UnitedHealth Threatens Exit from Obamacare due to losses

[jaichind]

http://www.washingtonexaminer.com/article/2576726

Adverse selection is rearing its head in terms of losses for insurance companies.  Surge in Obamacare premiums is also a sign of adverse selection.   500K out of 9 million Obamacare people covered will lose their coverage if this comes true.

[jaichind]

http://washpost.bloomberg.com/Story?docId=1376-NY2SRK6TTDS301-5OT4461M7QSEL87QQE3VL5EMGM


How about Washington post and Bloomberg

[jaichind]

The two major healthcare insurers in the exchange  Aetna and Anthem both fell  around 7.5% on the markets today.  United Health which reported disasters earnings due to losses in the Obamacare exchanges actually "only" fell 6.5%  If there is money to be made in the Obamacare exchanges then Aetna and Anthem should go up if United Health might be withdrawing from the market.  At this stage it is clear that Anthem and Aetna to lose money on the Obamacare exchanges next year.

What is driving this is the phasing out of the risk corridors which could not pay the losses anyway.  This already pretty much pushed out most health care Co-Ops was a bone thrown to the Democratic Left during the Obamacare law that was pushing for the public options.  Now that is pretty much dead.  Another issue is the people signing up for Obamacare is too low and too sick.  It will most likely be 10 million when it was projected to be 16 million.  

The dynamic I see is:

Low and sick enrollment -> Insurance companies raise premiums and deductibles -> Healthy enrollment that does not benefit from subsidies or those that do not benefit from insurance due to high deductible drop out  -> even lower and sicker enrollment -> some insurance companies drop out  -> The benchmark plan gets more expensive -> greater subsidies needed  -> total subsidies rises above 0.504% of GDP which triggered a cap on subsidies -> even less people benefit from subsidies -> more healthy dropouts from Obamacare -> even lower and sicker enrollment -> etc etc  

[jaichind]

Stephen Helmsley, the CEO of UnitedHealth, expressed concerns that the Obama exchanges were seeing adverse selection. Not just that the Obamacare insurance pool is sicker and more expensive than expected, which we already knew. But he pointed out that that the pool is experiencing adverse selection over the course of the year, as healthy people stop paying their premiums, and sicker people buy in. According to Helmsley, the people who bought insurance from them through the Obamacare exchange, but outside of the open enrollment period, are averaging about 20 percent more expensive than the rest of the pool.  This is potentially extremely bad news for Obamacare. It may be that UnitedHealth simply had an especially bad experience, but with more than 500,000 people covered, that doesn’t seem actuarially likely. Which raises the worrying possibility that only two years in, people have figured out how to game the special enrollment process so that it’s safe for them to go without insurance, and then sign up for coverage if they get sick.  Of course this is exactly how people should be acting, meaning maximize their utility.  A good example of how actual behavior matches theory.   

[jaichind]

Obamacare's Fate May Rest on Patience of Insurers Aetna, Anthem

http://www.bloomberg.com/news/articles/2015-11-20/obamacare-s-fate-may-rest-on-patience-of-insurers-aetna-anthem

Mostly echos my analysis, that Anthem and Aetna  are not making money out of the Obamacare exchanges and a lot will depend on if they stick it out.

[jaichind]

http://healthcare.mckinsey.com/health-insurance-enrollment-and-revenue-shifts-2013-2014-emerging-story

Insurers collectively lost $2.5 billion on their Affordable Care Act business in 2014, an average of $163 per customer, according to the consulting firm McKinsey & Co.

Now, it is clear that some insurers (in this case 35% of them) made money. But if the net loss of all insurers is $2.5 billion AND the insurers must make some money to deal with cost of capital and other operational costs, then that difference MUST be made up somewhere.  That can only be consumers which means that the premiums and deductibles MUST go up  and go up a lot.  But that means that the incentives for the healthy to sign up will go down even with the penalty which in turn will create more losses for insurers and so on and so on.