Even the New York Times Acknowledges the ACA Is Collapsing

I don’t post here much now that I am on Forbes Apothecary site.  But I did want to take note of one development.  At long last, and after years of denial and shameless cheerleading, the New York Times has run a lead story acknowledging that the ACA is in deep trouble. Longtime ACA proponents such as Sara Rosenbaum, a professor of health law and policy at George Washington University, have come to the realization that the law is in deep trouble.

“Even the most ardent proponents of the law would say that it has structural and technical problems that need to be addressed,” she said. “The subsidies were not generous enough. The penalties for not getting insurance were not stiff enough. And we don’t have enough young healthy people in the exchanges.”

Frankly, although I take no pleasure in the millions of people who are going to be hurt as a result of the ACA’s implosion, I do have a sense of vindication.  I warned from the outset that, well-motivated or not, the ACA was not designed properly and that it was extremely vulnerable to a death spiral.  I discussed early signs of trouble. And yet people accused me of Chicken Little “The Sky is Falling” syndrome or of not understanding all the brilliant stabilization methods built into the ACA that would let its community rating scheme succeed where so many predecessors had failed.

So, the good news is that people can start to focus on ACA 2.0 rather than pretending that ACA 1.0 is working. It will be a huge fight — already the battle lines are being drawn.  My one plea is for discussion to be based on reality and transparency.  No more magical models that predict whatever the politicians want. No more things like the CLASS Act — remember that — which miraculously let the ACA appear to cost little even when it had zero chance of ever working.  Instead, and perhaps this is the part that is sadly naive in today’s American, let’s have a discussion where we actually listen to each other.

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Obamacare Stability Rests On Shaky Risk Adjustment

Set forth below are brief excerpts from my recent blog entry on Risk Adjustment under the Affordable Care Act that has been posted on Forbes The Apothecary.  To read the rest, you’ll need to go to that site.

What’s interesting, though, is what happened at almost exactly the same time as I released my Forbes blog entry.  New CMS Administrator Andrew Slavitt, whom I noted in the article had actually expressed concern about Risk Adjustment,  told Inside Health Policy, an outstanding trade publication, that some changes to the risk adjustment methodology in the draft Notice of Benefit and Payment Parameters for 2017 may instead be implemented in the 2016 plan year. CMS’ proposal calls for the 2017 risk adjustment to use a blended rate from earlier years and account for patient use of preventative services. I know that may not be the sexiest announcement ever made, but it’s important.  I’m not going to pretend that my blog entry motivated Mr. Slavitt to start looking hard at CMS methodology — although he would be well educated if he started each day with The Apothecary.  But, along with his recent actions taken to reduce the ability of insureds to game the Special Enrollment Period, Administrator Slavitt’s critical attention to Risk Adjustment suggest a willingness to take a fresh look at Obamacare implementation failings. 

The Affordable Care Act originally appeared to promise a choice of plans on the Exchanges across at least two spectra: the amount of cost sharing an insured would have to assume and the degree of choice the individual would have in selecting their healthcare providers.  Although this ability to customize both choice and “metal tier” was generally considered a feature of Obamacare, it has turned out to pose significant issues.  And here’s why: plans with the greatest degree of choice (PPOs) and the lowest amount of cost sharing (mostly Platinum) are magnets for the unhealthy.  So, unless there’s something to neutralize the extra costs to the insurer created by this “magnetic attraction” or unless insurers can simply decline to offer plans with high choice or low cost sharing, the freedom to select a plan in fact becomes destructive.

The choice touted by proponents of Obamacare induces a weakened form of an adverse selection death spiral. The whole system may not immediately collapse, but the system’s physics becomes highly unstable. The plans most attractive to the unhealthy become unavailable. The unavailability occurs either because insurers can’t persuade regulators to let them charge the high rates needed to break even or because all but the sickest insured’s won’t buy them at such a price. The most expensive 20% of individual insureds, after all, cost on average more than 60 times as much per person as the least expensive 50%. The Platinum refugees then migrate to the second most attractive plans —  in our case often Gold or Silver. (Remember Silver plans have low cost sharing for poor families). But then these plans become disproportionately populated by the sick and can also become considerably more expensive.  If there is a point of stability, it is likely to be one in which there is far less choice of physician and far more cost sharing than originally contemplated.  Most people might end up in a Bronze HMO.

