Image source: White House on Flickr.

If you thought the first year of the Affordable Care Act was challenging, then you may not have seen anything yet.

Obamacare, as the ACA is more commonly known, is nearing its fourth open enrollment season with far more questions than answers. While the law helped to push the uninsured rates in the U.S. to their lowest level on record, according to both Gallup and the Centers for Disease Control and Prevention, the longevity and "affordability" of the Affordable Care Act remain very much in question.

Why Obamacare's future is in doubt

Front-and-center among the concerns is the fact that three of the five largest insurers in the U.S. have begun paring back their offerings in a big way leading up to the 2017 launch of open enrollment. This began with UnitedHealth Group (UNH 0.17%), the largest insurer in the U.S., announcing that it would reduce its ACA-based offerings to just three states in 2017 from the 34 states it was offering coverage through in 2016. The move is understandable considering the roughly $500 million UnitedHealth anticipates losing from its Obamacare plans in 2016. UnitedHealth's CEO Stephen Hemsley had previously cited higher-than-expected medical use rates (presumably from adverse selection, which is the process of accepting sicker patients as members) and the ease of changing plans each year as reasons why his company has been losing so much on its Obamacare plans.

More recently, Aetna (AET) and Humana (HUM -0.39%), which had been planning to merge, followed UnitedHealth Group's lead. Once the Justice Department announced its intent to block the merger plans, both Humana and Aetna made their intentions clear. Humana is reducing its coverage to 11 states in 2017 from 19 in 2016, but more importantly it's cutting coverage to approximately 88% of the 1,351 counties it operated in during 2016 in the upcoming year. Aetna is reducing its county coverage by nearly 70%. Both Aetna and Humana are making the move to reduce ACA-related losses.

Image source: Getty Images.

Compounding the substantially reduced coverage of these three national insurers is the news that 16 of Obamacare's 23 approved healthcare cooperative failed in 2016 (or plan to shut their doors by year's end). These co-ops, as they're more commonly known, were designed to be a low-cost option for the consumer with minimal overhead expenses and a focus on people, not profits. Unfortunately, many priced their premiums far too low, causing steep losses. The risk corridor, a type of risk-pooling fund expected to protect insurers losing excessive amounts of money on Obamacare, only wound up paying out $362 million of a requested $2.87 billion, dooming a majority of these co-ops to failure.

This ultimately leads to one thing: reduced competition for consumers in 2017. For those insurers that are sticking around, it probably means requesting substantial price increases to ensure that the coverage offered is profitable for the insurer and sustainable over the long term.

Big premium hikes likely await consumers

According to a recently updated analysis conducted by the Kaiser Family Foundation of 14 major cities, the lowest-cost and second-lowest cost silver plans are expected to rise by a weighted average of 9% in 2017. This would represent the most rapid premium inflation we've witnessed in quite some time. But residents in some states are going to have it far worse.

Through last weekend, insurers in a dozen states had their rate requests for 2017 finalized. While there are some notable bright spots, such as Rhode Island, which is expected to see a weighted increase in premium prices of just 1% in 2017, residents in the vast majority of the approved states are looking at double-digit percentage increases. As aggregated by, four of the first 12 states to finalize their rate requests for 2017 are looking at weighted increases of at least 30%.

Image source: Getty Images.

  • Tennessee (59% weighted increase): It's very possible that Tennesseans could be staring down the steepest Obamacare premiums hikes in the nation. Tennessee essentially has three insurers offering coverage, and all three received hefty rate hike approvals. Blue Cross Blue Shield (BCBS) of Tennessee, which enrolled about 83% of all ACA members in 2016, received permission to boost its premiums by 62%. Mind you, BCBS of Tennessee raised its rates 36% in 2016. The remaining insurers, CIGNA (CI) and Humana, which represent about 8% and 7% of current ACA market share in Tennessee, received respective permission to hike their premiums by 46.3% and 44.3%. Ouch!
  • Illinois (45% weighted increase): Illinois didn't release specific insurer-level rate request approval data. Instead, it chose to release approved premium rate hikes based on metal tier. For example, the lowest-cost bronze plans are rising by a weighted average of 44% in the upcoming year, while the lowest-cost gold plans are increasing by 55%. However, with Blue Cross Blue Shield of Illinois maintaining 82% of ACA-based market share in the state this year, and requesting a 50% increase in rates prior to approval, it's probably safe to assume that BCBS of Illinois is the culprit for this enormous premium hike. 
  • Georgia (33% weighted increase): Georgia essentially has three major players, and all three are receiving double-digit percentage premium hike approvals for 2017. Humana, which has about 27% market share in Obamacare's Georgia marketplace as of 2016, got a thumbs-up to boost its prices by more than 67%. Meanwhile, BCBS of Georgia, with 39% market share, upped its rate hike request after Aetna pulled out of the state, allowing it to receive a 21% rate hike approval when it had originally sought an increase in the mid-teens. Finally, Celtic/Ambetter, which has 21% market share, is raising its rates by nearly 14%. 
  • Iowa (30% weighted increase): Finally, Iowa has two large players that make up over 87% of its statewide ACA market share -- and both received approval for the rate hikes they requested. Aetna, which has more than 57% market share in Iowa, will be boosting its premium prices in the state by nearly 23%, while Wellmark, a Blue Cross Blue Shield operator that maintains 30% market share, is increasing its rates by almost 43%.

Image source: Getty Images.

Obamacare's saving grace

Premium rate hikes of this magnitude could seriously call the program's affordability into question. However, there's one saving grace for the ACA that could allow it to motor forward, even if there is plenty of public criticism surrounding these hikes. This saving grace is that a majority of enrollees are receiving the Advanced Premium Tax Credit, and are therefore shielded from the full brunt of premium price hikes.

According to data from the Centers for Medicare and Medicaid Services, about 85% of all current enrollees in the ACA are receiving subsidies that help lower what they pay monthly for Obamacare. This subsidy is a big deal, with the average monthly premium in 2016 equaling $408, and the average subsidized premium coming in at only $113. That's big savings over the course of the year, and the increase of a few dollars probably isn't going to drive millions of subsidized enrollees to dis-enroll.

The big issue for Obamacare and insurers is going to be retaining and reaching middle-class and higher-income Americans who'll feel the full force of premium hikes. We could certainly see attrition from these folks in the upcoming year with premium inflation set to spike higher, which could have a further negative impact on premiums and insurer profitability in 2018 and beyond.

We're still awaiting data from 38 more states, so things could certainly change a bit. But for the time being, Obamacare appears to be on the precipice of what looks to be its most challenging year yet.