Why are we experiencing an Obamacare-created commercial insurance death spiral

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Answered by: Dr. Deane, An Expert in the U.S. Health Care Category
Recall the famous financial “death spiral” of 2008? While one might debate whether the stock market would actually have collapsed, there is no doubt about today’s private health insurance industry. It is doomed, directly as an Obamacare-created commercial insurance death spiral.

The chronology is clear. The regulations associated with Obamacare, over 10,000 pages in the Federal Register, dramatically increased the costs to companies selling health insurance. The law increased the benefits they were required to provide, and limited how much of these increased costs they could pass on to consumers.

Meanwhile, the cost of insurance to consumers has gone up as much as 60 percent. The Affordable Care Act made health insurance less, not more, affordable. Price elasticity tells us that if the price of private insurance goes up, fewer people will buy it. Now add the increased availability of “free” government (Medicaid) insurance, and you see how private insurers quickly lost market share.

Shortly after Obamacare was passed in 2010, Washington discontinued the law’s widely touted Pre-Existing Conditions Insurance Program. This threw these chronically ill patients, who had the most expensive medical conditions, into the general risk pool. In my home state of New Mexico, 10,000 patients needed over $200 million per year in medical services.

At the same time as the chronically ill patients are forced into the general insurance pool, millions of healthy (and therefore not costly) patients–also known as the “young invincibles”–stay out of the market. They see an increased cost of insurance premiums without increased value to them. So, they don’t buy insurance. Obamacare creates an extreme adverse selection process for commercial carriers: more hyper-expensive patients to pay for and fewer healthy, inexpensive-to-insurance-companies premium-payers to offset these costs.

When Obamacare implementation began on January 1, 2014, commercial insurance carriers were subjected to the worst possible market conditions: escalating and unlimited costs with fixed and diminishing income. Costs were dramatically higher, both administrative/bureaucratic expenses as well as payouts for expanded benefits and adverse selection–the very sickest of patients. As Obamacare pushed costs up, it drove revenues down.

In 2013, trying to compensate in advance for the economic hemorrhage that their actuaries and accountants predicted, the top selling private U.S. health insurer, UnitedHealth cut their cost basis by firing 4300 doctors. Austin Pittman, president of UnitedHealth’s professional networks admitted they were under “substantial funding pressure from the federal government." By reducing their panels, United could reduce the cost of services. Smaller panels mean restricted choice of physicians and longer wait times for patients.

Despite the draconian cuts, UnitedHealth lost $425 million during its first year of selling health insurance under Obamacare (2014). Not even a company as well capitalized as United can keep their doors open if these losses persist and there is no reason to think they won’t.

UnitedHealth CEO Stephen Hemsley said, “We cannot sustain these losses,” and then responded by cessation of marketing Obamacare insurance; by stopping payment of commissions to insurance brokers for signing people up; and by signaling United will stop selling Obamacare insurance in 2017.

Hemsley, the highest paid CEO in America in 2010, said what everyone knows but most are afraid to speak openly: “We can’t really subsidize a marketplace that doesn’t appear…to be sustaining itself.” Obamacare designed a market that is as unfriendly as possible to the private, commercial carriers.

United is not the first private carrier to exit a mandatory money-losing environment. In 2013, both Aetna and Anthem Blue Cross pulled out of the individual insurance market in California. Over two hundred thousand people suddenly lost their health coverage.

Then, there are the 23 quasi-private insurance co-ops created by Obamacare. The president expected them to compete successfully with private insurers by having the government underwrite their start-up costs with grants or interest-free loans. So, most co-ops underpriced their products giving them a huge cost advantage over the purely private carriers. (This is called predatory pricing and illegal…unless a organization does it with Washington’s approval. Then, apparently, it’s okay.)

The market has a way of getting the last word. When a company pays out 100 cents for every 58 cents it collects, you know what will happen, and it did. So far, twelve of the 23 co-ops have declared bankruptcy and closed. Of the remaining eleven, ten are insolvent according to their State Offices of Insurance and will be forced to close soon. These bankruptcies will force several hundred thousand more Americans to lose their health coverage.

The intent of Obamacare is clear. It is intentionally making financial circumstances untenable for commercial insurance carriers so they leave the market. In that way, the “last man standing” and only option that will be left will be government-issued health insurance.

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