The stability of Obamacare likely rests significantly on the arcane and challenging technology of  Risk Adjustment.  Run it poorly in ways insurers can game and look for the market to fall into a Bronze HMO basin of attraction or collapse altogether.  Run it without the strictest safeguards for medical privacy and see a mass rebellion from insureds. Obamacare would have a better chance at stability with a diversity of plans if Risk Adjustment worked considerably better than has so far been the case.

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How The Obama Administration Raided The Treasury To Pay Off Insurers

As discussed earlier, I have moved most of my blogging on the Affordable Care Act over to Forbes blog site: The Apothecary.  Here’s where you can find my latest entry.  It’s about Obama administration lawlessness in running the Transitional Reinsurance program.

Here are a few paragraphs to whet your interest.  To see more, go here.

This is about a raid conducted in the murky twilight of the Federal Register. It’s a scheme in which the Obama administration collected less in taxes from health insurers (mostly off the Exchanges) than they were required to do under the Affordable Care Act, created a plan to pay insurers selling policies on the Exchange considerably more than originally projected, and stiffed the United States Treasury on the money it was supposed to receive from the taxes. It’s a different bailout than the Risk Corridors program. That, at least, was originally authorized by statute.  This is about a diversion that took place in spite of a statute that explicitly prohibited it.  And the consequence of the diversion of funds was to enrich insurers and, probably, to keep more insurers selling policies on the Exchanges than would otherwise be the case.

The transitional reinsurance program as implemented, however, has become entirely unmoored from the statute that created it. It has instead embarked on a progressively stranger course in which two of the most recent diversions were  underassessing health insurers to pay for the program and then using the first $2 billion collected not to pay the United States Treasury as called for by the statute but instead to pay off insurers selling individual health insurance policies on the Exchange and, some times, off the Exchange.  Indeed, not only has $2 billion from the 2014 money been diverted from the Treasury to insurers but it looks as if at least an additional $800 million from the 2015 money is heading in the same direction.

By combining the two revisions of the original reinsurance parameters, the Obama administration made the program about 40% juicier for insurers . To the cynical eye, this could be seen as one of several administrative cures for the Obama administration’s politically understandable yet completely illegal decision to starve exchange insurers of potential customers who would now, by administrative fiat, often be permitted to keep those dreadful policies that the Affordable Care Act was supposed to eliminate. With foolish campaign promises as the motivation, one illegality begat another.

And now let’s take a closer look at the Obama administration’s legal justification for shoveling money to insurance companies on whose graces the success of Obamacare rests . You can read it above.  CMS contended that, because the statute was silent or ambiguous; it gave CMS discretion.  According to CMS, the statute used “shall” when it came to the $10 million to be collected for reinsurers in 2014 and used only “reflects” when it came to the $2 million for the Treasury, implying that the collection of money for reinsurers was more mandatory than collection of money for Treasury. Besides, argued CMS, the premium “stabilization” purpose of the ACA would be enhanced by funneling more money to insurance companies.

This reading of the statute makes no sense, however. The ambiguity exists only by virtue of ignoring a provision of the statute never even mentioned by CMS its legal analysis. By sending out a specific bill to health insurers and third party administrators to cover the Treasury payments, CMS had clearly collected money under the program in part pursuant to section 1341(b)(3)(B)(iv), the part that requires $5 billion for Treasury.  Look at paragraph (b)(4): “Notwithstanding the preceding sentence, any contribution amounts described in paragraph (3)(B)(iv) shall be deposited into the general fund of the Treasury of the United States and may not be used for the program established under this section.” But this diversion of funds collected for the Treasury into the hands of the insurers was precisely what CMS now purported to find justification for in the language of the statute.  CMS’s argument is particularly strange given the“miscellaneous receipts statute” which says that agencies generally can’t just keep money they collect; rather they must “deposit the money in the Treasury as soon as practicable without deduction for any charge or claim.”

