This week gave Obamacare foes some health care industry lemons to turn into anti-Affordable Care Act lemonade.
News that the UnitedHealth, a major insurer, is cutting back its involvement in Affordable Care Act exchanges isn’t great news for the Obama administration. But it’s not the sky-is-falling, death-spiral fever dream that conservatives are making it out to be.
The challenges UnitedHealth was facing on the exchanges are legitimate, but rather than a canary in the coal mine of Obamacare doom, health care experts tell TPM, the news of UnitedHealth’s exit should be seen as collateral damage from the general chaos of a industry in transition, and that the specifics of its own business model — including its strategy in the individual markets in particular — played an important role in its decision.
“This and other news suggests that the exchanges are not as stable as we expected them to be at this point, but that does not mean that it’s a failing marketplace,” Caroline Pearson, senior vice president at the health care consultancy Avalere Health, told TPM. “There’s no reason to think that the exchanges cannot continue to be a small, sustainable place for insurers to sell plans.”
The decision by UnitedHealth to withdraw from the Obamacare exchange in all but a “handful” of states, as CEO Stephen Hemsley announced on an investor call Tuesday morning, is by no means shocking. The Obama administration even preemptively began to spin the news ahead of the call, sending statements to reporters Monday ahead of time, after UnitedHealth had for months publicly suggested it was planning a retreat.
Republicans, meanwhile, danced on the graves of the plans UnitedHealth was removing from the marketplaces.
Sen. Ted Cruz (R-TX) used the news to call Obamacare a “slow-rolling catastrophe” in a statement that said UnitedHealth’s announcement was “the latest in a string of Obamacare failures.” FreedomWorks, a conservative activists group, issued a statement describing it as “another example of the havoc this disastrous law has created.” Sen. Ben Sasse (R-NE) said the withdrawal was “about the President’s broken promise that families would have more choices under Obamacare.“
But those characterizations gloss over UnitedHealth’s unique circumstances.
For one, while UnitedHealth is indeed the nation’s largest insurer, it is a relatively small player on the individual exchanges, according to Cynthia Cox, the associate director for the Program for the Study of Health Reform and Private Insurance at the Kaiser Family Foundation, which released a report Monday examining the consequences if UnitedHealth withdrew from the marketplaces entirely.
Furthermore, UnitedHealth decided to sit out the first year the marketplaces were in operation, meaning it has had one fewer year than its competitors to game out pricing according to its risk pools.
“They were very slow to enter into these markets and very quick to leave,” Cox told TPM. “Their participation in the exchange isn’t necessarily characteristic of other insurers.”
In general, UnitedHealth was offering plans in many states more expensive than other companies, the Kaiser report noted, and what has become clear in the first few years of ACA implementation is that consumers are willing to shop around for the cheapest deal.
UnitedHealth pricing issues could be partly attributed to the fact that the insurer is more geared to broad-network plans, and the cheaper, narrow-network offerings have been more successful on the individual marketplaces.
“It’s their style. This market has never been particularly important to them,” John Holahan, a fellow at the Urban Institute, told TPM. “I don’t think they’ve done what a lot of other people have done, and that’s develop the narrow-network products that are the ones that are most price competitive.”
That’s not to say UnitedHealth’s departure won’t have adverse effects for some consumers. According to the Kaiser report, if UnitedHealth pulled out from exchanges in all 34 states it’s participating in (and at this point, only a handful of states are known for sure to be affected), 30 percent of enrollees will be left with one or two other insurer options, meaning those states in 2017 could be less competitive. Currently, 15 percent of exchange users have only one or two choices.
Many of those consumers, particularly the rural ones, suffered from lack of competition even before the ACA, Cox said. And UnitedHealth’s exit could be offset by insurers who chose to enter the market, as some plans have proven to be well suited to the exchanges.
Other insurers have engaged in some of the public griping that UnitedHealth had expressed in its lead-up to Tuesday’s announcement. But that’s not a guarantee that they’re planning moves as drastic.
It’s become clear that insurers low-balled their premiums in Obamacare’s initial years, and with risks pools smaller and sicker than expected, it’s likely that some premiums will go up in 2017. Making sure the public knows that individual market is costing insurers more than they anticipated can prepare the public for the premium hike, Pearson said.
“They’re setting up that news,” she said.
Furthermore, some of Obamacare’s regulations are still evolving, and the industry wants to keep the pressure on to address issues important to them like the Cadillac tax and special enrollment periods.
“The underlying takeaway here is that this is a market that is still in the midst of a huge transition and there are a number of policies and changes that could be made to provide stability moving forward,” said Clare Krusing, a spokeswoman for the America’s Health Insurance Plans — a trade group that represents many health insurers, though not UnitedHealth — told TPM.
“We should be concerned, we should be thoughtful, but there’s no reason to think that these markets are collapsing,” Pearson said.
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