END OF 2018 OPEN ENROLLMENT PERIOD (42 states)

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Computer chips or potato chips? Obamacare's future may depend on whether insurance companies care HOW they make their money

For months now, several large insurance carriers (especially the biggest of them, UnitedHealthcare) have been griping about losing money hand over fist on the ACA exchanges, and yes, that's probably true (although other carriers are making money, albeit not as many and not as much as the losses).

However, as Forbes' Bruce Japsen reported the other day (and both the L.A. Times' Michael Hiltzik and Xpostfactoid's Andrew Sprung picked up on), as large as some of those losses may be, it's small potatoes compared with the profits that these same carriers are making off of the other major provision of the ACA: Medicaid expansion. Japsen:

Though the nation’s health insurance industry is having a tough time turning a profit selling individual policies on the public exchanges under the Affordable Care Act, the health law’s Medicaid expansion is churning big profits.

A snapshot of health insurers’ Medicaid windfall under the ACA could be seen in the earnings reports of Wellcare Health Plans and Centene, which both beat Wall Street’s fourth-quarter 2015 earnings expectations. These companies are an important measure of whether health insurers can find financial success providing Medicaid coverage to poor Americans under the health law President Obama signed six years ago even as the other key part of the legislation has growing pains.

...About 3.5 million of Centene’s 5 million members are in Medicaid plans. Centene’s 2015 earnings were up 31% to $355 million, or $2.88 a share for 2015, compared to $271 million, or $2.25 a share in 2014. Revenues rose 33% to nearly $6 billion in the fourth quarter and were up 37% to nearly $23 billion for all of 2015.

The Medicaid growth is in sharp contrast to the flat enrollment insurers are seeing in exchange plans, which have cost health plans several billions of dollars in losses in the first two years under the health law, according to insurers’ financial disclosures.

Sprung, who previously pointed out that the ACA's "Basic Health Plan" (BHP) program currently being successfully used in Minnesota and New York could be expanded to become the "Public Option" which so many progressives are clamoring for, continues on this line of thinking here:

It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer -- Medicaid managed care and Medicare Advantage. What if the ACA had offered all adults under age 65 who lacked access to employer-sponsored insurance a program something like the Basic Health Plans (BHPs) that the law allowed states to establish for people with incomes in the 139-200% FPL range? That is, a program rather like Medicaid, paying perhaps somewhat higher rates, and offering enrollees a choice of plans from among a handful of MCOs? (So far, New York and Minnesota are the only states that have established BHPs.)

That is, what if instead of a single public option, all the options were public, in the sense that they were paid by the government as MCOs -- but administered by private insurers?

Hiltzik makes similar points:

This trend not only underscores the diversity of healthcare solutions embedded in Obamacare, but may also point to its future. In Medicaid, as in Medicare, government is the single payer. It sets reimbursement rates for doctors and hospitals and sets enrollment terms so that members, once enrolled, stay enrolled.

Moreover, the programs are almost entirely free or at least very inexpensive for members. That ensures that they get a lot of healthy enrollees as well as those with heavy medical needs, a mix that makes the costs of the overall insurance pool relatively stable and predictable.

These factors and others eliminate many of the uncertainties that have bedeviled insurers in the exchange market, where the health profiles of customers have been hard to gauge and their movement into and out of health plans, sometimes to Medicare and Medicaid, has been vigorous.

When I posted my first "Hillary vs. Bernie" post back in January, as well as my more recent "How to cover another 15 million" post, one of the key issues I was trying to address is a matter of simple political and economic reality: ANY healthcare policy change which would be pushed for by either Hillary Clinton or Bernie Sanders is going to have to Witness the Firepower of This Fully Armed and Operational Battlestation known as America's Health Insurance Plans, aka "Big Insurance".

SHOULD behemoth insurance carriers get to throw their muscle around when it comes to healthcare policy? Of course not.

ARE insurance providers historically guilty of a laundry list of horrific business practices, up to and including the ugly practice of rescission, in which they would kick people off of their policies as soon as they actually got sick and needed the coverage? Of course.

DID some of these crimes specifically result in real people dying as a result? Absolutely; ask the family of Nataline Sarkisyan.

And was the only reason why most of these shameful practices stopped thanks to the Affordable Care Act itself? Yes.

