Why The Obamacare Exchanges Are Failing

Tyler Durden's picture

Submitted by Devon Herrick via The National Center for Policy Analysis,

I reported earlier this week that the Obamacare Marketplace is slowly failing. Three days later the largest health insurer in America, UnitedHealth Group, announced it expects to lose $500 million on exchange plans next year and may exit the market in 2017.

The issue for many insurers is they were encouraged to participate in the exchange in return for a temporary risk sharing program called Risk Corridors. Under this program, all insurers paid into a pot of money and the firms suffering excessive losses were to share the funds based on a formula. However, a budget deal passed late in 2014, the ‘Cromnibus’ Spending Bill, required the program to be budget neutral. The losses far exceeded the pot of money collected by the program. Insurers have only received about $0.13 cents on the dollar of what they would have gotten under an opened-ended program.

The Centers for Medicare and Medicaid Services (CMS) has affirmed insurers will get their money. But the question is: where it is going to come from? CMS has $363 million to divvy up while insurers have requested $2.87 billion.

Why are insurers losing so much money? In my original article, I stated the exchange plans are suffering adverse selection due to the perverse regulations which drive up costs – making health coverage a bad deal for all but the sickest enrollees. The only people enrolling are those who are eligible for the most generous subsidies. Consider what Larry Levitt, a health insurance analyst with the Kaiser Family Foundation, told Bloomberg.

“The ACA marketplaces are not yet profitable for most insurers,” “It’s going to take enrollment growth, especially among healthy people, to make it an attractive market for insurers. If enrollment stagnates, we could very well see insurers thinking twice about their participation.”

The solution cannot be gouging healthy people so runaway costs are covered. The Affordable Care Act was support to slow the growth in health expenditures. Just about any economist will tell you the current system is not accomplishing that. Slowing spending requires appropriately-designed health plans with positive incentives among enrollees. The ACA’s cost-control mechanisms are the opposite of that; they’re akin to pouring gasoline on a fire in hopes it will put it out.

Why not scrap the perverse ACA regulations and admit it was a pipe dream to ever assume young, healthy people could be coerced into paying several times their expected costs to cover other people’s excessive spending. Young people already have a lower demand for health coverage because they don’t expect to need care. As I reported earlier in the week, healthy people also know they’re getting a raw deal when they are expected to pay $5,000 for health plans that require an additional $6,000 in spending before the plans will begin to pay claims. Justice Roberts called the penalty a “tax.” I know people spending $5,000 for health plans they get no benefit from. They certainly think in terms of their $5,000 premiums as another Obamacare tax they can ill afford.

*  *  *

In addition to this disaster, and on top of enrollment projections that are proving way off, perhaps the biggest immediate crisis facing the Obama administration's signature health reform measure, as Eric Boehm (via reason.com) notes,  is the utter collapse of many of the so-called cooperatives that were set up by states as part of the 2010 law.

The Consumer Operated and Oriented Plan, or Co-Op, portion of the health care law established nonprofit health insurers that would receive federal funding and were intended to compete with private, for-private insurers on the exchanges as a way to lower prices. They were supposed to be small-scale single-payer systems that would be free from the profit motive; a progressive's dream solution to the problem of providing health insurance for all.


Instead, they've turned into a nightmare. So far, 12 of the 23 co-ops have failed, defaulting on more than $1.2 billion in federal loans. Only two have been able to break even so far, and most of the remaining co-ops are eyeing massive premium increases—as high as 40 percent in some cases—to stay solvent.


A government program being poorly run is nothing new, of course. But the co-ops established under the health care law were subject to a series of regulations that make you wonder how they were ever supposed to succeed in the first place.


"It should be no surprise that so many of them are going belly-up," said John Davidson, director of health policy for the Texas Public Policy Foundation, on the latest edition of the Watchdog Podcast. "The rules that they put on these co-ops almost set them up to fail."


For starters, the co-ops were barred from hiring anyone who had served at an executive level at any health insurance company in the country.


Think about that for a second. This was essentially a brand new business venture that was prevented from relying on the expertise of anyone who might have the slightest idea what they were doing.


Another regulation prevented the co-ops from raising any capital aside from what was provided via those federal loans. Other rules prevented the co-ops from being allowed to turn a profit, and if one happened to accidentally make money anyway, it wasn't allowed to use its profits to help it grow.

It's the kind of business plan that would be laughed out of a business school classroom. "The co-ops were essentially amateur exercises," said Davidson.

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surf0766's picture

Free shit is a civil right

GhostOfDiogenes's picture
GhostOfDiogenes (not verified) surf0766 Nov 27, 2015 12:32 PM

Especially for corporations.

They seem to be missing from this article and the money they bring in to their investors at the destruction of the countries youth.

No wonder the millennials are such shit.

Their parents sold them out.

Go figure. Boomers selling out. Its like a national obsession.

Denying it that is.

surf0766's picture

I am not a boomer and your comments read like a marxist .

remain calm's picture

I don't know why anyone listens to what that asshole says. He is a living abortion.

