UnitedHealth Group Losing Big Money and Threatening to Leave the Obamacare Exchanges–Because the Obamacare Insurance Business Model Does Not Work

It’s official. The Obamacare insurance company business model does not work.

UnitedHealth Group just announced they expect to lose $700 million in the Obamacare
exchanges and are seriously considering withdrawing from the program in
the coming year.

This morning, the Wall Street Journal reported just about everybody else is losing their shirts in Obamacare as well:

Several other big publicly traded insurers also flagged problems with their exchange business in their third-quarter earnings Anthem Inc. said enrollment is less than expected, though it is making a profit. Aetna Inc. said it expects to lose money on its exchange business this year, but hopes to improve the result in 2016. Humana Inc. and Cigna Corp. also flagged challenges…

There are signs that broad pattern has continued–and in some cases worsened–this year. A Goldman Sachs Group Inc. analysis of state filings for 30 not-for-profit Blue Cross and
Blue Shield insurers found that their overall company wide results were
“barely break-even” for the first half of 2015.

Goldman analysts
projected the group would post an aggregate loss for the full year–the
first since the late 1980s. The analysis said the health-law exchanges
appeared to be a “key driver” for the faltering corporate results, and
the medical-loss ratio for the Blue insurers’ individual business was
99% in the first half of 2015–up from 91% at that point in 2014, and
82% for the first six months of 2013.

Every health
plan I talk to tells me that they don’t expect their Obamacare business
to be profitable even in 2016 after their big rate increases. That does
not bode well for the rate increases we can expect to be announced in
the middle of next year’s elections.
And, then there are the insolvencies of 12 of the 23 original Obamacare co-op insurance companies–the canaries in the Obamacare coal mine–with almost all of the rest of the survivors losing lots of money.

Why is this happening?

Because nowhere near enough healthy people are signing up to pay for the sick.

This from The Robert Wood Johnson Foundation (RWJF) and The Urban Institute (UI) in their October 2015 policy brief regarding the Obamacare insurance exchange enrollment:

estimate that just over 24 million people were eligible for tax credits
for health coverage purchased through Affordable Care Act’s (ACA)
health insurance marketplaces in 2015. As of the beginning of March
2015, 10 million people eligible for tax credits had selected
marketplace plans, representing a plan selection rate of 41 percent of
the population estimated to be eligible for tax credits. By the end of
June, 2015, 8.6 million had actually enrolled in marketplace coverage
with tax credits, representing an enrollment rate of 35 percent.

In recent post at Forbes, Has the Obama Administration Given Up on Obamacare?,
I made the point that the Obama administration’s 2016 almost flat
enrollment estimate would constitute only a small fraction of the
potential market–I estimated less than 40% of those eligible for a

But who am I?

Now, The Robert Wood Johnson
Foundation and the Urban Institute have come to largely the same
conclusion–enrolling a total of 10 million in the exchanges, based on
historic trends, would mean only about 9 million of them would be
subsidy eligible. That would amount to only 38% of the 24 million people
eligible for a subsidy.

And, don’t forget that the only place a
subsidy eligible person can get an Obamacare subsidy is in the state and
federal exchanges. They can’t get subsidized commercial health
insurance anywhere else.

And, I suggested in the same post that
such a poor 2016 open enrollment would be way short of the market share
required to create an efficient risk pool–having enough healthy people
paying into the pool to support the sick at affordable rates. I also
argued that such low enrollment rates could never make the new health
insurance law politically sustainable.

That the Affordable Care Act’s individual market risk pool is so far unacceptable was reinforced by a recent McKinsey report
that health insurers lost an aggregate $2.5 billion in the individual
health insurance market in 2014–an average of $163 per enrollee. They
reported that only 36% of health plans in the individual market made
money in 2014–and that was before they found out that the federal
government was only going to pay off on 12.6% of the risk corridor
reinsurance payments the carriers expected and many had already booked.

the risk corridor program is revenue neutral, the fact that the
carriers in the red are only going to collect 12.6% of what they
requested means that the carriers losing money did so at a rate eight
times greater than the carriers making money!

I have also regularly argued
that the reason that the take-up rate among most of those eligible is
so low is that the policies are still too expensive and the deductibles
and co-pays are too high for other than the poorest.

In another recent post, Why the Affordable Care Act Isn’t Here To Stay–In One Picture,
I pointed to an Avalere Consulting analysis that showed that while
three-quarters of the poorest of those eligible for the exchange
subsidies have signed up, only 20% of those making between 251% and 300%
of the poverty level had so far enrolled.

What did the Robert Wood Johnson Foundation and The Urban Institute find on this count?

found almost exactly the same thing–the poorest are buying Obamacare
and the vast majority of the rest–even if they are subsidy
eligible–are not:

Screen Shot 2015-10-31 at 3.54.37 PM

And the reason the working and middle-class are not buying it? This from the RWJF/UI policy brief:

uniformity of 2015 marketplace plan selection rates at different income
levels across the 37 states using HealthCare.gov is striking. In part,
it may reflect people’s judgments about the affordability of marketplace
coverage at different income levels. Premium tax credits, cost sharing
reductions, and actuarial value levels are the same across the states,
so marketplace enrollment data may provide valuable information on
people’s willingness to pay for marketplace health coverage. This
conclusion is reinforced by several studies that have shown many people
who shopped for marketplace coverage did not choose a plan, considered
the available options to be unaffordable.

are Obamacare apologists going to stop spinning the insurance exchange
enrollment as some big victory that is running smoothly? Yes, Obamacare
has brought the number of those uninsured down–because of the Medicaid
expansion in those states that have taken it and because the poorest
people eligible for the biggest exchange subsidies and lowest
deductibles have found the program attractive.

But that
Obamacare has been a huge failure among the working class and
middle-class–not to mention those who make too much for subsidies and
have to pay the full cost for their expensive plans–has once again been

How does the Obama administration spin 2015’s
unacceptably low health insurance exchange take-up rate of 35% and
their projection that it will hardly grow in 2016?

Here is what HHS Secretary Burwell recently said about that:

This open enrollment is going to be a challenge but having fewer uninsured Americans to sign up is a good problem to have.

The arrogance in this spin is astounding.

When will the denial, over the real shape Obamacare is in, end?

Robert Wood Johnson Foundation and Urban Institute findings have now
given additional credibility to the very same conclusion many of us have
been trying to make since the Obamacare launch: The Obama
administration has NOT been so successful in enrolling those
eligible–they’ve got more than 60% of the group remaining!

If the
Obama administration signs up the 10 million they are estimating they
will sign-up during the current open enrollment, based upon the historic
number that are subsidy eligible, they will have less than the 9
million of the 24 million RWJF and UI estimate are in the potential
exchange subsidy market–just a 38% success rate. And, that is nowhere
near where they will have to be to make these risk pools sustainable for
the insurance companies or politically sustainable in the country.

Or, keep the likes of UnitedHealth Group in the program.

How can Obamacare be fixed?

the Obama administration can improve, but not completely solve, their
Obamacare problems by dramatically revisiting their regulations so as to
give health plans the flexibility they need to better design plans
their customers want to buy as well as tightening up the special enrollment periods that let sick people join the day they need it.

But that would only be a first step.

Here is an op-ed I did on the subject of the complete overhaul Obamacare needs at USAToday.

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