To say that the Patient Protection and Affordable Care Act has had its ups and downs over its first two-plus years of being officially implemented might be an understatement.
Obamacare has been marked by many ups and downs
Following the beginning of open enrollment in October 2013, Obamacare, as the PPACA is more affably known, struggled mightily because of technical issues, culminating in HealthCare.gov, the federally run marketplace that now represents 38 states, enrolling fewer than 400,000 people in its first two months.
More than two years later, the information backbone that handles enrollment appears to be working well, with the Congressional Budget Office estimating that 10 million people will be enrolled, paying customers by the end of 2016. Keep in mind that consumers drop out throughout the year for either non-payment or social changes, such as a new job where health insurance is provided, so end-of-period enrollment in 2016 may actually wind up topping the 12 million logged in 2015.
Sentiment has been another area where ups and downs have been commonplace. Kaiser Family Foundation's Health Tracking Poll has provided a near-monthly look at the overall favorability of Obamacare since it was signed into law back in March 2010. On no fewer than a dozen occasions since March 2010 has the view of the ACA flip-flopped between positive and negative among polled respondents, demonstrating just how polarizing of a law it's become.
But, the biggest up and down associated with Obamacare might arguably be the volatility associated with premium pricing. Through the first two years (2014 & 2015), premium cost inflation was very tame. Some of this was attributed to the after-effects of the Great Recession, which held premium price inflation in check, whereas Obamacare's transparent marketplaces and increased levels of competition were cited as another possible reason premium inflation was well under control.
This year, however, brings a far different scenario for consumers when it comes to premium pricing.
Residents in these states could see huge premium increases
According to an analysis from Kaiser Family Foundation, of 50 major cities across 49 states, the average premium was expected to rise 10.1% in 2016. But, a more recent analysis on premium prices conducted by Freedom Partners allows us a glimpse into the average premium moves on a more encompassing state-by-state basis.
Based on Freedom Partners' recently released data, a whopping 17 states are expecting average premium costs to rise by at least 20% in 2016, with residents in four states bracing for at least a 30% average premium increase. Just one state -- Mississippi -- will see its average premiums fall in 2016 per Freedom Partners.
Here are the states potentially suffering from premium whiplash in 2016:
- Minnesota: average premium increase of 47.7%
- Alaska: 39.1%
- Tennessee: 35.2%
- Hawaii: 30%
Why these states? I suspect it boils down to two reasons.
In the instances of Alaska and Hawaii, premiums may be rapidly rising because of their isolation from the mainland 48 states. Because they're isolated, access to certain aspects of healthcare may be limited. For example, hospitals in smaller communities in Alaska may not find it economically feasible to buy high-tech cancer-fighting equipment, meaning a cancer patient could have to travel hundreds of miles (or more) for treatment. That can be costly, and I suspect it's being reflected in these states' premium costs.
In the case of Minnesota and Tennessee, I believe it's simply a matter of insurers pricing their plans far too low/aggressively from the start. Tennessee is home to one of the 12 Obamacare health cooperatives that wound up closing its doors, and health co-ops are known for using low premium price tactics to lure consumers away from national insurance companies. Unfortunately for Tennessee's co-op, and the other 11 that failed, the risk corridor that was designed to protect them from excessive losses wasn't even close to being fully funded. The result was low-cost co-ops closing their doors and ultimately reducing downside pricing pressure in multiple states, including Tennessee.
In Minnesota, we simply saw its insurers requesting increases across the board. With the risk corridor failing to do its job, insurers that are losing money have had no choice but to get aggressive with their premium pricing moving forward. Minnesota had previously boasted the lowest average premiums in the country, so seeing them rise closer to the national average really shouldn't be too shocking.
The big question we should be asking
These ups and downs for Obamacare bring perhaps the most important question into light: namely, "Can Obamacare survive over the long run?"
Although we'd like this to be a straightforward yes or no answer, it's not that simple. Insurers are counting on the individual mandate, which requires everyone to purchase health insurance or pay penalty, to coerce currently uninsured people to enroll. They're also expecting healthier young adults to enroll in order to counteract the high costs of treating older and sicker patients. Lastly, insurers had been counting on the risk corridor to be there for them if things weren't going too well.
More than two years into the Obamacare experiment, we're seeing very mixed results. As noted above, the risk corridor has largely been unsuccessful, and it's caused more than half of Obamacare's 23 approved co-ops to close their doors.
Individual mandate and young adult enrollment have been more encouraging, though. We observed around 12 million consumers sign up for a plan last year by the end of open enrollment (Feb. 15, 2015), and in a recent update from the Department of Health and Human Services, we learned that young adult enrollment this year (for calendar year 2016) was handily outpacing young adult enrollment from last year. This sounds good on paper, but the only thing that matters is whether or not insurers can turn a profit and make Obamacare viable over the long run, and -- surprise, surprise -- the results are mixed.
National insurer Anthem (NYSE:ANTM), while reporting that margins from Obamacare plans were a bit below expectations, has been profitable from the exchanges when taken as a whole. Anthem, if you recall, really pushed into the government-sponsored market once Obamacare was signed into law, meaning it's been a big beneficiary from the Medicaid expansion that 31 states (including Washington, D.C.) have taken advantage of.
On the flipside, UnitedHealth Group (NYSE:UNH), the nation's largest insurer, is having all sorts of issues with Obamacare. The company lowered its full-year profit forecast late last year and suggested that it could pull its plans completely out of Obamacare's marketplace exchanges by 2017. UnitedHealth Group, during its investor day conference, suggested that the ease of consumers to switch health plans, along with a higher utilization of insurance, is what's dooming its plans to losses.
This doesn't really tell us one way or another whether Obamacare has the tools to survive over the long run, but I'd suggest we could be in line to have these answers within the next year, once we put the elections in the rearview mirror (knowing which party is in power will be important to understanding if Obamacare makes it through 2017 in its current form), and get a look at the breakdown of enrollees in 2016.