The ACA in August 2016.

Prior to passage of the Affordable Care Act (ACA), many Americans received their health insurance through their employers; many others bought individual insurance; and a relatively small percentage had no insurance at all.  As one part of the effort to extend health insurance to the uninsured, the ACA required everyone to have insurance, created a system of subsidies to make that insurance affordable for lower-income people, and encouraged the creation of market-places where individuals could purchase standard plans offered by insurance companies.[1]  (In essence, lots of younger, healthier, lower-income people would be constrained to buy insurance to pay for the care of older, sicker, and often higher-income people.)  Broad participation in the health-exchanges by the major insurance companies would create a competitive environment that would help hold down prices while providing a broad array of choices to customers.

In spite of the unfortunate early mishaps of the ACA (the botched roll-out of the web-site, the president’s terminological inexactitude about keeping one’s insurance, the Supreme Court’s invalidation of the portion of the ACA that tried to coerce states into expanding Medicaid), far more serious problems have begun to emerge.

In what seems to have come as a surprise to Democrats and the New York Times (“but I repeat myself” as Mark Twain once said), it turns out that people really are economic animals.  First, for many potential customers, the price of health insurance is too high for what it would buy.  While it had been projected that about 21 million people would be enrolled in health exchanges by 2016, only about 10 million have enrolled.  That’s a lot of premiums that never get paid to insurers.  In 2015, half of the people who did buy insurance in the market-places bought the cheapest possible plan.[2]  Those who buy the more expensive plans tend to be people with serious medical conditions.  Furthermore, many of these customers don’t care about choice of physician or the size of the network of providers. They have opted for plans offered by smaller insurance companies.  Some of these companies already had deep experience dealing with Medicaid payments.  They knew low income customers and they knew how to keep down costs.  Part of this involved limiting choice of care to doctors and hospitals that were willing to accept a low level of payment.

Second, private enterprise runs on a profit and loss basis.  Having run health insurance policies for employer-provided health insurance, the major insurance companies assumed that their new customers would want the same range of choice of physicians and hospitals.  They didn’t.  Anticipating large numbers of customers, many without serious health needs, the insurance companies priced many of their policies too low.  Getting half as many customers, many with serious health issues, the insurance companies suffered heavy early losses.  Facing continuing huge losses in this sector of their business, major insurers like United Health Group, Humana, and Aetna have either decided to pull out of the health-exchange market or limit their participation.  The insurers who remain in the health exchange market place plan to steeply raise premiums for 2017.  This may well drive even more price-sensitive customers out of the market place.  A health care expert at the Urban Institute rationalized that “you can’t lower costs without breaking some eggs.”  In this case, the “eggs” are companies owned by stock-holders as an investment of their assets.  The big insurers need to learn the market or to get out.

One solution would be to let the experienced low-cost providers take over this market.

[1] Reed Abelson, “Health Insurers Lose as Clients Focus on Costs,” NYT, 13 August 2016.

[2] “Bronze,” like coffin handles.

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