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Why the House Lawsuit Over Cost Sharing Reductions Might Win But Won’t Kill Obamacare

As discussed in my previous blog post, I have moved most of my blogging activity on the Affordable Care Act to Forbes Apothecary site.  Here’s a summary of what is discusses.  To see the rest, go here.

The most glaring problem with the argument in House v. Burwell brought by House Democrats is that it rests on a false premise: Obamacare could not function unless it provided an appropriation for cost sharing reductions.  This is just not true.  As I now show, for better or worse, the ACA could function in a very similar way even if no appropriation was made for cost sharing reductions.

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Moving to The Apothecary

Dear Readers,

I’m pleased to announce that Forbes has invited me to write for them as part of their prestigious The Apothecary blog.  I’ve taken them up on their offer.  It should mean a considerably greater readership. The first post will be up soon.   Both it and the post to follow will be, immodestly, among the best I’ve ever written. So stay tuned!

My acceptance means, however, that this blog, acadeathspiral, is going to enter a new phase of life.  It won’t be dead but it will be quieter.  For a while, I’ll simply provide links to the latest Apothecary material.  After a few months though, it will either be material that outside the topics on which Forbes wants me to blog, doesn’t fit certain formatting restrictions of The Apothecary or when I’ve “used up” the two blogs per month I am supposed to do for Forbes.   So don’t stop periodically checking this site.

I want to thank everyone for their readership.  I’ve learned a lot writing these entries and hope that you’ve enjoyed reading them.

Seth J. Chandler


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If United is losing money, what about big insurers who charge less?

Earlier this week, United Healthcare, the nation’s largest health insurers, told its shareholders that it would be pulling back on efforts to market its Obamacare plans for 2016 and might pull out of the market in 2017.   Eternal optimists about Obamacare have been quick to note that United, although a large insurer generally, “only” covers about 540,000 people on the Exchange.  This is about 6% of those who enrolled in 2015.  In fact, however, United’s announcement should be a cause for great concern, not just for the half million plus,  but for a large number of people purchasing coverage from other insurers who likewise may become intolerant of continued financial losses.  To quote Katherine Hempstead,who heads the insurance coverage team at the Robert Wood Johnson Foundation,  “If [United] can’t make money on the exchanges, it seems it would be hard for anyone.”

This entry is about a little experiment.  Although United may not be one of the biggest players on the Exchanges, the various Blue Cross insurers most definitely are.  And so, what does United’s situation suggest about the vulnerability of Blue Cross insurers?

It turns out that there are 38 markets for which we have data on which Blue Cross and United compete for Silver plans, the most common metal level purchased.  By market, I mean they both sell the same kind of plan type (HMO, EPO, POS, PPO) in the same rating area of a state.  (This looks only at states that use healthcare.gov and thus have their data made available at data.healthcare.gov). So, if Blue Cross sells at least one HMO plan in Georgia Rating Area 7, and a United company likewise sells at least one HMO product in Georgia Rating Area 7, I treat the two insurers as competing against each other.  And, if Blue Cross’s premiums tend to be lower than United’s in the competing markets and United is losing money, that might be some evidence that Blue Cross is vulnerable.

The chart below shows the result of the experiment.  I calculated the median silver premium for Blue Cross companies in the 38 competing markets and the median silver premium for United companies.  I then divided the Blue Cross median by the United median.  I used a 40 year old adult individual as the basis for the computation, although prior research shows that little turns on the choice of age. The chart shows a histogram of the results.


What we can see is that the histogram is skewed to the left: on balance, Blue Cross tends to charge less than United.  Sometimes, as in three rating areas in Kansas and two ratings areas in South Carolina, it charges less than 3/4 of what United charges.

Does this prove that many Blue Cross insurers place themselves in financial jeopardy by continuing to sell?  Hardly.  There is a lot more to profitability than premiums even when metal tiers and plan types are the same.  Blue Cross may have struck better deals with medical providers.  Blue Cross may run a more efficient operation.  Blue Cross may be able to attract a healthier risk pool.  Blue Cross is raising its rates.  Claims experience in 2016 may be different than experience in 2015.  And, in some markets, Blue Cross charges more.  In Virginia Rating Area 10,  Blue Cross’s median is 1.27 times that of United’s. I get it.

But still.

