It’s not just the Web site that’s broken — the Obamacare marketplace itself is failing.
Despite much talk about using competition, the Obamacare law and the regulations that enable it are all but eliminating competition from the exchanges. In its zeal to micromanage every aspect of peoples’ health benefits and the profits that insurers can earn off these services, the administration guaranteed that few health insurers or care providers will show up to play.
Let’s start with private insurers, who’ve been extremely selective in the regions where they’ve stood up health plans. Obamacare largely outlaws charging less to younger or healthier people and more to older, less-healthy ones; insurers have gamed this rule by only offering plans in select areas, plainly those where they believe the underlying demographic and socioeconomic trends will allow them to come out ahead.
A recent survey by Credit Suisse looked at 36 federally-run exchanges, plus six state exchanges where data was available. It found that Aetna is offering health plans in just eight of these 42 states — and is even more selective in the counties where it chose to play. In Florida, for example, Aetna was only operating plans in 23 of the state’s 67 regions. (In most of the country, state regulators long ago designated “regions” for insurance-pool purposes; the new system pretty much sticks to those maps.)
Humana only went into 14 states. In Colorado, it’s offering plans in just two of 11 regions — and in Florida, just 12 of 67 regions.
Many insurers are completely out of entire state exchanges. Cigna only entered five states; United Healthcare (the nation’s largest insurer), just 12.
In all, more than half of the country’s 2,500 counties have only one or two insurance companies offering health plans.
The Obama team heavily subsidized the creation of not-for-profit “co-op” plans to help fill this void. But it heaped so many rules on them that many co-ops already show signs of insolvency, before the first year of coverage even begins.
Nor are significant numbers of new plans entering the marketplace — because the administration capped the operating margins of insurers as a way to micromanage their profits. Brand-new plans need to pour lots of premium revenue into start-up operating costs, but Obamacare won’t allow it. Thus, these regulations favor the incumbent insurers at the expense of potential new entrants.
Meanwhile, another liberal promise — that hospitals and health systems would be able to directly market health plans to consumers, cutting out the insurer altogether — also looks doomed.
A few hospital systems have started these plans. But only a few, because hospitals that tried this in the 1990s failed. Turns out the hospitals aren’t good at managing the risk of running a health plan. When hospital systems offer their own health plans, it’s also mostly sicker patients that tend to enroll.
The unfolding picture isn’t any prettier when it comes to providers and their willingness to accept patients carrying Obamacare coverage.
Only 38 percent of US not-for-profit hospitals have signed a contract with any Obamacare plan, according to a new analysis from Morgan Stanley. Of the hospitals signing up, the vast majority signed just one or a few contracts.
The administration is advertising these health plans as “narrow network” schemes that will only be contracting with the most “efficient” providers. That’s just spin. In fact, these health plans aren’t contracting with “efficient” providers, just cheap ones. Medicaid clinics are in; elite hospitals are frozen out.
Obamacare is leading to other kinds of gaming. A new industry has materialized of firms that help hospitals and health plans assess a doctor’s mix of patients. Doctors caring for more patients with costlier medical problems are likely to find themselves excluded from health-plan networks.
Yes, Washington will try to write more rules to try to reverse that trend. But the networks will work to game those rules, too, in a “regulatory arms race” that can only lead to more wasteful distortions.
The absence of competition on the exchanges has made resulting plans costly. The Obama team touts the fact that average premiums are coming in less than the Congressional Budget Office first estimated in 2009. But that’s only because inflation has been lower than CBO assumed.
The result is that Obamacare is likely to provide substandard benefits, with little choice of providers and health plans. And its first year may be the high-water mark.
As the sickest patients sign up for Obamacare, while younger and healthier people look for coverage elsewhere, insurers will come up against regulatory limits on premiums and the costs they can pass on to patients. And health plans will leave the market as the cost of covering a selected population of older, sicker Americans exceeds the limits on what they can charge.
As the whole Obamacare system erodes, liberals will argue that the “market” failed because competition can’t be trusted in these settings. In fact, this entire scheme is failing because it made real competition impossible. It was dysfunctional from its outset.