It’s no secret the Affordable Care Act (ACA), better known as Obamacare, has taken it on the chin over the last six months or so.
Here’s the quick rundown: insurers are leaving the public exchanges, companies are worried about the impact on their jobs, even maligned drug companies are pinning blame on the law. In response, the Center for Medicare and Medicaid Services announced an extensive plan to try and mitigate some of the issues being raised.
The question, however, is whether the current spot that Obamacare finds itself in is a death sentence, or simply a setback. Despite the issues, the fact of the matter is for all of its struggles, the Affordable Care Act is probably not on its death bed.
Insurers figuring it out
The biggest problem for the ACA in recent weeks has been the pull out of large private insurers from public exchanges. These rollbacks have left a county in Arizona with no ACA exchange insurers and has many counties with few options to choose from.
The problem, at its most basic, is that insurers are losing money. Aetna, the most recent company to ditch the ACA, said it lost $200 million on its exchange business in just the second quarter alone. This, however, may be as much a function of large insurers own problems as the law itself.
Firms that have experience in lower cost government programs such as Medicaid have been far more successful in the exchanges, even making profits. These firms are able to offer competitively priced plans with a lower cost structure than the large firms like Aetna, UnitedHealthcare, and Humana. By not being able to figure out the right cost structure, some of the blame has to fall at the feet of insurers.
If these firms do retool, there is a chance that they re-enter the market. For one thing, many of these same insurers that are pulling out of the exchanges have at one time expressed support and desire to stick with the program
“We are committed to working constructively with the administration and lawmakers to find solutions that can improve this program, stabilise the risk pool and expand product flexibility, all with the goal of creating a sustainable program that makes healthcare more affordable and accessible for all consumers.,” said Aetna CEO Marco Bertolini in an earnings call in April.
Thus, if they can learn from other insurers and come up with a better ACA plan, there may be some reason for them to re-enter the exchanges.
Additionally, the CMS proposals are attempting to make adjustments so that the markets are more viable for insurers. For instance, it is planning to adjust the risk pool, which essentially rewards firms for taking on sicker patients on aggregate and penalizes those that accept a more healthy, low cost group. (There’s more to it, and you’re welcome to read a full explanation here.) This mitigates some of the risks for insurers on losing money.
So if there is combination of better support from the government and a little learning from the insurers themselves, there is a chance to reverse the flow of Obamacare entrants.
A lot of attention paid to the shortcomings of Obamacare has come from the increase in the cost of premiums. While it is true that premium increases this year have been steep, it is worth noting that much of the increase may be simply insurance companies coming to terms with the economics of the exchanges.
In fact, when the prices came out for the first year of the exchanges in 2014, many observers were surprised by how low the costs were. The average premium came in below the original projection of the Congressional Budget Office. Additionally, the cost for ACA premiums have come in well below what the price of individual market plans, the precursor to the exchanges, were projected to be during the same years.
Additionally, in a recent study the Department of Health and Human Services noted that roughly 70% of those going into the Obamacare exchanges have a plan available for less than $75 per month after subsidies are applied.
Other cost pressures on plans could also be alleviated as well.
In an interesting post on Wednesday, MarketWatch’s Tim Mullaney made the point that much of the cost increases are also coming from one place: drugmakers.
Essentially insurers haven’t known what medicines patients who were signing up for their plans through the public exchanges were taking. With many of these drugs, Mullaney uses the example of Gilead’s $94,500 per patient Hepatitis C treatment, insurers were getting hit by large, unexpected costs.
At the same time, the price of prescription drugs in general have been skyrocketing, but many of these are exempted from deductibles, so insurers are bearing an even larger cost load (which is in turn passed to consumers through higher premiums).
Additionally, many employer-based plans are even shifting their behaviour due to the increasing burden of drug prices. Thus, as lawmakers turn their eye to drug prices and these firms come under more and more fire, there is a possibility that the cost pressure from these medicines will alleviate.
On the radical end, the increased calls for a public option — a plan offered by the government that would compete with private insurers — could increase competition and provide an even lower costs option.
There’s been good too
Additionally, it’s fair to point out that while the ACA exchanges certainly are facing their set of issues, a number of good things are coming out of Obamacare.
For one thing, regardless of where it’s coming from, millions of previously uninsured people now have access to healthcare and the uninsured rate has dropped to 11.0% from nearly 18%. This was even more striking for minority groups. African Americans have cut their uninsured rate in half (from 22.4% to roughly 10%) and Hispanics have seen a drop by 25% (41.8% to 30.5%).
Surely there are problems with the law, but it’s only fair to recognise the good with the bad.
All about politics
The fact of the matter, however, is that like any law, the future of the ACA is in the hands of politicians.
If there is a Republican sweep in November, with Donald Trump taking the White House and both houses of Congress staying Republican, there is a good chance that Obamacare doesn’t make it very long.
On the other hand, if the Democrats sweep the White House and all of Congress, large changes and possibly the public option are on the table.
If there is some mix-and-match government it is a bit harder to say. According to a report from Bloomberg, there may be a chance Republicans give in and go along with some reforms to the law under a President Clinton. Or, there could more hold outs and only adjustments at the margins.
Either way, we’ll have to wait until to November to see.
At the end of the day, these are still serious problems that lawmakers and regulators alike have to tackle. Making the exchanges profitable for insurance companies is key to enduring a wide variety of choices for the Americans.
The proposals from CMS are a good first step, though it remains to be seen how they are implemented since public comments close October 6 and adjustments may be made following that period.
Given the improvements so far from Obamacare and the possibility of at least continued gridlock in Washington, there is a good chance that Obamacare is not going through a death spiral but maybe just some growing pains.
Business Insider Emails & Alerts
Site highlights each day to your inbox.