I’d feel a lot better about other insurers’s prospects if they tended to charge more than one that was encountering financial difficulties.  And, yes, perhaps the ACA can shrug off the possible departure of United.  We can trot out the words “blip” and “outlier.”  But I am not ready to join some academics and advocates in the eternal Obamacare sunshine with a chorus of “nothing to see here.”  Maybe there’s not much difference between United’s situation and that of other large insurers. Maybe, it’s just that United’s directors and officers found the courage to sound the warning sooner.

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Bombshell: United Healthcare thinking of exiting Obamacare

Today’s news that United Healthcare is “evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017” is a very big deal.  United would not be disclosing to shareholders that it might fully or significantly exit Obamacare in 2017 if this was not a significant possibility.

United is a major player in the Exchange markets.  It sells policies in about 47% of the 395 rating areas serviced by the federal exchange. Moreover, the loss of United could be very harmful to any remaining competition of the exchange markets.  A quick study of data from healthcare.gov shows that if one looks at Silver plans in rating areas in which United sells a policy and one looks at all plan types (HMO, EPO, POS,PPO), there are 204 combinations.  In 73 of those (about 36%), United is the only insurer, meaning that if no one else steps in to the United vacuum, there will no longer be a seller of that plan type.  HMO plans in Alabama rating area 13 is an example of such a market. If United exits, it would appear that there will be no HMOs in that area.

In another 59 of those 204  (about 29%) rating area/plan type markets in which United participates, United is one of only two players.  An example of such a market is the POS market in  Arkansas, rating area 1. There, UnitedHealthcare of Arkansas, Inc. and QCA HealthPlan are the only sellers. This means that if no one else steps in, there will be  another large chunk of markets in which there will be an Obamacare monopoly.

Moreover, the problems United is evidently facing do not appear to be the result of particularly low prices.  The graphic below shows for each of the 204 market-plan type combinations in which United is present,  the ratio of United’s  its median price for policies to the median of all prices. It shows United prices tend to be fairly close to the median and, if anything, tend to be a bit higher.  Thus it will be a challenge to ascribe United’s failures to any sort of extreme pricing — a fact suggesting that either United had problems on the cost side or simply that it is now facing up to a fact that some other large insurers may wish to deny: Obamacare is in trouble.


The ACA simply does not work without voluntary insurer participation.  There is no public option and their closest cousin, the coops are mostly dead or in financial distress.  It surely should work better if there is at least some competition.  But insurers don’t voluntarily participate where they think they can’t make money.  So, unless United, one of the biggest health insurance carriers, is doing something particularly wrong or has unduly gloomy management, one has to worry about its warning being an oracle of things to come for other insurers.


In contrast to my usual practice, I have revised this entry fairly heavily during the course of the day.  I think it is important to get the information out there and I hope readers excuse some instability in the entry.

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Prices rising, choice declining for 2016 Obamacare

Data released yesterday at healthcare.gov shows the beginnings of an adverse selection death spiral that threatens the stability of the system of insurance created by the Affordable Care Act.  The data shows that, on plans using the “federally facilitated marketplace” created under the ACA, PPO plans that continued from 2015 to 2016 increased gross premiums an average of 16% and Gold and Platinum plans increased 15% and 21% respectively.  HMO plans, by contrast, increased a lesser 8% and Bronze and Silver Plans increased a lesser 12% and 9% respectively.  We should thus expect to see in 2016 relatively fewer people purchasing plans that give them a greater choice in physicians or that provide greater protection against medical expenses.

The tables below summarize the big picture.  The first table shows the mean change in gross premiums between 2015 and 2016 for plans that persisted over that timespan when grouped by metal level.  As one can see the more generous Gold and Platinum plans increased at rates considerably higher than the less generous Catastrophic, Bronze and Silver plans.

MetalLevel percent change
1 Bronze 12.1
2 Catastrophic 8.1
3 Gold 15.2
4 Silver 9.4
5 Platinum 20.9
mean change in premiums between 2015 and 2016 for 6,699 persistent plans

The second table shows the mean change in premiums between 2015 and 2016 for plans that persisted over that timespan when grouped by plan type.  As one can see the PPO plan, which offers the greatest choice of doctor, increased at a higher rate than other types of plans.  EPOs, which are similar to HMOs but restrict visits to specialists less, increased in gross premiums at a rate far higher than HMOs.

