Obamacare enthusiasts have long been in denial that their beloved law is unworkable in anything resembling its current form. But with the recent news that the insurance giant Aetna is joining the stampede of companies leaving Obamacare's exchanges, reality may finally be sinking in.
It may be too little, too late. Worse, Obamacare has become such a quagmire that the proposed "fixes" may create an even bigger mess.
Aetna is bailing out of the individual exchange market in 11 of 15 states because, like its peers, it was sustaining losses to the tune of $300 million annually and sees no prospects of improvement. Aetna's exit will leave a good chunk of its million or so customers scrambling for new coverage when enrollment begins in a few months. This wouldn't have been such a big deal if there were other good options. But that's not the case given that other big insurers, including UnitedHealthCare and Humana, have also quit in many states, and for identical reasons. Worse, 70 percent of Obamacare's co-ops—non-profit plans that were given government loans on sweet terms to compete with private companies—have also collapsed. In huge swaths of states such as the Carolinas, only one monopoly insurer is left. And in Pinal County, Arizona, there are none!
But even in states that have more options, many of them involve plans that cut their teeth in the Medicaid business. This means that their business model involves giving people all the lavish benefits required by the law on paper. However, in practice, patients don't receive them because the authorized network of providers and hospitals is exceedingly narrow.
Obamacare's boosters on the editorial page of The New York Times and elsewhere maintain that the exit of all these biggies is no big deal because it represents the normal weeding-out process of a competitive market. That's a nice try—but no sale! In a functioning market, companies die when their customers take their business to alternative suppliers. In this case, customers are unwilling to purchase the product in the first place given that total enrollment in Obamacare exchanges is 40 percent less than Congressional Budget Office projections last year.
Here's an even bigger problem: The mix of people enrolling is disproportionately weighted toward the sick and old rather than the young and healthy. Not enough of the latter are choosing to enroll—opting instead to pay an annul penalty that the law imposes on them. This riskier-than-expected patient pool is forcing insurers to raise premiums, which prices even more healthy people out of the market, which causes more hikes, unleashing a death spiral of adverse selection—exactly as many critics of the law had predicted would happen.
After dismissing such predictions as fear mongering, some Obamacare fans, such as University of Pennsylvania's Zeke Emanuel, who served as a top White House health policy adviser during Obama's first term, are finally acknowledging there is something to worry about. "There is a problem with the risk pool," he admits. "There is a problem with the numbers of people signing up." Meanwhile, Vox's Sarah Kliff, another Obamacare cheerleader, ran an interview with Princeton University's Uwe Reinhardt, who believes that the exchanges have entered a death spiral just like the one that unfolded in New York and New Jersey over two decades ago, when those states forced insurers to underwrite everyone regardless of health status (guaranteed issue) without any "price discrimination" (community rating). (Hilariously, Kliff calls Reinhardt's the "minority view" because, evidently, Obamacare's critics who live outside liberal land don't count!)
The left has two ideas to overcome the adverse selection death spiral and create self-sustaining exchanges. Reinhardt's suggestion is to embrace the Swiss model, which involves imposing very stiff penalties on insurance scofflaws and then enforcing them harshly by garnishing wages. The other idea is creating a public option or a non-profit government-run insurance plan that would compete with the private underwriters on the exchanges and bring down prices.
These ideas are draconian. They are also politically unfeasible—and ultimately self defeating. Raising the penalty won't happen without a bruising fight. Given that the Supreme Court ruled that the penalty was really a tax, any hike must be approved by Congress. That'll be an uphill task even if Democrats control one or both chambers. Good luck with that.
The public option, meanwhile, would have the added problem of not even working conceptually. Why? Because private insurers can't compete with an entity that has the power and backing of the almighty federal government behind it. So, odds are, they won't lower premiums. They'll just sprint even faster to the exits, effectively leaving the public option as the only option.
This would be tantamount to creating a single-payer system—a government-run monopoly. And the only thing worse than a private monopoly is a state monopoly. Indeed, single-payer systems in countries like Canada and Denmark only stay afloat by dipping deeply into public coffers and/or rationing care—defeating their whole purpose. Even if the left tried, it'll be nigh impossible to pull this off in a debt-ridden country already careening toward a massive entitlement spending crisis.
Obamacare tried to remake a sector that constitutes one-eighth of the economy from the ground up. But it made a mess that it just doesn't know how to fix. That will be President Obama's legacy. He should be worried. Very worried.
This column originally appeared in The Week.
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