The “death spiral” is hitting the health insurance industry, and it couldn’t happen to a more deserving group.
The death spiral is when an insurance pool gets a disproportionately large number of sick people, and their higher-than-average medical care costs push premiums up. Younger and healthier people begin dropping out of the pool, making it smaller and sicker—and the premiums go up again and again.
Obamacare health insurance exchanges are a breeding ground for the death spiral, and Unitedhealth Group, the nation’s largest health insurer, has just revealed it’s getting sucked down. According to a company statement:
In recent weeks, growth expectations for individual exchange participation have tempered industrywide, co-operatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated, so we are taking this proactive step,” said Stephen J. Hemsley, chief executive officer of UnitedHealth Group.
UnitedHealthcare has pulled back on its marketing efforts for individual exchange products in 2016. The Company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.
Translation: Obamacare exchanges are draining the company dry.
And UHC isn’t alone. Texas BlueCross BlueShield has faced its own financial problems, canceling 367,000 PPO policies because it lost $400 million on them.
McKinsey Company reports that health insurers lost $2.5 billion in the individual health insurance market in 2014.
And, as has been widely reported, about half of the 23 nonprofit health insurance co-ops, which also sell on the exchanges, have shut down—with more to come.
UnitedHealthcare goes on to say in its statement that its business outside of Obamacare exchanges is doing well, which is believable because Obamacare did less to try and “fix” those markets.
Why are the exchanges, which were supposed to be Obamacare’s innovative solution to the problem of individuals having access to affordable coverage, hitting the skids? Because Democrats decided to ignore long-standing actuarial principles.
People can enter an Obamacare exchange regardless of their health condition, a practice known as guaranteed issue, which means they can remain uninsured until they get sick and then a health insurer has to cover them and can’t charge more for the illness.
Think of a person being able to buy a homeowners policy when his house is burning down.
Democrats hoped to mitigate the problem of people remaining uninsured until they needed coverage by mandating that they have insurance and a few other provisions. But this hasn’t worked very well. Some 35 million remain uninsured.
Just in case you’re tempted to feel a little sympathy for the plight of the health insurers, don’t.
For years the health insurance industry opposed guaranteed issue laws at the federal and state levels because they knew those laws could lead to the death spiral.
But then Obamacare came along, and the insurers, led by their trade association president Karen Ignani, a former Democratic Hill staffer, abandoned their long-held objections and embraced guaranteed issue, even participating with a number of other health-related associations in a May 2009 White House hug-fest with President Obama.
Now many smaller health insurers have exited the market, switching to products like life and critical care insurance.
And some of the largest health insurers are looking to merge as a way of cutting costs and reducing competition so they can survive. Or they may exit the exchanges.
It’s the same sordid tale we’ve seen over and over again since the disastrous rollout of Obamacare two years ago.
And I, for one, believe the fallout for Democrats who foisted this monstrosity on the country has only just begun. Obamacare was an issue in the recent Kentucky gubernatorial race, and that state had one of the better functioning state exchanges.
The next wave of the death spiral will begin to emerge late next summer, as actuaries and health insurers try to decide if the public can stand another 30 percent to 50 percent premium increase, or if it’s better to just exit the Obamacare exchanges.
And the voters will be getting that information just a few weeks before the 2016 presidential election.