In short, no, the insurance carriers don't have any moral high ground when it comes to this sort of thing. HOWEVER, the fact remains that they do still have a tremendous amount of money, power and influence, and they do directly employ at least half a million people (plus another million or two more in related industries)...and the vast majority of these folks aren't the $20 million Golden Parachute CEOs. Most of them aren't Evil or Corrupt, they're just normal schmoes trying to do their jobs.

My point is this: Like them or hate them, the Big Bad Insurance Companies aren't just going to fold up shop no matter what...and even if they did, that would have a significant impact on the lives of a lot of people.

So, the question is this: How important is keeping the Private Individual Market around to Aetna, UnitedHealthcare, Cigna, Humana etc. in the first place? I'm not talking about just the ACA exchanges; obviously if the heat gets to be too much, they'll just take their ball and go home, dropping off the exchange. I'm talking about the total individual market, both on and off the exchanges?

The thing is, the individual market including off-exchange enrollees is only around 20 million people (12 million exchange-based, perhaps 8 million more off-exchange when you include "grandfathered" and "transitional" policies). The potential market is perhaps 25-30 million at most. Now compare this to the roughly 150 million (nearly half the country) covered by Employer Sponsored Insurance (ESI). The carriers are losing money on the individual market...but if you absorbed those same people into something along the lines of a managed Medicaid/Medicare program, what would the impact be? I don't know if they'd suddenly start turning a profit off of these folks, but at the very least a lot of the confusion, uncertainty and a whole lot of recordkeeping would be cut out of the loop.

Last summer, I was invited to speak at a Society of Actuaries conference in Atlanta. Note the timing: It was in mid-June, literally a week or so before the infamous King v. Burwell Supreme Court decision, which (if it had gone the other way) would have blown every actuarial analysis of the healthcare market to hell in most states. Needless to say, the conference attendees were pretty ruffled...and this is a crowd who aren't generally known for being easily flustered. While chit-chatting with several of them after the event, the one common theme which they all shared is that to actuaries, the thing they hate most is uncertainty, in particular in the risk pool.

In fact, this is one of the chief advantages of a Universal, Single Payer healthcare system: The larger the risk pool, the more diverse and stable it is...and in this country, you can't get much more diverse and stable than 320 million people.

Now, as I've noted many times over the past few weeks, a universal, single payer healthcare system IS NOT GOING TO HAPPEN within the next 4-8 years...and the private insurance carriers sure as hell aren't going to allow themselves to be run out of business.

However, what if those same 25-30 million people were to be shifted over into a "Managed Medicaid/Medicare" style system instead? The existing ESI, Medicare and current Medicaid systems which currently cover around 85% of the population would remain pretty much intact, with the individual market which makes up around 8-9% of the population would simply be absorbed into the mix...but with private carriers still able to turn a profit in the process.

Result?

  • The enrollees are happy because their costs have dropped (or at least stopped skyrocketing) and there's a lot less paperwork/red tape for them to deal with.
  • Up to 10 million uninsured individuals are happy because they're insured without it costing an arm and a leg.
  • The carriers are happy because they're still in the loop, and have had a liability (from their POV) turned into an asset (or at least turned neutral).

As Sprung notes:

Higher income enrollees could buy in on a sliding scale. Because payment rates would be more like those of our current public programs than like private ones, premiums and copays would be lower. Networks would be narrow, at least at first, as payment rates might be somewhere between those of Medicare and Medicaid.

The losers, as far as I can see, would be not insurers, and not enrollees, but healthcare providers, for whom one more segment of the overall market would be paying government rates. But the individual health insurance market is relatively small -- probably a bit under 20 million lives at present, potentially perhaps 30 million if plans were affordable enough to bring in those who are holding back at present. That's as compared to about 147 million in the employer sponsored market.

So yeah, they fly in the soup here is that doctors and hospitals would be hit for a reduction of 20%+ on their payments from this market...but at the same time, the market itself would increase by up to 50% (from around 20 million now to up to 30 million). That seems like a reasonable tradeoff to me, although the math isn't nearly that clear-cut and the payments could be reduced by a lot more than 20% depending on how it worked out.

That's probably not the biggest hurdle to such a change, though:

The other losers would be lawmakers and policymakers ideologically committed to free market economics. My question for them: Is the Medicare Advantage market not free enough?