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Why are insurers pulling out of Obamacare?

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Most say the market is too risky

This week’s news that two health insurers in Iowa will depart the Affordable Care Act marketplaces next year has renewed the conversation about repealing or repairing the health law.

Over the last two years, several carriers have decided to stop selling insurance on the ACA exchanges—UnitedHealthcare and Humana have pulled out nationally, and other regional carriers have pulled out in different areas around the country.

This trend has raised many questions for consumers. Why do carriers keep pulling out of the market? Is this a consequence of ‘Obamacare?” What does it mean for consumers who rely on the ACA for coverage, and are there any solutions?

Here are a few things to know:

Why are carriers pulling out of the market?

In general, because enrollees are more expensive than they expected, and there aren’t enough healthy people in the market to balance them out. This is a complicated industry and there are many factors at play, but the key issue is that robust insurance markets need enough healthy people without healthcare costs to balance out the sick people who do have medical needs. This is what keeps costs low. Under the ACA, the “risk pools” have been sicker and more expensive than insurers say they can cover. To cover their costs, they have either raised premiums—which makes healthy people even less likely to get coverage—or pulled out of the market altogether.

Is this a consequence of “Obamacare?”

The market dynamics are a result of how challenging it is to require insurers to cover everyone, no matter how sick, while still keeping costs low. The ACA, or “Obamacare,” is what requires insurers to cover everyone regardless of health status, and some think the law’s incentives have not been effective in getting enough healthy people to sign up. 

Many solutions have been proposed, including repealing the ACA, but those proposals still have to grapple with the tricky problem of coverage versus costs. The recent Republican repeal bill, the American Health Care Act, struggled with this very issue and was ultimately pulled before a vote because there was not enough consensus on how to achieve the goal of lowering costs without cutting consumers’ coverage.

What does it mean for consumers?

There is a very real possibility that some markets may have no ACA insurers in 2018. Currently, 16 counties in Tennessee have no carriers planning to offer exchange coverage next year, and there are other regions facing similar problems. This could lead to consumers in these markets losing their coverage. Some insurers do offer “off-exchange” plans, but consumers currently cannot apply their ACA subsidies to these plans, which make them unaffordable for many. A new bill proposed by Tennessee Senators Lamar Alexander and Bob Corker would allow these consumers to use their ACA subsidies for off-exchanges plans, which could alleviate coverage losses.

Are there long-term solutions?

Action is arguably needed from the states, Congress, or President Trump’s administration. A few options have been proposed.

1. Pay insurers: The ACA expected that insurers would face financial challenges in the law’s first few years, and wrote in payments to insurers to help cover high-risk patients. These payments were cut by Congress in 2014, but Republicans have added a similar function into their revived AHCA plan. Another option is for states to set up “reinsurance” programs, which would do the same thing. Alaska set one up last year through its legislature to offset high premium increases, and Minnesota filed this week to do the same. The Department of Health and Human Services has told governors it will work with them to develop these programs.

2. Make the market for attractive for insurers: To do this without paying carriers would mean changing plan requirements. Doing things like cutting the ACA’s essential health benefits, or not requiring insurers to cover people with pre-existing conditions, or allowing them to charge sick people more, would all make the market more attractive to carriers. Insurers would likely re-enter markets and offer cheaper coverage if they could offer these types of plans. This is the option that the Congressional Freedom Caucus of conservative Republicans wants to take. However, this strategy would negatively affect consumers who benefit from ACA protections, particularly those with pre-existing conditions. This is the debate that Republicans had over their healthcare bill.

3. A public option: This was something Hillary Clinton talked about implementing during her campaign, but it hasn’t gotten much traction since Trump’s win. A public option is a government-run insurance plan for purchase by individual consumers. Some have suggested implementing a public option in areas where there are no other alternatives for ACA coverage.

The bottom line is this is a complicated situation with many moving parts. Most legislators want to come to a resolution on healthcare, but there are many different ideas about what the next steps should be. However, action will likely necessary to avoid coverage losses in 2018.

If you liked this post, you may also like "Conservative critics have a point: The American Health Care Act won't lower costs."

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