When the affordable care act was passed, it wasn't hard to spot the difficulties that would arise from a financial standpoint. The math just wasn't there. The ACA had a guaranteed minimum level Insurance Companies would pay to cover health costs. One of the reasons people invest in insurance companies is because they are competitive, but when they can't cross state lines, a level of competitiveness is lost. When insurance companies are mandated to pay a guaranteed minimum, what they lose in competitiveness they should be able to make up in effectiveness, strategy and good use of resources.
But that's not what happened.
Insurance Pool
Instead, insurance companies were forced to maintain a minimum that did not work for their business model. For example, Aetna only offered insurance through the state mandated program in 15 states and by 2016, would only sell policies in Delaware, Iowa, Nebraska and Virginia. This year, Aetna announced they would leave all exchanges in 2018. They left because the business model didn't work. The pool of people they had to draw from were sicker than they thought and a profit could not be made. For profit companies were not mandated to stay in the ACA and as the premiums rose and healthy people were able to obtain exemptions from the ACA, less and less enrolled, bringing profits down.
The companies then bailed.
Initially, health insurance companies lobbied to make sure they would make money on the Affordable Care Act. Many thought the ACA was a give-a-way to the insurance companies. Insurance companies gambled on the fact that most people would remain healthy so that the pool they came from would cover costs for the sick.
Unfortunately, it hasn't worked out that way.
Health insurance is regulated at the state level, which is why the states were allowed to set up the exchanges that are now failing in some areas. Insurance demands a continuous payment and the relationship with its consumers is sometimes life-long. Because of that, insurers have different plans in different states and they do not cross state lines.
Every pool (state) is different in the type and quality of its consumer and the risk has to be assessed against the state the policy is in. Otherwise, risk management does not work.
Risk Mitigation
Risk Mitigation is a system that provides an ongoing effort to manage risk and in this case, it refers to managing sick people. If your pool has too many sick people, you will not have enough healthy people to offset the cost sickly people bring to the pool. It really is as simple as that.
Some businesses that have high labor costs and narrow profit margins like retail, hospitality, long term care facilities, and others, have numerous employees and must cover them with insurance if they have more than 50 employees.
Some of these share of cost insurance options are more than the employees can afford to pay. Nevertheless, the premiums must be paid or the employers are hit with a fine. The employer will have to pay more for insurance so that the employees can afford to pay their premiums.
Sounds good, right?
Until the company goes out of business everything is great
In a capitalistic country, this is the way things work, whether or not you like the situation. In 2016, The Wall Street Journal reported that, in 2014, the average ACA plan paid more in claims that it collected in premiums. In 2018, CNN reports that Humana, will be the only insurer on the exchange in Knoxville, Tennessee.
UnitedHealthcare had expanded to nearly 3 dozen state exchanges in 2016 but the losses from the exchanges eclipsed more than $1 billion for 2015 and 2016.
In 2017, UnitedHealthcare will not have financial exposure from any exchanges. Kaiser Health News reports that Anthem Blue Cross will pull out of 2 more states, Wisconsin and Indiana, in 2017.
Health insurance is complicated and there is no easy way though the mess we've created for ourselves other than single payer insurance. Before the ACA, people (somewhat) accepted the hand they'd been dealt, but with the downturn in the economy and the loss of jobs in December of 2008, people became desperate for insurance. Without good health, life can be challenging, and to do away with the preexisting condition clause at this point in time is nothing short of cruelty.
