Obamacare Death Spiral: Insurers to Drop Plans Unless Premiums Rocket, “Something’s Got to Give”

“Something’s Got to Give” Fresh on the heels of an unbelievable CPI report that suggests healthcare costs only rose 3.6% in the past year, comes news that insurers want big premium hikes or they will get out of the Obamacare business.

by Mish

Health insurance companies are amplifying their warnings about the financial sustainability of the ObamaCare marketplaces as they seek approval for premium increases next year.
Insurers say they are losing money on their ObamaCare plans at a rapid rate, and some have begun to talk about dropping out of the marketplaces altogether.
“Something has to give,” said Larry Levitt, an expert on the health law at the Kaiser Family Foundation. “Either insurers will drop out or insurers will raise premiums.”
While analysts expect the market to stabilize once premiums rise and more young, healthy people sign up, some observers have not ruled out the possibility of a collapse of the market, known in insurance parlance as a “death spiral.”
The Blue Cross Blue Shield Association released a widely publicized report last month that said new enrollees under ObamaCare had 22 percent higher medical costs than people who received coverage from employers.
And a report from McKinsey & Company found that in the individual market, which includes the ObamaCare marketplaces, insurers lost money in 41 states in 2014, and were only profitable in 9 states.
The clearest remedy for the losses is for insurers to raise premiums, perhaps by large amounts — something Republicans have long warned would happen under the healthcare law, known as the Affordable Care Act (ACA).
“The industry is clearly setting the stage for bigger premium increases in 2017,” said Levitt of the Kaiser Family Foundation.

Obamacare Death Spiral Debate

No Death Spiral: Dr. Mandy Cohen, the chief operating officer of the Centers for Medicare and Medicaid Services (CMS), said in an interview that there is “absolutely not” a risk of a death spiral or collapse in the ObamaCare marketplaces.

Death Spiral or Premium Hikes: Michael Adelberg, a former CMS official under President Obama and now a consultant at FaegreBD had this to say: “Given that most carriers have experienced losses in the exchanges, often large losses, it only makes sense that most exchange insurers will request significant rate increases for 2017.”

Adelberg added “Market exits are not out of the question if an insurer is looking at consecutive years of losses and regulators are unable to approve rates that get the insurer to break-even.”

Death Spiral, Not Tomorrow, Possibly Later: Blue Cross of North Carolina CEO Brad Wilson said in an interview that the company had lost $400 million due to its ObamaCare business. Wilson said he is not worried about a death spiral happening “tomorrow,” but has concerns if the situation does not change over time.

Death Spiral: The most prominent insurer eyeing the exits is UnitedHealth, which made waves in November by saying it was considering whether to leave ObamaCare in 2017 because of financial losses. The company last week announced that it is dropping its ObamaCare plans in Arkansas and Georgia, and more states could follow.

No Death Spiral: The Department of Health and Human Services argues that the attention on UnitedHealth is overblown, given that the insurer is actually a fairly small player in the marketplaces.

Debate Winners and Losers

  1. The winner in this debate is “death spiral or premium hikes”
  2. The loser in this debate is the public.

Obamacare has been one disaster after another. Whether by death spiral or massive premium increases, the public loses either way.

Is the Winner 1A:Death Spiral or 1B:Premium Hikes?

We have a possible clue from Dr. Mandy Cohen, COO of Medicare who says, “absolutely no risk of a death spiral or collapse in the ObamaCare marketplaces.”

The smart money bet is generally against those touting “absolutely no risk”.

My personal choice: death-spiral narrowly averted by massive premium hikes, consumer unfriendly rule changes, and worsening coverage.

Meanwhile, like you, I am relieved to discover healthcare costs only rose 3.6% last year. For details, please see Diving Into the CPI: What’s in Your Basket?

Mike “Mish” Shedlock

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