Many politicians, both Republican and Democrat, have said that the current health insurance system is failing, and there is quite a bit of truth to that statement.  Following the passage of the Affordable Care Act in 2010, the federal and many state governments set up health insurance exchanges, where individuals or households could sign up for government subsidy assistance and obtain a health plan.

At first, there were many insurance plans for consumers to choose from, but this number has been dwindling over time. While many people who live in metropolitan areas still enjoy a choice among insurance options, almost one-third of American counties now offer only one insurer option. The loss of competition in the insurance markets of these areas will inevitably lead to higher premiums and lower quality of product.

Sick Enrollees

To understand why so many insurers are leaving the health insurance exchanges, you first need to know how Obamacare was intended to work.  Obamacare was initially designed to cover almost the entire U.S. population, including the young and healthy as well as the infirm.  Part of the way it hoped to lure younger, healthier into purchasing health insurance was by offering specialized health plans that were low cost and offered limited benefits like catastrophic coverage.  The other way to include healthier enrollees was through the Individual Mandate which imposed a financial penalty on those without health coverage.

If more young people signed up for health insurance, their financial contribution would help offset the cost of insuring the sicker enrollees.  Unfortunately, younger people have not signed up for health insurance in the numbers that were expected to. Only 28 percent of enrollees in Obamacare in 2014 were in the 18 to 34 age group; Obamacare requires a 40 percent threshold to operate optimally. The young people that did sign up often chose low premium, high deductible plans that provided less financial offsets for insurers than expected.

This left many participating insurers primarily with enrollees who were sick and needed more costly care than expected. Under the Affordable Care Act, it became illegal for insurers to deny coverage to people with pre-existing conditions or to insure them at a higher cost.  So many insurers who participated in the health exchanges were paying more to cover these sick, newly insured, and that is why many of them are leaving.

For example, in Alabama, Blue Cross Blue Shield is the only insurer on the exchanges, but it is still losing money.  The company claims that it spent $1.20 for every $1 it received in premiums in 2017.  Another major insurer UnitedHealth Group claims to have lost $1 billion on the exchanges, primarily because of enrollees who were too expensive to insure. UnitedHealth Group has used these figures as a justification to withdraw from the Obamacare exchanges.

Federal Interference

The health insurance system created under the Affordable Care Act is a complex one that often needs careful management by state and federal overseers. With the election of President Donald Trump and a Republican-majority Congress, this oversight has disappeared. Furthermore, in some cases, the administration is actively working to undermine the insurance markets. For example, the Trump administration has threatened to stop making cost stabilization subsidy payments to participating insurers; this has already added uncertainty to the markets that have caused spikes in premiums.

At the heart of the ACA is the Individual Mandate which encourages Americans to obtain health insurance through employers, private insurers or the ACA-sponsored health insurance marketplaces. Shortly after his inauguration, President Trump signed an executive order that froze enforcement of the Individual Mandate. Consequently, the IRS stopped requiring tax filers from proving that they had health coverage and collecting financial penalties related to it.

Although this doesn’t affect the number of people who had health insurance in 2016, it is likely to have a chilling effect on insurance markets in the coming years.  If healthy people were unwilling to get health insurance except out of concern about paying a penalty, Trump’s decision is likely to push droves of them off of health coverage now. This will also discourage insurers from remaining on the exchanges as fewer young people enroll.

The federal government is also undermining other programs intended to strengthen health insurance exchanges.  The Department of Health and Human Services was supposed to equalize the costs to insurers with large numbers of sick enrollees through Reinsurance, Risk Adjustment and Risk Corridor programs. The new administration, however, has weakened these programs by failing to distribute costs among insurers equitably.

Too Few Insurers

Despite what the American public believes, there aren’t that many health insurance companies in our country. Because it is a difficult market to enter with many financial and regulatory hurdles, there are currently only about 35 private health insurers in the entire American market.  Moreover, this number is shrinking as companies merge and larger entities buy up smaller ones.

This small number of insurers has some created a herd effect, in which any actions taken by a few or, even, a single competitor is often copied by others.  That is a contributing factor in why insurers are leaving so many of the unprofitable regional markets.  Although many smaller insurers are willing to remain as the sole insurer in some of these markets in the hope they can make a profit from a regional monopoly, the bigger companies are eager to maximize their profits in more cost effective areas.

With the failure of the Republican health care effort, the Affordable Care Act will likely remain in effect for the foreseeable future.  President Trump has said that he will let Obamacare fail, but it remains to be seen how he will react to skyrocketing premiums and shrinking insurance markets for millions of Americans.

If you would like more information on available Obamacare health insurance policies for you and your family, please visit Boost Health Insurance and speak with one of our health insurance representatives.