Can Obamacare Plans Be Fixed?

Exits by major insurers highlight structural problems that will require major adjustments.

Adverse selection is killing the public health exchanges.

Media coverage of major health plans leaving Obamacare has obscured the fact that more than 9 million people have enrolled in the public exchanges since they were opened two years ago, and more than 11 million otherwise uninsured people now have coverage via Medicaid expansion.

Unfortunately, economics are causing premiums to skyrocket and insurers to forgo the exchanges.

It's not profitable to be there in most states, judging by the actions of the major payers. Aetna, Cigna, and UnitedHealth all have left or plan to leave many of the Obamacare plans under which they'd offered individual coverage.

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In a blog post for the Wall Street Journal, Kaiser Family Foundation President and CEO Drew Altman writes that in 31% of counties that participate in the public exchanges, beneficiaries will have one plan option next year.

Premiums for that option might rise dramatically unless beneficiaries choose the lowest-cost plan, where they are insulated by government subsidies.

The problems forcing the payers' exits are structural, so any solution must be structural, according to Cain Brothers, a New York-based investment bank that specializes in healthcare.

In their analysis, Cain Brothers directors Court Houseworth and Edward Fishman, and 4sight Health CEO David W. Johnson, say that even though the plans risk losing money, this is the wrong time to abandon the exchanges from a public policy perspective.

They advocate alternatives to entice private insurers back into the exchanges with a mix of tax credits and cost-sharing reductions that would also make the plans more attractive to consumers.

In areas where competition is limited, the analysts recommend a public option alternative, although they concede that the idea would meet with resistance in Congress.

Ultimately, enrollment has to grow for the marketplaces to work, but the individual mandate is not effective as a "stick." Premiums often cost twice as much as the penalty for going without, and there is essentially no penalty for people who sign up after they become sick.

Many Americans have therefore made the economic calculation that it doesn't pay to have insurance from the Obamacare marketplace.

That isn't always the case: The Cain Brothers analysts note that Blue Cross and Blue Shield of Florida is making a profit as large populations of previously uninsured people gain coverage.

BCBSF recorded a gross profit of $471 million on its ACA plans in 2015. More than 90% of Florida enrollees in those plans receive premium subsidies and more than 70% receive co-pay and deductible assistance.

Also, BCBSF officials stress the effectiveness of retail centers that direct prospective enrollees to the right plan, helping them secure federal health insurance subsidies and guiding their health and wellness behavior.

At the state level, carrots and sticks could encourage insurers to participate in the exchanges, the authors say. A more robust blend of provisions for risk-adjustment, reinsurance and risk-sharing corridors would help to stabilize prices and markets.

Finally, the risk pool could be improved by expanding enrollment to healthier and younger members through a mix of attractive prices, consumer outreach, auto-enrollment and potentially stronger tax penalties.

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The proposed standards include harnessing prescription drug utilization data to improve the predictive ability of CMS's risk adjustment models, and aim to establish transfers to spread the risk of high-cost enrollees.

Those changes could help, but they are likely far short of what's needed to ensure robust participation by potential enrollees and insurers. It seems Congress would have to act to ensure the Obamacare exchanges survive.

No matter who wins the election in November, it is doubtful that Congress will fix this divisive component of the ACA, and it's not clear if enough can be done administratively to save the exchanges.