It's Time to Call This Obamacare Experiment an Utter Failure

Image source: White House on Flickr.

The Affordable Care Act, better known as Obamacare, is a controversial law, and we need look no further than survey statistics of how many people do and don't favor the health law of the land for evidence.

Since Obamacare was signed into law in March 2010, you can count on two hands how many months the Kaiser Family Foundation's Health Tracking Poll has observed a higher percentage of Americans favoring the law than not. On the other hand, we have more than 50 months' worth of readings suggesting that Americans, as a whole, aren't too thrilled about Obamacare.

What can't be debated are the enrollment figures, which the Centers for Medicare and Medicaid Services recently updated. Through the end of March, around 11.1 million people were enrolled through an Obamacare marketplace and paying their monthly premium. A nearly similar number of lower-income individuals and families have found coverage through the expansion of Medicaid programs in 31 states, which raised the eligible threshold for full coverage to 138% of the federal poverty limit from the tradition 100% of the FPL.

Based on data from both national pollster Gallup and the Centers for Disease Control and Prevention, Obamacare has helped push the uninsured rate to its lowest level on record.

Image source: Getty Images.;

Let's face the facts: This experiment was a failure

Another component of Obamacare that's now beyond debate is that its experiment with the risk corridor and healthcare cooperatives, or co-ops, was a complete and utter failure.

The risk corridor was designed as a method of risk-pooling for insurance companies to entice them to join Obamacare's marketplace exchange in order to create a competitive marketplace where consumers would have ample choices. The basic idea of the risk corridor was that overly profitable insurers would put their excess profits into a fund that would, in turn, pay out funds to insurers that were losing excessive amounts of money because they priced their premiums too low. The risk corridor was designed to give insurers a year or two to find the "sweet spot" where their premium prices made underwriting Obamacare plans sustainable.

The problem? There just weren't very many overly profitable insurers, and the federal government backed out of its initial pledge to help fund the risk corridor with federal dollars if profitable insurers failed to generate enough money for the program. In total, insurers wound up requesting $2.87 billion worth of funds because of excessive losses but wound up receiving just 12.6% of this amount.

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The result was the closure of more than half of Obamacare's healthcare co-ops heading into 2016. These 23 co-ops were to be run for the people, by the people, and they were designed to be a low-cost alternative to national health-benefit providers. Unfortunately, low premiums were also their demise, and the lack of risk-corridor funding pushed many to shutter their doors. Just this past week, three more healthcare co-ops -- Healthy CT in Connecticut, Land of Lincoln Health in Illinois, and Oregon Health Co-Op -- announced that they were shuttering their doors as well after extensive and unsustainable losses. Healthy CT will allow its roughly 40,000 members to maintain their plan through the remainder of the year, while Oregon's Co-Op will close at the end of this month.

With the closure of Healthy CT, Land of Lincoln Health, and Oregon's Health Co-Op, 16 of Obamacare's 23 alternative health-plan options have now shut down, costing taxpayers more than $1.7 billion, and causing more than 800,000 people to look for a new health plan in the coming months. 

While Obamacare has had its share of success stories, this has most definitely not been one of them.

A boon to national insurers, but a headache to consumers

The closure of roughly two-thirds of Obamacare's healthcare cooperatives isn't great news for the consumer -- especially the highly cost-conscious consumer looking to buy the cheapest bronze or silver plan, which is often the space healthcare co-ops occupied. Less in the way of competition in each state, along with the absence of a low-cost option, could push prices considerably higher in the years that lie ahead.

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We may already be witnessing this inflation, with the Kaiser Family Foundation, in an analysis of 14 major cities in June, estimating an average premium price increase for the lowest-cost silver plan in each city of 11%. For the roughly 15% of enrollees not receiving a premium subsidy, this magnitude of increase could be a tough pill to swallow.

On the other hand, the end of the risk corridor, and the simultaneous failure of two-thirds of Obamacare's approved health co-ops, could give the larger health insurers that chose to ride out Obamacare's hiccups new life.

Think about it this way: The risk-corridor program was designed to facilitate the entrance of new players by providing a financial floor for their losses. It also encouraged low-cost healthcare players to enter the playing the field. Without the risk corridor, we're unlikely to see many new entrants, and the chances of low-balling the premiums of national insurers decreases dramatically since insurers' plans need to be sustainable over the long-term. What this ultimately means is that national insurers are getting even more of their pricing power back.

Although UnitedHealth Group waved the white flag in many of the 34 states it's operating in because of excessive losses, national insurers such as Anthem (ELV 0.13%) could prove to be a big beneficiary of the co-op closures. Not only is Anthem's pending acquisition of CIGNA going to broaden its reach and result in cost-saving synergies, but a lack of competition in select states should help it justify premium increases that keep it ahead of the cost curve of rising healthcare inflation.

Keep in mind that the failure of the risk corridor and Obamacare's healthcare cooperatives doesn't mean Obamacare itself has failed. With 85% of enrollees receiving some form of subsidy on their premium, they remain mostly shielded from premium price hikes. But for the remaining 15% who aren't receiving a subsidy, as well as those who aren't insured but have thought about purchasing insurance, things could be about to get a whole lot more expensive.