Six years after it was passed into law, Obamacare suffered one of its heaviest blows this week, a reminder that the fight for universal health care will continue well into the next administration. Aetna’s decision to pull out of Obamacare exchanges in all but four states, following UnitedHealth Group’s similar move earlier this year, is just the latest wrench in the smooth functioning of what even supporters of the Affordable Care Act admit is a Rube Goldberg–style health care system.
Aetna threatened to bolt the exchanges—which are supposed to give consumers a marketplace to shop for health insurance—if the Justice Department did not approve its merger with Humana. The insurance giant carried through on that threat when the government did sue to block the transaction, which threatens to reduce competition in the exchanges and make health care more expensive to purchase.
The situation underlines how Obamacare exists as a partnership with private companies, whose participation is vital to the entire enterprise. But the same government partnering with the Aetnas and UnitedHealth Groups of the world also serves as their regulator. And those missions can come into conflict.
Aetna is doing precisely what a monopolist does—using its market power and political influence to achieve a goal that would allow it to acquire more power and influence. It’s heartening that the Justice Department did not base its antitrust decision on Aetna’s threat. But it shows how market concentration in the insurance industry was out of control well before Aetna and Humana decided to team up. If Aetna makes that threat and there are 20 other market participants offering insurance on the exchanges, it rings hollow. Only because of the current concentration is that threat credible. And a concentrated industry that serves as a pillar of the president’s biggest legacy item may not be a reliable partner.
There’s an argument to be made that, to diffuse that power, antitrust laws should be used to break up insurance companies, rather than just block mergers. But that’s not the only problem with the exchanges, as Harold Pollack of the University of Chicago highlights. Decades of neglect of the market for individual health insurance plans created a much sicker than expected uninsured population that deferred medical treatment for a long time. They are now utilizing care to a far higher degree than insurers expected. Moreover, the premium costs, while lower than projected, still strain affordability, particularly for middle-class families who don’t qualify for subsidies. Add that to out-of-pocket costs and health care remains quite expensive.
Improving the subsidies would obviously lessen the blow. We can give insurers better risk adjustment, so they can be compensated if their pool of customers comes in sicker than their competitors’. And we can help people navigate the seemingly endless changes in the marketplace, either through auto-enrollment or some sort of expanded assistance. People shouldn’t have to shop for their health insurance, and potentially change doctors, every year.
But Aetna’s decision will also spur calls for much bigger interventions by the government. In four states, there is only one exchange participant selling health insurance, and this lack of competition doesn’t bode well for price or quality. If big insurers cannot make a profit in the marketplaces, and they are not compelled to offer individual insurance, they’re simply not going to participate. That’s why you might need a not-for-profit public option to drive competition, or even to abandon this public-private partnership altogether, as Senator Bernie Sanders argued this week.
“The provision of health care cannot continue to be dependent upon the whims and market projections of large private insurance companies whose only goal is to make as much profit as possible,” Sanders said in a statement. “That is also why we need to pass a Medicare-for-all single-payer system. I will reintroduce legislation to do that in the next session of Congress, hopefully as part of the Democratic Senate majority.” Those demands will continue as long as the exchanges look rickety, and the public option may be seen as the fallback option to a much larger disruption.
But here’s where it gets interesting. Aetna is not moving out of the individual insurance marketplace. CEO Mark Bertolini noted in his statement that “the company will continue to offer an off-exchange individual product option for 2017 to consumers in the vast majority of counties where it offered individual public exchange products in 2016.”
So the issue isn’t that individual insurance markets aren’t profitable, just that the exchanges are. Aetna appears to be trying to game the system. It doesn’t want to pick up sicker customers, who invariably have lower incomes that entitle them to exchange subsidies. And it doesn’t necessarily want to comply with exchange regulations if they constrain profits. Despite the new mandate to offer coverage to whoever wants it, Aetna would rather pick and choose its customers, ensuring that it pays as little as possible in medical bills.
For that, there’s a deceptively simple fix, an option available to the federal government and every state, one that’s already in place in Vermont and the District of Columbia. There, all individuals are required to buy their insurance coverage through the exchanges. States could also require small businesses to use Small-business Health Option Program (or SHOP) exchanges, as D.C. does.
D.C. and Vermont put the entire individual market on the exchanges because they are small localities that might not have enough customers to attract any insurers if they allowed the market to be segmented. But it also prevents Aetna-style cherry-picking.
The D.C. market isn’t a bastion of competition: There are only two sellers, BlueCross/Blue Shield’s CareFirst and Kaiser. But they’re sustaining a market where only 15 percent of customers are eligible for subsidies, as opposed to 85 percent nationwide. “If every state did what D.C. and Vermont have done, insurers would have to serve everyone or abandon the non-group market altogether,” said Henry Aaron of the Brookings Institution, who sits on the Health Benefit Exchange Authority, which made this decision for D.C.
Abandoning that market is a very real possibility, of course, because there’s another level of market segmentation. Aetna and UnitedHealth are strongly entrenched in the group insurance markets, selling plans to employers. If state governments—and HealthCare.gov, which runs the exchanges for the majority of states—tighten up their policies and force all individual insurance customers onto the exchanges, then insurers with lots of business in the group plans can just flee.
The question then becomes if there will be enough insurers left in the exchanges to sustain them. Sarah Kliff at Vox cites a couple companies, Centene and Molina, that have thrived, because they had ex tperience serving these types of customers through Medicaid. Of course, Centene just wrapped up a merger with HealthNet. The concentration at the top of the market seems to also be happening with these lesser players, which is bad news for competition, and the exchanges.
The current system remains too fractured and too subject to the whims of private companies. If you’re going to maintain a mandate/subsidize/regulate regime, then those insurers will have to be regulated like a public utility. Unfortunately, the escape hatch of the employer market means that may not be enough. And if that means the exchanges will forever struggle to provide affordable coverage for those unfortunate enough to not get coverage at work, the rumblings for single-payer (or at least a public option) will continue to grow.