposed to keep premiums low and insurance companies in the black are not yet flocking to the exchange.

Many people in the past have opted to pay the fine for being uninsured, because it was much less expensive than actually having insurance. This year, the fine will more than double, and will be at least $695 and up to $2,085. Policy makers are hoping that this encourages people to buy insurance, but they’re not holding their breath. The Congressional Budget Office (CBO) originally projected more than 21 million people would be enrolled in health plans through the exchange in 2016. Today the federal government is expecting about half of that original amount.

Part of the reason enrollment hasn’t matched projects is that premiums are registering double-digit increases in many parts of the country. My own monthly premium for my Florida-based platinum plan is set to rise 37% for 2016. The simple reality is that medical care is still really expensive in the United States and those costs are affecting premiums. Innovations in healthcare are great for patients, but come at a steep cost. The cost of the specialty medication that I take daily far exceeds the cost of my premium.

There is some good news in the world of health care as medical cost growth has slowed down a bit in recent years. According to a recent study by Pricewaterhousecoopers, several factors are helping tame medical inflation, including the Affordable Care Act and a sluggish economy.  Nevertheless, the health care spending growth rate still far outpaces economic growth, and will continue to wreak havoc on consumer’s wallets and insurance companies’ bottom line.

Whether the insurance exchange created by the Affordable Care Act can survive in its current form is debatable. In the political area, most talking points label Obamacare a complete success or a complete failure. As far as the health insurance exchange is concerned, there’s little doubt that major fixes are going to be needed to ensure its sustainability in coming years. Due to the highly politicized atmosphere surrounding the law, however, this may prove difficult to achieve.

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