“Basically, many of the enrollees in the marketplace or state exchanges are people with health concerns that make them a bad risk, a risk that insurers would have otherwise preferred to avoid,” Devon Herrick, senior fellow at the National Center for Policy Analysis, told Patient Daily.
But the way the AFA was supposed to overcome this was it expected younger, healthier people to pay higher premiums to offset the high medical costs of people more expensive to insure – a plan that doesn’t work very well, Herrick said.
“For one thing, people know when they are getting a bad deal," Herrick said. "Young people avoided the exchange because even through their premiums were lower than, say, middle aged or older people, they were still rather high compared to their expected health needs. They were paying $200, even $300 a month.”
According to a study conducted by Blue Cross, the average medical costs for a new enrollee in 2015 were “19 percent higher than employer-based group members in 2014 and 22 percent higher in 2015.”
Herrick said middle-income people have shied away from the exchange because premiums are too high and they are not getting any kind of subsidies.
“So basically the only people, or the people mostly like to flock to the exchanges are low-income people who qualify for premium subsidies, for cost-sharing subsidies and people with health conditions,” he said.
Herrick added that approximately 82 percent of enrollees in the exchanges are people who qualify for some type of subsidy, and that research shows health is correlated with income -- the more money people have, in general, the better their health is.
Research shows that people who tend to flock to the exchanges are more likely to have chronic health problems such as diabetes, HIV and hepatitis C, Herrick explained.
Another factor is that many people are gaming the system.
“Oftentimes they don’t bother to sign up and then they have a health concern," Herrick said. "At least until this year they could sign up late using a special enrollment. There was no policing of whether you qualified. You could get care provided, and then you could always just bail out of the market.”
Herrick said regulations forcing insurers to accept all applicants without adjusting premiums based on health were attempted in the '90s, but after state premiums skyrocketed, insurers left the market, forcing legislators in most of the states that had adopted the regulation to backtrack.
“It is real tough, a very tough problem to basically take healthy people and make them pay double of what their expected costs would be so that you can cross subsidize people who are obviously not healthy,” Herrick said.
Cross-subsidization in health care involves charging higher premiums to one group of consumers in order to subsidize lower premiums for another group.
“What I am telling people nowadays is that we can’t create an insurance policy that just magically cross-subsidizes,” Herrick said. “We need to get better at treating our most costly patients.”
Herrick doesn’t believe the current health care system will get better, unfortunately.
“The insurers were hoping it would stabilize at some point, which is why the re-insurance programs were designed to be temporary," he said. "The issue is it is kind of like a snowball effect. Initially the insurance company has some risk costs, more than others, so they raise premiums."
The problem with that approach, however, is the healthiest people are driven to cancel their premiums because of frustration over ever-rising premiums.
“So next year your risk approval is even less healthy and so the insurance company has to raise premiums," Herrick said. "And so, again, in the next round of healthy people again (they) say, ‘Good lord, this is costly,’ and they bail out. So pretty soon all you have left in the pool are the sickest people.”
UnitedHealth Group, the parent of UnitedHealthcare, the largest single health carrier in the country, will reportedly only sell government-subsidized individual plans in a handful of states in 2017.
The insurer announced its plan to exit most Obamacare exchange markets due to weak enrollment and high medical costs.
Last year, the company predicted substantial improvement in Obamacare business this year, but then realized it needed to make drastic changes after it became abundantly clear that the company could not sustain the medical costs of new customers.
Many, including Herrick, predict other insurers will take similar action.
“Over time -- and that is what happened to states that tried this in the '90s -- the risk pools increasingly become sick pools," he said. "And sick pools have extremely high premiums because they have riskier enrollees. So this may just be kind (of) the tipping point where it goes from an unknown to downhill very fast."
