Why Are Private Health Insurers Losing Money on Obamacare?

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every doctor, can understand that this op- In addition, I'm most interested in mak- and we need to make sure that whether portunity exists. It needs money, however. ing sure that this kind of technology is not you're rich or poor, these opportunities ex- So whether through philanthropy, busi- only limited to the rich. I was born in South ist. Whether that's considered a business or ness, or government, we all need to contrib- Africa and grew up in apartheid. I under- not, I don't know. All I know is that we are ute to make this happen. stand how the black community suffered, here to help people and patients.

The JAMA Forum Why Are Private Health Insurers Losing Money on Obamacare?

Uwe Reinhardt, PhD

he report last week (http://wapo.st health spending during 2014-2019 will be /2bvbkiQ) that Aetna, one of the $2.5 trillion lower than projections made T major US health insurance com- in 2010. panies, would leave most of the health Why, then, in the face of these histori- insurance exchanges established under the cally low growth rates, have premiums on Affordable Care Act (ACA) of 2010 follows the ACA health-insurance exchanges for similar accounts the media that Anthem 2017 increased at such high rates? (http://on.wsj.com/2atMJ00), Aetna The core of the answer to this ques- (http://on.wsj.com/2aP0F2Z), and other tion can be read in the chart below, show- large private health insurers are contem- ing the highly skewed distribution of per plating withdrawing from the so-called ACA capita health spending across the US marketplace. The companies say the reason population. The phenomenon is known as behind these actions is they are losing the “80-20 rule,” indicating that 20% of hundredsofmillionsofdollarsonthebusiness any large insured populations tends to coming to them from these exchanges. To account for 80% of all health care spend-

makeupforthelosses,someinsurers,though ing on that population. Uwe Reinhardt, PhD by no means all, have quoted premium Individuals in the high spending cat- increases in excess of 25% for 2017 (http: egories typically have multiple health //kaiserf.am/1tubOxk). problems requiring expensive treatments. This development seems puzzling, A question that has troubled US health purchasing health insurance in the indi- as it comes in an era of historically low policy for decades has been what kind of vidual market. growth in total national health spending. health care these individuals with multiple For health insurers, however, this ap- The latest estimates published by the conditions should receive and who should proach can be called an unnatural act, be- Centers for Medicare & Medicaid Services pay for it, assuming that only few very cause it forces them knowingly to issue poli- (CMS), which provides estimates of cur- well-to-do US residents could afford to cies to very ill people at premiums evidently rent and projected national health spend- purchase their health care with their own far below these individuals’ likely claims on ing, indicate that spending growth at only resources. Here, it is helpful to remember the insurer’s overall risk pool. Actuaries and 4.8% in 2016 and project health care that the US median disposable family health policy analysts understand that this spending growth to be only 5.8% per year income is only about $54 000, (http://bit.ly approach can work only if all individuals, for the decade 2015-2025 (http://bit.ly /1MEBpsh) not even enough to cover the healthy and ill, are mandated to purchase /2a0z3Gt). annual cost of some effective specialty coverage for a defined, basic package of ben- Furthermore, as a report published by drugs. efits, at the community-rated premium— the Urban Institute notes (http://rwjf.ws The contributions individuals make out thereby forcing young and healthy individu- /1JZlO4E), even in 2010, the year the ACA of their paychecks toward employer- als to subsidize with their premiums the became law, its impact on total national sponsored health insurance are commu- health care of individuals with medical con- health spending was estimated to be an nity rated, which means that they are the ditions in the insurer’s risk pool. increase in annual spending of only 2.5% same for all employees of the firm, regard- However, for purely political reasons, above what would have been spent anyway. less of their health status and even age. With the ACA mandate for all person in the United In addition, the report also notes that the the ACA, the Obama administration sought States to be insured was rather weak, lead-

Jon Roemer/Princeton University CMS now projects that total US national to provide the same deal for US individuals ing many younger or healthier individuals

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expensive in the United States than in other Concentration of Health Spending Among Highest Spenders countries to provide health care to all 100 100.0 Top 1% of spenders account residents, especially those who are ill and 90 for >20% of all spending poor. 80 78.5 If health care costs in the United States Top 5% of spenders account were lower, most people would probably 70 for ≈50% of all spending agree that ill, low-income citizens should re- 60 Top 10% of spenders account ceive the needed health care that is avail- 51.3 50 for 65% of all spending able to better-off individuals. The problem 40 is that our health system is in danger of pric- 35.1 30 ing kindness out of our souls.

Cumulative Total Spending, % Total Cumulative Bottom 50% of spenders 18.5 Author Affiliation: James Madison professor of 20 account for 3% of all spending 10.2 political economy and of economics at Princeton 10 5.6 2.9 University. 0.0 0.1 0.4 1.3 0 Corresponding Author: Uwe Reinhardt, PhD 0 10 20 30 40 50 60 70 80 90 100 ([email protected]). Percentage of Civilian Noninstitutionalized Population About the author: Dr Reinhardt is also the Ordered by Health Care Spending, 2013 codirector of the Griswold Center for Economic Source: National Institute for Health Care Management Foundation analysis of data Policy Studies at Princeton University. He is a from the 2013 Medical Expenditure Panel Survey member of the Health and Medicine Division of the National Academies of Sciences, Engineering, and simply to forgo purchasing health insur- gain market share early on or because they Medicine (formerly the Institute of Medicine). He is past president of AcademyHealth, the Foundation ance and paying the relatively low fines for simply did not anticipate quite the adverse for Health Services Research, and the International doing so. Over time, this practice naturally risk selection that occurred. Health Economics Association. He is also a member will drive up the community-rated premi- It is hard to see a way out of this di- of JAMA’s editorial board. ums, inducing even greater numbers of lemma, given the current political climate. Published online: August 25, 2016, at http: young and healthy individuals to forgo in- The task is doubly difficult in the United //newsatjama.jama.com/category/the-jama-forum/. surance coverage, leaving private insurers States, because the health care system is Disclaimer: Each entry in The JAMA Forum expresses the opinions of the author but does not with ever-more expensive risk pools. structured to yield prices for health care necessarily reflect the views or opinions of JAMA, The result of this adverse risk selection products and services that are twice as high the editorial staff, or the American Medical (the scenario in which sicker-than-average or higher than the prices of identical items Association. people purchase insurance while young and in other countries, driving US per capita Additional Information: Information about The healthy people do not) has been that some health spending also to be twice as high as JAMA Forum is available at http://newsatjama.jama .com/about/. Information about disclosures of private health insurers underpriced their in many other developed countries (http: potential conflicts of interest may be found at http: policies on the ACA exchanges, perhaps to //bit.ly/2bjD9PR). Thus, it is much more //newsatjama.jama.com/jama-forum-disclosures/.

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