Kyle Wingfield

Political commentary and opinion from The Atlanta Journal-Constitution's conservative blogger

Obamacare's financial problems, umpteenth chapter

Given that President Obama said ISIS was contained just hours before the Paris attack, and that John Kerry said al-Qaida was neutralized the day before its attack on a hotel in Mali , I can only assume someone in the Obama administration recently said something about the financial strength of Obamacare ( via Bloomberg ):

"The biggest U.S. health insurer is considering pulling out of Obamacare as it loses hundreds of millions of dollars on the program, casting a pall over President Barack Obama's signature domestic policy achievement.

"UnitedHealth Group Inc. has scaled back marketing efforts for plans sold to individuals this year and may quit the business entirely in 2017. It's an abrupt shift from October, when the health insurer said it was planning to sell coverage through the Affordable Care Act in 11 more states next year, bringing its total to 34. The company also cut its 2015 earnings forecast.

"While millions of Americans have gained coverage under Obamacare since new government-run marketplaces for the plans opened in late 2013, in UnitedHealth's case they haven't been the most profitable. Customers the company has added have tended to use more medical care. UnitedHealth also said today that some people are signing up for coverage, getting care and then dropping their policies.

"'We cannot sustain these losses,' Chief Executive Officer Stephen Hemsley told analysts on a conference call. 'We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself.'

"UnitedHealth said it expects as much as $500 million in losses on the Obamacare plans in 2016. The insurer will record $275 million of the costs in the fourth quarter. United also said Thursday it's booking $350 million in losses tied to the 2015 performance of its ACA plans."

This is not another insurance co-op going under, although that failure of a key Obamacare plank has been happening with alarming frequency , too. This is the largest insurer in the nation saying it will lose more and more money selling the kinds of plans Obamacare requires to be sold on the exchange.

That's because the architects of Obamacare tried to force exchange customers into an overly large, overly expensive, one-size-fits-all type of insurance. The plans that meet Obamacare requirements are designed to be everything to everyone, but they have turned out to be what relatively few people actually want.

The basic economic failure of Obamacare-approved plans has been evident since before the exchange opened: You cannot restrict insurers from competing on the coverage they offer, restrict the ways they can charge different customers, and then expect meaningful price competition. Nor has the law's focus on premiums -- without any regard to other costs to consumers, such as deductibles -- worked out in the real world, i.e. outside the offices of the Obama administration's central planners. Reducing premiums by subsidizing the hell out of them with tax dollars does nothing for a consumer if his deductible rises so high that his actual out-of-pocket cost of having insurance and receiving medical care remains unaffordable. Those lower-premium plans that Obama described as worthless because they didn't pay out anything were no worse than the plans that replaced them and don't pay out anything until a consumer has racked up $2,000 or more in medical bills.

But the most worrisome thing here is what UnitedHealth said about people only paying for insurance during the exact moments they need insurance. The individual mandate was designed to prevent that, but that isn't happening. Instead, exchange plans are becoming insurance that is purchased primarily by the sick, which isn't insurance at all but a cost-shifting scheme. There lies the death spiral that has concerned the industry from the beginning, in which too few healthy people are in the risk pool, driving up costs and in turn premiums, which encourages healthy people to drop their insurance, which further drives up costs and thus premiums, and on and on until the market collapses. No wonder insurers are beginning to think they can't make it in that business much longer -- and we're only two years into this grand experiment.

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About the Author

Kyle Wingfield joined the AJC in 2009. He is a native of Dalton and a graduate of the University of Georgia.