Opinion

Even America’s Largest Insurer Can’t Make Obamacare Profitable

Kristina Ribali Senior Coalitions Director, Foundation for Government Accountability

Many health care economists, and frankly, many people who also have only a cursory understanding of markets have been saying from the beginning that Obamacare was doomed to fail because the numbers just didn’t add up. When you separate market forces from prices, and replace them with perverse incentives, and insert massive bureaucracy, the math gets very bad, very quickly.

UnitedHealth Group is the latest to be forced to admit that they cannot profitably operate under Obamacare. As reported by Phillip Klein at the Washington Examiner, UnitedHealth has informed investors that it was slashing its earning outlook because of problems caused by Obamacare, and that the company “has pulled back from its marketing efforts for individual exchange products in 2016,” and “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.” In other words, UnitedHealth is moving towards dropping out of the Obamacare exchanges all together.

The significance of this news, from the nation’s largest insurance company, cannot be overstated. An insurance company the size of UnitedHealth is in the best possible position to absorb the bureaucratic expenses of complying with Obamacare’s rules and diversifying their risk. If UnitedHealth cannot operate a viable insurance business under Obamacare, then it becomes even more unlikely any other company could either.

If UnitedHealth does drop out, it is likely to cause a negative ripple effect that will further hurt Americans trying to buy the insurance the ACA mandates. And certain provisions in Obamacare are making it even more likely that UnitedHealth will thrown in the towel in 2017. As Klein writes:

The year 2017 is significant for insurers, because that’s the year when several programs designed to mitigate risk for insurers through federal backstops go away. The hope was that those programs would act as training wheels for Obamacare in its first few years of implementation, but after that, the insurers were supposed to be able to thrive on their own. UnitedHealth’s statement suggests otherwise.

If UnitedHealth and other insurers decide to exit, remaining insurers will be forced to take on even more high-risk enrollees, prompting them to either raise rates further or exit themselves. That in turn would deprive individuals of choices and remove competition, a key purpose of the exchanges.

Ed Morrissey at Hot Air has a detailed discussion on how Obamacare has resulted in insurers offering “bait-and-switch schemes all the way down,” as formerly affordable catastrophic insurance plans with low deductibles and low premiums have been replaced with more expensive plans that have comprehensive plan prices but even worse coverage and significantly higher deductibles than the pre-Obamacare catastrophic plans offered.

It’s little wonder that Americans are balking at buying these insurance plans – they’re much more expensive and offer few actual benefits for most people’s health care needs. UnitedHealth has done the math and no longer wants to play the game. How many more insurers will follow suit?

Admittedly, many are likely inclined toward a certain amount of schadenfreude about this. After all, the insurance companies themselves lobbied for this law that would force Americans to buy their products. But even though many of us have been right about this law all along, it feels terrible to know how it’s harming real Americans. Higher premiums and deductibles, loss of coverage, and fewer choices for those who really need the care is nothing to laugh about.

Congress needs to start rolling back these senseless government mandates on healthcare that are driving insurers and consumers out of the marketplace. Real solutions that put families back in charge of their health care costs and help the uninsured are already being pioneered in the states, but first the federal government needs to get out of the way.