Megan McArdle
By Megan McArdle
The last days have brought one long string of bad news for Obamacare. Tuesday, the insurer Humana announced that it would be pulling out of the exchanges for next year. Then we found out that the IRS had responded to Trump’s executive order on Obamacare by quietly rolling back a new rule planned for this year, which would have required filers to indicate whether they had maintained coverage in 2016 or to pay a penalty. And on Wednesday, word came that Mark Bertolini, the CEO of Aetna, had told a Wall Street Journal conference that Obamacare was in a death spiral. This stands in pretty stark contrast to claims by Andy Slavitt, who ran the Center for Medicare and Medicaid Services under President Barack Obama, that things were shaping up splendidly for 2018, so long as Republicans didn’t screw anything up.
Or does it? Could Humana’s withdrawal (and Aetna playing footsie with the idea) be because they expect the Republicans to, well, screw things up?
That may be a factor. But it’s not the only factor. And after parsing what they’ve said, I doubt it’s even the most important one.
A lot has been happening in the health care world recently. Most notably, Aetna and Humana’s attempt to merge into a behemoth of legendarily gargantuan proportions has fallen apart under regulatory scrutiny. (A similar proposed merger by Anthem and Cigna is currently under appeal but seems likely to meet the same fate.) It’s certainly a stunning coincidence that the day after they announced the breakup, both companies were out there with some hard words for the Affordable Care Act.
They may have been maintaining their presence on the exchanges in the hopes that this would make their merger more palatable to the administration and the courts; they may have been holding off making decisions until it was clear whether they would be one entity or two; or perhaps the inability to merge, and gain the benefits of economies of scale, made the losses seem newly unpalatable (especially given the hefty termination fee Aetna owes to Humana). Democrats will undoubtedly claim that this is the companies following through on their threat to leave the exchanges if they weren’t allowed to merge.
That doesn’t actually seem particularly likely to me. For one thing, they can’t pay back the Obama administration for killing their merger, since that administration no longer exists. For another, Aetna is the one that issued the “threat,” but Humana was the one that announced it was pulling out.
But most importantly, the reason Humana cited for pulling out of the exchanges is pretty plausible: The company lost money on the exchanges in 2015, and wasn’t doing so well in 2016 either. Humana said an initial analysis of the 2017 enrollees indicated that the pool continued to be “unbalanced” — for which, read “sick.”
Why not just raise the premiums? Because a pool comprising too many sick people can’t be stabilized at any price. Once you start jacking up the premiums to pay for all the pricey health care your members are using, you start losing your remaining healthy customers, and the premiums have to be jacked up still further. The result — the dread “death spiral” that Bertolini was talking about — will ultimately end up with premiums that no one is willing to pay, or can afford to. What Humana is saying (and Bertolini made similar remarks) is that they’ve got a pool that they simply don’t think can be sold into profitably, because the problem isn’t that they mispriced the premiums. The problem is that too few healthy people are buying insurance. And now that exchange enrollment has begun to shrink, it’s obvious that problem isn’t going to get better. It’s likely it’s going to get worse. Bertolini predicts that more insurers are going to pull out for 2018, leaving many areas without any insurers at all offering plans.
The Trump administration’s actions aren’t helping, and the rule changes that CMS has just proposed to shore up the exchanges are flimsy Band-Aids that aren’t going to keep them from toppling over. If Bertolini’s right, then we have moved onto the next phase of Obamacare politics: not arguing about whether (and how) the exchanges can be saved, but playing “hot potato” as both parties vie to avoid being stuck with the blame for the ensuing disaster.
As a policy wonk recently observed to me, there’s just enough evidence for both sides to feel justified in pointing fingers at the other. The Trump administration has made rule changes that made participation less likely by healthy people — trivial changes that probably haven’t had much effect, to be sure, but enough for Democrats to complain about. And the general air of uncertainty about what Republicans are going to do definitely isn’t going to encourage insurers to stick around.
On the other side, Republicans can point to … well, everything else. The exchanges have been struggling for their entire life. There has never been a time at which enrollment was booming beyond expectations, or insurers were making money in aggregate. Whatever frail health the exchanges did achieve required a heroic (also illegal) regulatory juggling act by the Department of Health and Human Services. There’s a good case that the exchanges were going to die anyway, as insurers realized that no matter what they did, many of these markets simply could not be made profitable.
Democrats may respond that the only reason that the exchanges don’t work is that Republicans refused to pass rules that would make them work better. To which Republicans could justly respond that if the law couldn’t work as written, it was probably a bad idea to say “elections have consequences” and ram the thing through on a straight party-line vote over the strenuous objections of voters and the minority party.
The things that needed to be fixed to make the law work were unpopular moves like a higher penalty for failing to comply with the individual mandate — moves for which Republicans would have paid a price at the ballot box. It takes some pretty brazen chutzpah to say that because Democrats passed an unworkable law to set up what Republicans think is a bad system, Republicans now have a moral obligation to get themselves unelected saving that system, while Democrats take credit for the parts people like.
Regardless of the morality of it, expecting people to actually behave this way is daft. Republicans predictably didn’t lean into the strike zone and help Democrats save the exchanges. If the exchanges are indeed collapsing, Republicans will be striving even harder to avoid being tarred with their failure. As will the Democrats who once hoped they would be running on Obamacare’s triumphs for years to come.
(c) 2017, Bloomberg View
Megan McArdle is a Bloomberg View columnist. She is the author of “”The Up Side of Down: Why Failing Well Is the Key to Success.”
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