One of the nation’s biggest health insurers is worried enough about a scenario in which it would have to pull out of Obamacare exchanges that its CEO is willing to talk about the possibility on national TV from Davos. It may be partly a signal to the administration to get this train moving, but it’s no doubt also a reckoning with reality. Obamacare is not attracting the uninsured, and if the administration would stop changing the rules long enough for insurers to get a handle on who is in the exchange population, they’d no doubt find that population is far more sick and expensive than it was supposed to be.
Aetna CEO Mark Bertolini told CNBC on Wednesday that Obamacare has failed to attract the uninsured, and he offered a scenario in which the insurance company could be forced to pull out of program.
The company will be submitting Obamacare rates for 2015 on May 15.
“Are they going to be double-digit [increases] or are we going to get beat up because they’re double-digit or are we just going to have to pull out of the program?” Bertolini asked in a “Squawk Box” interview from the World Economic Forum in Davos, Switzerland. “Those questions can’t be answered until we see the population we have today. And we really don’t have a good view on that.”
He said that so far, Obamacare has just shifted people who were insured in the individual market to the public exchanges where they could get a better deal on a subsidy for coverage. “We see only 11 percent of the population is actually people that were firmly uninsured that are now insured. So [it] didn’t really eat into the uninsured population.”
For Obamacare to work better, it needs more flexibility and choice of insurance programs, Bertolini said. “We need to make it a lot more simpler for people. There needs to be more choice. When you get more choice, you make it more of a market and you get more people in the program.”
Bertolini’s comments illustrate the bind the insurance industry is in—and, yes, they jumped in with Obama on this deal expecting a bunch of people to be forced to buy their product. Obamacare has failed in such a way as to force them to raise rates dramatically. If they raise rates dramatically, the very administration that needs them to stick with the program will be calling them bad apple patent medicine salesmen because vilifying them will be the only hope for politically extricating itself from its policy failure, at least temporarily. And, in the meantime, the industry can’t even get a handle on who is in the exchanges because the administration keeps changing the rules every five minutes. A couple of industry folks told me last week, even if the news about the make-up of the exchanges is bad, it’d be better to figure it out, get some experience with the population, and gauge what can be done for cost containment. Obama’s short-sighted game of switcheroo doesn’t allow much actuarial science to take place.
As to Bertolini’s prescription for more choice and market forces, something like this, perhaps?
This week, health care analyst and Obamacare opponent Megan McArdle went to the Upper West Side and debated the proposition that Obamacare is already doomed…and won. Her analysis, coupled with Bertolini’s message should be chilling to Obamacare fans:
Obamacare’s exchange facility was conceived as a “three-legged stool”: guaranteed issue, community rating, mandate. Guaranteed issue means that an insurer can’t refuse to sell you a policy. And community rating means that they can’t agree to sell you a policy — for a million dollars. The problem is that if you set things up this way, it makes a lot of sense to wait to buy insurance until you get sick, at which point premiums start spiraling into the stratosphere and coverage drops. Enter the mandate: You can’t wait. You have to buy when you’re healthy or pay a fine…
Unfortunately, whenever someone has voiced discontent with the way things are going, the administration has taken a hacksaw to another leg. For example, some folks who had policies they liked before were being forced to drop them and buy new policies they didn’t like so much. That caused an outcry, followed by an emergency grandfathering rule.
McArdle offers a timeline for Obamcare’s demise, stipulating that its few popular provisions will survive:
Many of the commentators I’ve read seem to think that the worst is over, as far as unpopular surprises. In fact, the worst is yet to come. Here’s what’s ahead:
· 2014: Small-business policy cancellations. This year, the small-business market is going to get hit with the policy cancellations that roiled the individual market last year. Some firms will get better deals, but others will find that their coverage is being canceled in favor of more expensive policies that don’t cover as many of the doctors or procedures that they want. This is going to be a rolling problem throughout the year.
· Summer 2014: Insurers get a sizable chunk of money from the government to cover any excess losses. When the costs are published, this is going to be wildly unpopular: The administration has spent three years saying that Obamacare was the antidote to abuses by Big, Bad Insurance Companies, and suddenly it’s a mechanism to funnel taxpayer money to them?
· Fall 2014: New premiums are announced.
· 2014 and onward: Medicare reimbursement cuts eat into hospital margins, triggering a lot of lobbying and sad ads about how Beloved Local Hospital may have to close.
· Spring 2015: The Internal Revenue Service starts collecting individual mandate penalties: 1 percent of income in the first year. That’s going to be a nasty shock to folks who thought the penalty was just $95. I, like many other analysts, expect the administration to announce a temporary delay sometime after April 1, 2014.
· Spring 2015: The IRS demands that people whose income was higher than they projected pay back their excess subsidies. This could be thousands of dollars.
· Spring 2015: Cuts to Medicare Advantage, which the administration punted on in 2013, are scheduled to go into effect. This will reduce benefits currently enjoyed by millions of seniors, which is why they didn’t let them go into effect this year.
· Fall 2015: This is when expert Bob Laszewski says insurers will begin exiting the market if the exchange policies aren’t profitable.
Emphasis mine, and Mark Bertolini’s.