The Affordable Care Act, which you likely know better as Obamacare, should really come with a whiplash warning, because it's been a roller coaster ride since it was fully implemented on Jan. 1, 2014.
Some things went right, but many went wrong
On one hand, we recently found out from well-known pollster Gallup that the national rate of uninsured Americans is at a new eight-year low of 11%. In all fairness, Gallup and Healthways only began keeping track of the rate of uninsured Americans on a quarterly basis eight years ago, so there are no comparable records before Q1 2008. But since the individual mandate took effect, the rate of uninsured adults has dropped by 6.1%. Presumably, the fewer Americans that are uninsured, the more efficient the healthcare system should be, with medical costs spread over a greater number of people and Americans more likely to receive covered medical and preventive care when they need it.
But things haven't always gone as planned. The Congressional Budget Office initially projected that Obamacare would have more than 20 million enrollees by 2016. As of the end of the 2016 calendar year enrollment period, there were "about 12.7 million" enrollees, per the Centers for Medicare and Medicaid Services. This massive shortfall in expected enrollees has left insurers, both national and regional, working with fewer enrolled patients, many of which have been shown to be costlier and sicker compared to consumers who are covered by employer-based health plans.
Making matters worse, many of the dynamics that insurers had been counting on (aside from higher enrollment totals) haven't played out.
For instance, in 2013 The Washington Post said that of the 7 million enrollees targeted in 2014, 2.7 million young adults would need to enroll to make Obamacare sustainable. Young adults are often healthier and less likely to seek medical care, meaning their premium payments can more than offset the higher costs of treating older and/or sicker members. Federally run Healthcare.gov did indeed enroll 2.7 million young adults in 2016, but there was a total of more than 9.6 million enrollees. In other words, far too few young people are enrolling, meaning the program is stuck with an older, sicker group of people.
The failure of the "risk corridor" has also been a disappointment. In simple terms, the risk corridor was a fund that profitable insurers on Obamacare's exchanges were expected to pay into. This cash would then be distributed to struggling and/or new Obamacare plan insurers to help prevent excessive losses from mispriced premiums. In 2016, the risk corridor wound up being underfunded by more than $2 billion, leading more than half of Obamacare's approved healthcare cooperatives to shut their doors.
But the biggest challenge may be yet to come
Does this action represent the beginning of the end for Obamacare?
UnitedHealth Group (NYSE:UNH), the nation's largest health insurer and a representative insurer in about half of all Obamacare exchanges, has confirmed via its spokesperson Tyler Mason that it is indeed pulling out of Georgia and Arkansas in 2017.
For those who may not recall, late last year UnitedHealth CEO Stephen Hemsley didn't mince words during an investor conference when describing how bad Obamacare had been for his company. Though he took some blame for rushing into a perceived opportunity to gain new members, Hemsley attributed the exorbitant losses tied to Obamacare plans to two factors: the ease with which consumers can switch plans on a year-to-year basis and higher medical utilization costs for members. More recently, UnitedHealth has implied that it suffered nearly $1 billion in cumulative Obamacare-related losses between 2015 and 2016. This gloomy forecast led Hemsley and his team to the conclusion that pulling out of Obamacare might be a genuinely smart solution.
But here's the crux: If the largest health insurer in the country pulls out of Obamacare because it can't turn a profit, then what sort of sustainable future does the program really have?
At the time of Hemsley's comments, and the company's subsequent fourth-quarter conference call, no determination had been made as to whether or not UnitedHealth would actually make good on its threat to pull out of some (or all) markets. However, UnitedHealth's exit from Georgia and Arkansas, two states where the company was losing significant sums in its Obamacare plans, could mark the beginning of a complete exit from Obamacare's exchanges.
Some say that the transparency of side-by-side comparisons offered by Obamacare exchanges is enough to drive down premiums, but I strongly believe that competition among insurers puts greater pressure on premium prices. If UnitedHealth goes through with a complete exit, and other insurers follow -- Humana, for example, has threatened to exit Obamacare exchanges as well -- there won't be much to halt premium inflation in less competitive states. If this happens, the first "A" of the ACA, affordability, could be thrown out the window.
Maybe the question we should really be asking is whether Obamacare can survive much beyond the 2016 presidential election. With five candidates remaining, only Democratic front-runner Hillary Clinton would leave Obamacare in place and build around it. The remaining four candidates would prefer to repeal Obamacare and start anew. Thus the upcoming election will be very telling in terms of what happens to healthcare in this country.
Should Clinton become the 45th president, then our eyes as consumers and investors should be turned to Obamacare's long-term future. If insurers can't figure out a way to turn a profit, then big premium hikes may be in order, which in turn could drive consumers back to the sidelines. Conversely, if insurers grow weary of waiting things out, they may simply leave Obamacare's exchanges altogether. If that happens, a lack of competition could drive premiums up as well.
The only near-certainty at the moment is that Obamacare's long-term future looks as shaky as ever.