PlanType percent change
1 POS 12.3
2 HMO 8.3
3 EPO 12.2
4 PPO 16.5
mean change in premiums between 2015 and 2016 for 6,699 persistent plans

The third table combines the first two and shows, for each combination of metal level and plan type, the mean percentage increase in gross premiums between 2015 and 2016.

1 Catastrophic 1.9 5.8 6.9 14.8
2 Bronze 11.2 10.9 12.0 16.2
3 Silver 5.8 8.8 12.5 14.5
4 Gold 9.4 16.6 17.1 19.7
5 Platinum 12.2 25.6 7.5 25.9
mean change in premiums between 2015 and 2016 for 6,699 persistent plans

Premium increases are only part of the story, however.  Some types of plans are not available at any price any longer.  The table below shows the percentage of rating areas in 2015 and 2016 containing each type of plan.  Notice that the percent of rating areas containing any PPO has dropped significantly between 2015 and 2016; HMOs and POS plans have dropped as well, though EPO plans have become more prevalent.

PlanType AVG2015 AVG2016
1 HMO 92.6 88.6
2 EPO 78.3 82.5
3 POS 83.7 75.4
4 PPO 92.5 76.7
percent of rating areas having at least one of these plan types

We can also consider the prevalence of competition. The table below shows the percentage of rating areas in 2015 and 2016 containing at least two of each type of plan. Notice that with PPOs, the percentage of rating areas with competition has declined, although it has increased somewhat for HMOs, EPOs and POS plans.

PlanType AVG2015 AVG2016
1 HMO 71.3 72.5
2 EPO 66.5 74.0
3 POS 48.2 50.6
4 PPO 76.0 61.0
percent of rating areas having at least two of these plan types

The same analysis can be done on the metal levels of the plans available.  The table immediately below shows for 2015 and 2016  the percentage of rating areas in which there is at least one plan of the specified metal level.  Platinum plans have declined sharply in prevalence since 2015.  Now only just over half of the rating areas have even a single platinum plan available even if one were willing and able to pay the higher premiums.

MetalLevel AVG2015 AVG2016
1 Catastrophic 74.3 72.2
2 Bronze 91.8 88.1
3 Silver 91.1 89.7
4 Gold 90.9 88.5
5 Platinum 92.7 53.2
percent of rating areas having at least one of these metal levels

When it comes to competition, the picture is even worse for platinum plans.  In only about a third of the rating areas can one choose between platinum plans.

MetalLevel AVG2015 AVG2016
1 Catastrophic 33.5 30.3
2 Bronze 82.5 82.4
3 Silver 85.7 84.6
4 Gold 73.0 73.4
5 Platinum 44.9 34.6
percent of rating areas having at least two of these metal levels

Finally, since it seems to be the PPO plans whose prevalence is declining most, we can show the extent of that prevalence according to the metal level of the plan. The table below shows that the Platinum PPOs, the plan probably most helpful to the chronically ill that the ACA was supposed to help greatly, is diminish significantly in prevalence but that Gold and Silver PPOs are diminishing as well

PlanType MetalLevel AVG2015 AVG2016
1 PPO Catastrophic 85.8 71.1
2 PPO Bronze 94.9 81.6
3 PPO Silver 94.9 81.6
4 PPO Gold 94.9 81.6
5 PPO Platinum 89.5 53.5
percent of rating areas having at least one of these Platinum plan types


The data shows that platinum plans and PPO plans are shrinking in prevalence and that the gross premiums for such plans are going up. One might say that this development is not so awful since it leaves in place a market for more basic plans: HMO plans for example or silver and gold plans.  Perhaps the government should not be subsidizing individual’s choice of doctors or fostering plans, such as platinum plans, that fail to deter excess medical consumption.  Such is not, however, the promise of the ACA or, I suspect, the desires of many of its proponents.

