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Another Crack In Obamacare’s Foundation

In the midst of this year’s open enrollment period for health insurance, the largest U.S. health insurer has suggested that it may not participate in the federal health insurance marketplace much longer.

UnitedHealth Group Inc. recently disclosed major losses on policies it sold through the Affordable Care Act’s exchanges, and said it will consider withdrawing from the exchanges altogether. The company’s chief executive, Stephen J. Hemsley, said UnitedHealth is not willing to sustain similar losses into 2017, according to The Wall Street Journal. While it is locked into offering coverage through the exchanges this coming year, it has purposely skimped on marketing these plans in an effort to keep sign-ups relatively low.

While UnitedHealth is the only major insurer thus far to suggest it might withdraw from the ACA marketplace, it is not the only one that has experienced losses there. Aetna Inc. also expects to lose money on this year’s exchange business, and Humana Inc. and Cigna Corp. have described business challenges created by the exchanges. Anthem Inc. has said its exchange business is profitable, but that enrollment has been less than expected. A Goldman Sachs Group Inc. analysis said that the exchanges appeared to be a “key driver” for faltering results in the health insurance industry overall.

If UnitedHealth did indeed withdraw from the exchanges, the immediate effects would mainly be restricted to customers enrolled in its plans, who would have to find new coverage for 2017. If UnitedHealth stays, and for other companies that are not yet considering leaving, it is inevitable that premiums will continue to climb as healthy people choose to forgo insurance until they get sick, in the knowledge that they are assured the ability to get it once it is necessary. The more premiums climb, the larger the proportion of relatively healthy people who won’t see any point in paying - which will in turn drive premiums up even higher. This is the essence of what industry insiders refer to as a “death spiral,” and it is arriving even faster than many observers expected.

We are already seeing some of the ripple effects of this trend. Bloomberg reported that uninsured admissions have climbed by 14 percent at hospital chain HCA Holdings Inc. compared to a year ago, including patients who had previously been registered as insured. If insurers scale back their offerings and increase their premiums to stay profitable, this population is bound to grow.

UnitedHealth’s announcement signals that it is not only co-ops that are faltering, but big, established insurers as well. As recently as October, UnitedHealth reported a better-than-expected rise in third-quarter revenue, making its announcement of major losses from policies sold through the Obamacare marketplace all the more striking. And while UnitedHealth’s departure would not be enough to kill the exchanges alone - according to CNBC, the company only covers about 5 percent of the customers who currently get their insurance through plans sold on the exchanges - it could herald the eventual departure of other big insurers in the future, leading to less choice and higher cost for consumers.

Or it may simply herald the eventual demise of the Affordable Care Act, at least in its current form. Republicans have been pushing for the law’s repeal from the moment it was enacted, and Democrats - many of whom have already had to distance themselves repeatedly from its flaws - may finally find it politically indefensible.

Robert Laszewski, the president of Virginia-based consultancy Health Policy and Strategy Associates, told CNBC, “Fundamentally, the carriers have to be allowed to sell health plans that people want to buy.” He called for the administration to loosen regulations on the way insurance plans are designed, so companies can offer plans that are both more attractive and more affordable. High deductibles and relatively small networks of health providers are not going to convince many healthy people that expensive plans are worth buying while they remain well enough to do without.

Health is, of course, a spectrum; many people are neither gravely ill nor perfectly well. And for some relatively healthy people, the benefits of even lower-tier “bronze” coverage with very high deductibles are worthwhile. Those benefits are genuine. If a cancer diagnosis or a serious accident occurs in, say, March, the consumer won’t have to take the financial hit while waiting for the next open enrollment period. And even with a high deductible, patients with insurance do benefit from negotiated costs for office visits and medication. But these upsides are not always clear to laypeople, and as premiums rise, the cost-benefit analysis becomes more complex for the average insurance customer, even when considering these factors.

It is too early to guess whether UnitedHealth will pull out of the exchanges next year; even the company’s leadership does not know yet. But the fact that the move is under consideration is yet another crack in the insurance industry that the design of the Affordable Care Act was bound to create sooner or later.

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