UnitedHealth is withdrawing from most of the 34 ObamaCare Exchanges in which it currently sells, citing losses of $650 million in 2016. A recent Kaiser Family Foundation report indicates UnitedHealth’s departure will leave consumers on Oklahoma’s Exchange with only one choice of insurance carriers. Were UnitedHealth to exit all 34 states, the share of counties with only one or two carriers on the Exchange would rise from 36% to 52%, while the share of enrollees with only one or two carriers from which to choose would nearly double from 15% to 29%.
The Obama administration dismissed the news as unimportant. A spokesman professed “full confidence, based on data, that the marketplaces will continue to thrive for years ahead.” Like what, two years? Another assured there is “absolutely not” any chance, whatsoever, that the Exchanges will collapse.
Obamacare hasn’t yet collapsed in a ball of flames. But UnitedHealth’s withdrawal from Obamacare’s Exchanges is more ominous than the administration wants you to know.
1. UnitedHealth’s departure shows Obamacare is suffering from self‐induced adverse selection.
Last month, the Blue Cross Blue Shield Association, whose members are the largest players in the Exchanges, reported that Exchange enrollees are costlier than those with employer‐based coverage, consuming on average 22% more care.
UnitedHealth generally didn’t have the lowest‐cost premiums in the Exchanges. The fact that it still lost money provides further evidence of significant adverse selection. It suggests high‐cost patients are shopping for the most comprehensive benefits, regardless of premium; that UnitedHealth offered coverage that was attractive to the sick; and the company thus attracted a particularly costly group of enrollees.
Meanwhile, UnitedHealth’s enrollment projections provide evidence that healthy people consider Obamacare a bad deal. The company expects enrollment in its Obamacare plans will fall 18% over the course of 2016, from 795,000 to 650,000. Some of the attrition will be due to people who leave Exchanges when they become eligible for employer‐sponsored coverage, Medicaid or Medicare. Presumably, however, people who lose employer coverage, become ineligible for Medicaid, or leave their parents’ plans would offset those losses. Much of that projected attrition is likelyhealthy people deciding Obamacare coverage isn’t worth the cost.
2. UnitedHealth’s departure is bad news for other carriers.
Carriers are already suffering “unsustainable” losses under Obamacare. Even after the government threw all the subsidies it had at Exchange carriers, 70% still reported losses, according to the consulting firm McKinsey. The average profit margin was negative in 41 states.
When UnitedHealth’s apparently sicker‐than‐average enrollees begin to enroll in whichever of the remaining plans offer the most comprehensive coverage, those carriers’ losses will mount.
3. UnitedHealth’s departure shows Obamacare premiums will continue to rise.
Analysts are already predicting Obamacare premiums will rise in 2017. UnitedHealth’s action will cause them to rise even more.
The Obama administration claims the impact on premiums will be small because UnitedHealth accounts for just 6% of Exchange enrollments and didn’t price its products competitively. Yet the KFF estimates that without UnitedHealth, premiums would have been 1% higher in 2016–and that’s before we include the most important effect of the company’s withdrawal.
UnitedHealth’s costlier‐than‐average enrollees aren’t going away. They will enroll with other carriers. Again, they will choose whatever carriers offer the most comprehensive coverage still on the market. When those carriers see their losses mount, they will have to increase premiums even more.
4. There will be more exits.
If those carriers’ losses are too great, or if the government blocks them from increasing premiums sufficiently, those carriers will exit the Exchanges, just like UnitedHealth has.
I am willing to make a prediction. The next carriers to leave the Exchanges, like UnitedHealth, will not be the ones offering low‐priced plans, but those offering the most comprehensive coverage (at moderate or high premiums).
Astute observers will notice what is happening. Obamacare will keep punishing whatever insurance company offers the best coverage. The law is literally rigged to create a race to the bottom. That’s why so many carriers are offering plans with high cost‐sharing and narrow networks.
This is why opponents fight Obamacare. The law makes it harder, not easier, to have secure, high‐quality health coverage.