Moreover, we are in a dynamic situation.  Think about next year when the insurer subsidies are supposed to disappear and when the chronically ill people who were in platinum and/or PPO plans migrate into the next best thing, a gold plan or, if one is available, a POS or EPO plan.  Suddenly those plans become vulnerable to adverse selection pressures.  And for 2017 we might thus expect to see yet further shrinkage of PPO and platinum plans and greater pressures on everything but the basic Bronze and Silver HMO plans.  When that happens, the adverse selection death spiral will not only start biting wealthier purchases or those with chronic conditions, but mainstream America. Private health insurance is fragile. It generally does not well withstand the sort of underwriting regulation imposed by the ACA.  The conceit of the ACA proponents was that they had engineered a system — the “three legged stool” so strong that it could resist the almost invariable pressures of adverse selection.  If I am right, and regardless what one thinks about the motives of those proponents, we are beginning to see that the engineering was just not good enough.

Caveats and further research

The computations shown above are based on the number of plans and not weighted by the number of enrollees.  This is largely of necessity since the federal government has not been releasing enrollment figure by plan in a clear way (although it may be possible to tease the figures out of rate review submissions filed and collated on healthcare.gov).  Although enrollment weighting will likely decrease the average mean premium (less expensive policies tend to be purchased more), it is not clear that enrollment weighting will have much effect on relative premium increases.

The figures are also not computed yet on a state-by-state basis, something that I hope to present in a later post.  They also contain only data for states whose plans are described in material available at healthcare.gov.  Data for states such as California and New York, which have their own exchanges, is not included here and might alter the numbers somewhat.

Finally, I present gross premiums here; as I have discussed at length elsewhere, net premium increases may well be higher, particularly where the purchaser wishes to retain a gold or platinum plan or a PPO plan whose premiums are rising even faster than those of the silver plans and the second lowest silver plan. The situation is worst where, due to some willingness on the part of a new entrant to take risk,  the second lowest silver plan drops in price, thereby decreasing subsidy levels, but other silver, gold and platinum plans increase in price.


Programming for this work was done in R using data from data.healthcare.gov and is available on request from the author. Packages used include data.table, tidyR, htmlTable and dplyr. There is a lot more work to be done mining these databases.

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Choose your doctor? Not anymore in Obamacare’s Houston

The data is not fully out yet, but, if my home area of Houston, Texas (Harris County) is representative, PPO plans that offer the greatest choice of doctors and that provide low cost sharing are extinct, as are POS plans that also offer more choice of medical practitioners. Platinum plans of any sort are on their way to its extinction.

In 2015, there were 19 PPOs available in Harris County, 12 from Blue Cross Blue Shield and 7 from Cigna Healthcare.  In 2016, according to the preliminary data available on healthcare.gov and released Sunday, there are none.   Nor does the matter improve my considering POS plans, which also offer a greater degree of choice of doctor than does an HMO.  In 2015 there were17 such plans in Harris County, 10 from Aetna and 7 from Humana.   Those are gone too in 2016.  So, basically, it is no longer true in Harris County that you have a choice of doctor if you purchase an Obamacare plan.  You get what the HMO or EPO gives you.

Platinum plans are now almost extinct. In 2015, there were three platinum plans available in Harris County, an HMO and POS offered by Humana and and EPO offered by United Healthcare.  According to the preliminary information released Sunday, only the Humana HMO survives. Thus, you can get a plan that has minimal cost sharing, but no longer one that offers great choice of medical practitioners. The Humana POS and the United EPO are gone.

Notice what's missing from the list of plan types?
Notice what’s missing from the list of plan types?

And it’s going to cost you a lot to put yourself in a pool in which cost sharing is low.  In 2015, the gross premium for the Humana Platinum HMO (32673TX0640030) was $448 for an individual age 40 (non-smoker). In 2016, the gross premium for the same Humana plan was $551, an increase in gross premiums of 23%.

Net premium increases — the thing the insured actually pays — are likely to rise a similar amount for the one remaining platinum plan.  The second lowest silver plan — the baseline for computation of subsidies — has increased in price by $34, from $222 in 2015 to $256 in 2016.  Consider an individual eligible for a $150 subsidy in 2015.  If they purchased the Humana Platinum HMO in 2015, their net price would be $298.  If they purchased the same policy in 2016, yes, their subsidy might grow by $34 but their net price would still be $367, an increase of 23%.

