This year brought us a lot of unfortunate news about Obamacare. Major insurers pulled back from the exchanges after racking up losses on patients who turned out to be older and sicker than expected. The government announced that premiums would be 22 percent higher, on average, in 2017. The fleeing carriers and rising prices created a sense that the health reform law was finally in danger of collapsing in on itself. And then Republican Donald Trump was elected president.
But this month, a little bit of light has cut through the gloom. The Department of Health and Human Services announced that a record 6.4 million Americans had signed up for insurance plans on healthcare.gov during open enrollment, up 400,000 from last year. Meanwhile, analysts at S&P predicted that this year’s big premium hikes would be a “a one-time pricing correction.”
This has led some of the law’s advocates to declare that Obamacare would be in fine shape, were Republicans not preparing to junk it. At New York, Jonathan Chait writes that while the health care markets are stronger in some states than others, “on the whole, the exchanges are stable, and the predictions of the law’s critics have mostly failed.” At the New York Times, Paul Krugman writes, “Obamacare hit a bump in the road, but appears to be back on track.”
It would be bitterly ironic if Republicans started dismembering the Affordable Care Act at precisely the moment that it began to work as intended. But I think Chait and Krugman’s assessment is a little bit premature. Obamacare certainly looks like it’s in a sturdier place than it was a few months ago, but even if the GOP wasn’t coming for it with an ax, there would still be lots of open questions about the law’s future.
Here’s why there’s real reason for optimism. After this year’s premium increases, it seemed as if Obamacare might be getting closer to a lethal death spiral, where rising prices would lead to falling enrollment and the eventual implosion of the individual health care market. That obviously isn’t happening. Instead, more Americans than ever are signing up, possibly because they’re trying to avoid the individual mandate’s tax penalty for not having insurance, or perhaps because they’ve learned about Obamacare’s subsidies. The more people who enroll, the steadier the insurance markets will become—especially if those new customers are on the young and healthy side—and the smaller future premium increases will be. But that doesn’t mean it’s reached stability.
That’s because insurers are still losing money, and may continue to for a while. In its research note, S&P looked at 32 Blue Cross and Blue Shield carriers, and found that as of Sept. 30 they had spent about 90 cents of every dollar they received from premiums on medical care for their customers. That’s an improvement from the same period in 2015, when they were spending $1.03 for every buck they’d earned, but still high enough that many will likely end up in the red after they factor in administrative expenses. The analysts still think it will be a few years before these companies are consistently breaking even or hitting their target profits. More from that report:
For 2017, we believe the continued pricing correction and network design changes, along with regulatory fine-tuning of ACA rules, will result in closer to break-even results, in aggregate, for the individual market, and more insurers reporting profits in this segment. But most will remain below their target profitability levels (low single-digit margins for the Blues) in 2017. It will take another year or two of continued improvements to get to that target.
Of course, this is just one, somewhat optimistic forecast, which could be off. For instance, we don’t now if carriers raised their prices enough to deal with the expiration of Obamacare’s temporary reinsurance program, which cushioned companies against losses by insuring the insurers. Obamacare is in a better place than it seemed a couple months ago. But it’s too early to tell whether it’s out of the woods. And keep in mind, at this point we’re just talking about baseline functioning—not about whether it’s insuring as many Americans as Democrats hoped, or providing the types of affordable coverage it was intended to.
And there’s a good chance we’ll never know for sure whether Obamacare would have worked long term in its current form. Unless Republicans hold off entirely on repeal, any action they take to weaken the law will likely scare off some insurers and jostle the market. Even the repeal and delay strategy Republicans are embracing, where they’d pass a bill sunsetting Obamacare in two or three years, giving Congress time to vote on a replacement, would probably lead many insurers to drop out of the market knowing they are never going to profit off it (Republicans have talked about offering those companies money to stay on, but that seems unlikely given the GOP base’s aversion to anything that smells faintly of a bailout, and in any event isn’t the same as letting the ACA run its natural course).
Obamacare has been a fascinating policy experiment. It’s too bad we’ll probably never get to see the final result.