Tuesday, March 25, 2014

The One Thing That Could Save Obamacare––And The Obama Administration Needs To Do It In the Next Month

To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates. A senior executive for Wellpoint, which sells plans in 14 Obamacare exchanges, is quoted in a Reuters article telling Wall Street analysts there will be big rate increases in 2015, "Looking at the rate increases on a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be double digits."

If the health plans do issue double digit rate increases for 2015, Obamacare is finished.

There are a ton of things that need to be fixed in Obamacare. But, I will suggest there is one thing that could save it.

The health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th. Any major modifications to the current Obamacare regulations need to be issued in the next month to give the carriers time to adjust and develop new products.

If the administration goes into the next open enrollment with the same unattractive plan offerings costing a lot more than they do today, they will not be able to reboot Obamacare.

Simply, health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won't buy them any more enthusiastically next fall than they already have. See: Obamacare: The Uninsured Are Not Signing Up Because the Dogs Don't Like It

Doubling the fines for not buying in 2015 will only give the Democrats more political problems––and it doesn't look to me like they are going to enforce the fines anyway.

Health insurance plan executives are now faced with a daunting decision. How do they price the 2015 Obamacare exchange plans?

Even if the administration announces they have signed-up about 6 million people by March 31, the number of people enrolling would be well below expectations––only about 25% of those subsidy eligible will have signed up by the deadline. An enrollment that small guarantees the risk pool is sicker and more expensive than it needs to be in order to be sustainable.

But dramatically increasing the rates will only assure even fewer healthy people will sign up for 2015 and some of those who signed up for 2014 will back out over the higher rates. This is what a "death spiral" looks like.

The health plans will be helped considerably by the "3Rs" Obamacare reinsurance scheme that makes $20 billion available for 2014 - 2016 to cushion the costs of bringing the previously uninsurable into the new health insurance system.

But the reinsurance scheme only limits most of the carriers' annual underwriting losses––it doesn't eliminate them.

By the end of 2016, just one year past the next plan year, the insurance companies need to get their Obamacare health plans on a profitable footing.

So, how do the insurance companies set their prices for 2015?

Do the carriers go easy on their renewals continuing to price their offerings below profitable levels, relying on the temporary reinsurance scheme to cover most of their losses, fearing that a big rate increase would finish off Obamacare and hoping the administration can reboot Obamacare in 2015 by getting the enrollment to acceptable levels?

Or, do they presume Obamacare cannot be rebooted given the currently unattractive plan offerings and it's hopeless to continue to take losses on something that has little or no chance of ever succeeding?

For insurers to have faith Obamacare is worth the continued investment and the risk the administration needs to quickly demonstrate they understand this program is in big trouble and they are willing to make big changes to save it.

And, whatever insurance executives think, do Democrats want to go into the November elections offering the same unattractive health plan offerings at even higher prices? Open enrollment doesn't begin until November 15 but the plans will be out and will be well publicized before Election Day.

The administration can go a long way toward fixing this and do it within the scope of the statute and their regulatory authority.

Here's what I would suggest.

Give carriers the ability to offer plans outside the Bronze, Silver, Gold, and Platinum structure.

Let them offer people plans they will find attractive––premium, deductibles, and benefits.

But, require any new plans to:
  1. Satisfy the 60% actuarial minimum in the statute––no "junk" plans.
  2. Give consumers the detail to compare the standard Silver Plan to any new offerings––full transparency.
Give carriers the ability to swap current benefit mandates (that were set by regulation not statute) for lower premiums and deductibles and be completely transparent in what those trade-offs are while still complying with the underlying statutory requirement that the plans must be worth at least 60% of total health care costs. The administration has the power to do this within the scope of the law.

Would such a range of choices lead to anti-selection within Obamacare?

Yes. But it would be manageable just as broad choices are manageable within the Medicare Part D program and the Medicare Advantage program where consumers are very happy with the choices they are offered and the plans have succeeded in getting an excellent spread of risk.

Without the sense Obamacare is salvageable the Obama administration risks having carriers giving up hope that Obamacare will ever work. The administration needs the insurance companies to believe this is fixable for them to remain committed.

Ardent Obamacare supporters won't want to do this.

Want to save Obamacare? Want to have at least a chance of avoiding an Election Day debacle in November?

I believe the administration has about a month to give health plans the confidence this can be saved.

If the carriers do what the Wellpoint executive has told Wall Street analysts they are about to do, Obamacare is finished. The "death spiral" will have begun.

But there is a way for the Obama administration to get the new health law back on track.
Avoid having to check back. Subscribe to Health Care Policy and Marketplace Review and receive an email each time we post.

Blog Archive