All of this is the very predictable consequence of a design flaw in the ACA.  It heralds an unraveling of the Obamacare market. Who is willing to pay the extra cost of a PPO: generally people who value a long term relationship with their physician.  And those people are disproportionately less healthy than others.  Hence, the PPO pool tends to be populated by people who are expensive to treat.  Although insurers could, in theory, compensate for this by raising premiums to very high levels, in fact that does not work for long because, with premiums yet higher, only the least healthy of the least healthy persist, and the pressure on premium grows. Insurers, seeing the handwriting on the wall, thus kill off these plans before they technically implode.

It is the same problem with platinum plans.  The people who most want low cost sharing tend to be the people who most have high costs.  These plans are thus difficult to sustain where plans with lower cost sharing are available.  The complex ecology of health insurance does not permit them to survive.

When the Obama administration releases its data in a form that is more susceptible to in depth analysis, we’ll be able to see if Harris County is representative or an anomaly.  Although the trend may  be stronger or weaker in other areas, I predict it will not show there is much special about the Houston, Texas area in its vulnerability to a death spiral.

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Winter is coming?

For the past year or so, ACA proponents have gloated over the fact that markets have not yet collapsed in a death spiral and that enrollment in Exchange plans has grown to 9 million.  There are at least four recent developments, however, that suggest the ACA is in greater trouble than many realize.

Enrollments Way Lower Than Projected

The first piece of troubling news comes from CMS itself: Notwithstanding the full implementation of the individual mandate, CMS is projecting anywhere from 9.4 million to 11.4 million people enrolled in the Exchanges, an increase of 3-25% over its figure for 2015.  And, while ordinarily growth rates of this nature might please insurers, the projections on the basis of which Obamacare was enacted asserted that 21 million would be in the Exchanges by 2016.  Thus, while the Exchanges were running at 70% of original projections in 2015, they are now projected to run at just 45 – 52% of projections for 2016.  Moreover, between 0.9 million and 1.5 million of the enrollees for 2016 are projected to come  not from the uninsured but from those already holding off-Exchange individual market policies.

The new projection
The new projection
The premise on which the ACA was enacted
The premise on which the ACA was enacted

The reduced enrollment in the Exchanges has several ramifications. First, it likely means the pool in the Exchanges is less healthy on average than expected. Second it means the significant overhead expended in establishing the Exchanges and running them is spread over a lot fewer people. And third it means that Obamacare was essentially passed on greatly exaggerated assertions of its benefits.  Does the extraordinarily elaborate and expensive apparatus is establishes make sense when the a far lower than projected number of people gain health insurance of quality? One also must wonder how the dilution of the individual mandate through various “hardship exemptions” may have lowered the number of people enrolled on the Exchanges.

[[Added 10/20/2015]] For an excellent analysis of this issue, look also at Brian Blase’s recent article in Forbes. (http://www.forbes.com/sites/theapothecary/2015/10/19/examining-plummeting-obamacare-enrollment-part-i/)

Footnote 1: CMS is now “unable” to make projections for the SHOP Exchanges.  Are we now prepared to call them a bust?

Footnote 2: It is not clear whether the CMS enrollment projections took into account the very substantial gross and net premium that appear to be coming (see below).

More Coops Closing

The second piece of disturbing news is that at least four more coops insuring a significant number of people on the Exchanges are going out of business.  They are as follows:

Health Republic Insurance of Oregon (10,000 members; $50 million startup “loan”). By the way, Dawn Bonder, CEO of Health Republic, was quoted in The Oregonian just a month ago as follows: “We are strong and we are sticking to our plan, which has always been slow and steady growth. We’re very financially stable,” Bonder said. “We see a long,healthy life in front of us.”

Colorado HealthOP (83,000 members; $72 million in startup “loans”).  According to the Denver Post, this comes after the coop increased its enrollment seven-fold and captured 39% of the market in Colorado by cutting rates in 2015 (notwithstanding losses the year before).

