A spokesperson for the Obama administration dismissed the news that UnitedHealth’s withdrawal from most of the 34 ObamaCare Exchanges in which it currently sells as unimportant and denied that there is any chance that the Exchanges will collapse. United has cited losses of $650 million in 2016 alone as reason for the withdrawal.
Healthy people consider ObamaCare a bad deal, writes Cato Institute’s Michael Cannon. Mr. Cannon explains why UnitedHealth’s withdrawal from O’Care’s Exchange is more ominous than the administration would like us to know.
- Why United Health’s departure shows ObamaCare is suffering from self-induced adverse selection. Although UnitedHealth did not have the lowest-cost premiums in the Exchanges, it still lost money, suggesting that high-cost patients are shopping for the most comprehensive benefits regardless of cost. UnitedHealth offered coverage that was attractive to the sick.
- Why UnitedHealth’s departure from the Exchange is bad news for other carriers, who are already suffering unsustainable losses. “Even after the government threw all the subsidies it had at Exchange carriers, 70% still reported losses, according to the consulting firm McKinsey. The average profit margin was negative in 41 states.” When UH’s sicker-than-average enrollees enroll in whichever remaining plans offer the most comprehensive coverage, losses will mount for carriers of those plans.
- Why UnitedHealth’s departure shows O’Care’s premiums will continue to rise. “The Obama administration claims the impact on premiums will be small because UnitedHealth accounts for just 6% of Exchange enrollments and didn’t price its products competitively. Yet the KFF (Kaiser Family Foundation) estimates that without UnitedHealth, premiums would have been 1% higher in 2016–and that’s before we include the most important effect of the company’s withdrawal.”UH’s costlier-than-average enrollees will enroll with the most comprehensive coverage on the market. As losses mount, carriers will increase premiums.
- Why there will be more exits. If those carriers’ losses are too great, or if the government blocks them from increasing premiums sufficiently, those carriers will exit the Exchanges, just like UnitedHealth has. Mr. Cannon also predicts that the next carriers to leave the Exchanges will be those offering comprehensive coverage at moderate or high premiums.
- Why UH’s departure shows quality under O’Care will continue to fall. “Obamacare will keep punishing whatever insurance company offers the best coverage. The law is literally rigged to create a race to the bottom. That’s why so many carriers are offering plans with high cost-sharing and narrow networks.”
ObamaCare, writes Mr. Cannon, “makes it harder, not easier, to have secure, high-quality health coverage.”
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Debbie Young
Debbie, editor-in-chief of Richardcyoung.com, has been associate editor of Dick Young’s investment strategy reports for over three decades. When not in Key West, Debbie spends her free time researching and writing in and about Paris and Burgundy, France, cooking on her AGA Cooker, driving her Porsche Boxter S through Vermont and Maine, and practicing yoga.
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