Kentucky Health Cooperative (51,000 members; $146 million in federal loans, with a $65 million “emergency solvency loan” in 2014).  Again, this coop managed to capture 75% of the Kentucky Exchange market by offering insurance at lower prices.  Before shutting down, it had requested a 25% increase in premiums for 2016.  By the way, anyone remember those stories about how Kentucky was the success poster child for the ACA? It looks like its success may have been built primarily by selling insurance at cut-rate prices hoping that most of the losses would be bankrolled by the federal government.

Tennessee Community Health Alliance (27,000 members; $73 million in federal startup loans).  How had this coop captured market share?  Apparently by charging premiums so low that, as reported by The Tennessean, it had to request a 32% increase for 2016 and was granted/directed — get this — to offer premiums at a 45% higher rate.

Many of the coops blame their failure on the Cromnibus law enacted in December of 2015 that prohibited use of non-appropriated funds to pay for the federal Risk Corridors program that, on paper, was supposed to have the federal government backstop up to 80% of losses.  Given the magnitude of insurer losses thus far, the federal government is thus able to pay only 12.6% of the obligations created on paper by this program.  If one assumes, however, that the coops are correct in blaming Risk Corridors rather than mismanagement for their failure, this would confirm the suspicions of many that insurers priced their policies deliberately low in order to bring in business, relying on the federal taxpayer to cover their losses. I would also not be surprised to see some sort of legal action relating to coops who, notwithstanding Cromnibus and the handwriting on the wall persisted in booking Risk Corridor receivables at full value until very recently.

There will surely be lots of finger pointing over the failure of these coops: Democrats pointing to the “evil” Cromnibus bill as the source (although many Democrats voted for the legislation) and Republicans pointing to the inherent flaws in the ACA as the root of the problem. In the meantime, however, in many states, one of the sources of lower-priced insurance has been eliminated, meaning that many will be seeing substantial increases in gross premiums.

The fall of the PPO?

One of the promises of the ACA was that it would continue to offer choice to consumers and that they would be able to keep their doctor.  Not so in many states.  Plans that offer greater degrees of choice in selecting one’s provider appear to be in some trouble, closing in the shadow of an impending adverse selection death spiral. In Florida, for example, zero PPOs will now be available on the Exchanges in 2016.  In Texas, the state’s largest insurer, Blue Cross and Blue Shield, has announced that it lost so much money on individual PPO plans that it will no longer sell any in 2016. This development means 367,000 people will have to find other types of plans. In Illinois, Blue Cross is continuing PPOs for now, but only with narrower networks than had been available under a plan that had served 173,000 individuals.

I suspect this is just the beginning of problems for PPOs sold on the individual market in an era when insurers can not medically underwrite.  Between 2014 and 2015, PPO premiums went up at a far higher rate than other plan types.  We will shortly have the data to see whether this trend continued in 2016.


We don’t have all the information yet, but if ACA proponents like Charles Gaba are correct, we are looking at some substantial gross premium rate hikes in the United States, and extremely high rate hikes in some states.  What Mr. Gaba has done is to go state by state through various filings and do what no one else has tried: correlate premium rates with actual enrollments.  Although I do not always agree with Mr. Gaba, I must praise him for a very worthy and time consuming enterprise. The fact that some insurer is charging an astronomical premium for insurance doesn’t mean as much when few people are buying their product as it does when an insurer is getting a large share of the business.  Unfortunately, the federal government does not publish in any place I can discover insurer-by-insurer breakdowns of enrollment.

The research suggests gross premiums will go up 12.45% nationwide once enrollment weighting is taken into account.  Statewide figures range from a high of 41.4% in Minnesota, 39.0% in Alaska, and 30% in Hawaii to lows of 0.7% in Maine, 0.7% in Indiana and  3.5% in Connecticut.  Among the bigger states, the estimates are 4% for California, 15.8% for Texas, 9.5% in Florida, and 7% in New York. As I have noted on this blog and in testimony before a Congressional committee, net premium increases — which is what really matters to purchasers — can often be considerably greater than these figures, particularly for poorer individuals, but also can be lower.


More to come

We will, of course, see what plays out.  But for those who thought the brilliant engineering of Obamacare had forever slain the adverse selection dragon, beware. Dragon eggs can hatch.

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Exploring the likely implosion of the Affordable Care Act