Billy the Poet's picture

Sure, the elites always make big bucks from social programs but those programs are sold to the public as free stuff for the little guy. That's what Gruber meant when he said the American voter is stupid. Folks have to stop asking the elites to take care of them. That's the problem.

Beam Me Up Scotty's picture

As a business owner, why do I have to get between you and your doctor and buy your health insurance?  I don't get involved with buying your auto insurance, or your homeowners insurance.  So why healthcare?  I have to spend a small fortune just to print the damn paper---the 1095c's.  I could have bought every employee and their family Thanksgiving dinner for the amount of money I have to spend generating paperwork.  All of this busy work is drowning employers. 

macholatte's picture


"The rules that they put on these co-ops almost set them up to fail."



Failure was not an option, it was the plan.

knukles's picture


Bumpo's picture

As long as Obamacare is around, I refuse to take on any health insurance. I operate under the assumption that I have cancer and heart disease, and take care of myself accordingly. Somehow this will all be the Republican's fault.

mvsjcl's picture

We're all victims. The only difference between us is that some of us know that we are victims.


And those who know that they are victims can be further separated into two groups: those who accept being victims, and those who fight being victims.


Guess which of those groups has a greater chance of recovering victimhood.

espirit's picture

Thank you very much but I'll offer to pay cash for services needed, for a discount of course.

Not accepted? How about Ag or Au?

Then I'll take my business elsewhere.

DaveA's picture

I also refuse to pay the penalty for not buying health insurance.

Unfortunately, my income is so low that the government pays taxes to me, so they could simply deduct the penalty from my "refund".

Fortunately, because my state refused to expand Medicaid (for which I would have qualified), the government decided that I did not owe any penalty, so my chance to stick it to the Man was denied.

X_Weatherman's picture

Insurance companies wrote the bill to elemininate conpetitive co-ops.

MalteseFalcon's picture

There is a very simple fix to this and I'm going to do my part.

By voting for Hillary Clinton.

That's right, Hillary!!

Because if anyone knows healthcare, It's Hillary!!


rejected's picture

Your correct of course, but, ironically it was businesses that began health care benefits attempting to attract qualified employees and keep them when the US government imposed wage controls in the 1940's.

Canoe Driver's picture

Are we all to suppose that Canada,the U.K. and Australia do it differently because they are stupid?

Babaloo's picture

I couldn't agree more, and that's why exchanges should work, rather than have the employer responsible. Employer provided healthcare is an artifact of the 2nd World War I believe when employers couldn't pay employees more so gave them health insurance.

The problem remains the cost sharing function as well as re astronomical increase in insurance rates.

nosam's picture

" All of this busy work is drowning employers. "

That is the plan, Destroy small business and you destroy the American economy.

Stuck on Zero's picture

Maybe as an extension of the student loan program Obama could institute a Health Care Loan Program. People could borrow to pay for their Obama care.

Johnny Horscaulk's picture
Johnny Horscaulk (not verified) surf0766 Nov 27, 2015 1:33 PM

Have you read Marx?

How does his comment sound like Marx, exactly? J/w

rejected's picture

The millennials are the group that got Obama elected twice. They were hoping for promised free shit but O crossed them. Now, rather than blame themselves or Obama the morons blame boomers accusing them of doing exactly what they have just done.

surf0766's picture

The boomers are the ones who bought hook line and sinker into the progressive revolution and are running the country into the ground  . Boomers in the 60's said trust no on over 30. Now boomer's want everyone under them to believe they have all the answers.


espirit's picture

I gots to blame somebody else fors my problems...

Meet me in the alley at 25th & Main around midnight.

X_Weatherman's picture

The reason O got elected was because he looked like a less bad alternative to the fascist clowns the Rep were offering.

Bumpo's picture

And look what that got them.

sun tzu's picture

0bozocare was written by the banks and major insurance companies. Tim Geithner bailed out Wall Street. GM was bailed out. Billions were given to sham scam "green" corporations that were looted by politically connected insiders and filed bankruptcy.


Then the left wing cretins and millenial sheep cry about corporate welfare after they put the corrupt clown prince into office.

Lester's picture

Actually, the failure results from Government Failure to POOL and Provide Large Claim Risk Mgmt.


Pretty easy to run a self-insured plan with even only 50 particiapating families.  Claims, Administration and Stop-Loss coverages for individuals and aggregate group members are easy to set and make function reliably.  It is the unknown Large Claim that cannot be forecast; even with genetic analysis.  Accidents happen, dread disease manifests without expectation.

Government could insure the large claims and manage them.  Doing so would eliminate the great variables which drive the medical inflation model. 

The pool expense for all plans could be affordable.  The effect of removing the individual claim impact from plan budgeting would stabilize insurance costs and eliminate the game-playing Big Claims are for hospitals and insurers.  Remove the gamed aspect and plans could easily be affordable and within short time frame, claims for pre-existing conditions of non-threatening nature would be covered.

Of course, you got to get the lawyers and MBAs out of Medicine; unless they can write a prescription.

How many dread disease and horrendous accident claims every year?  Probably fewer than half a million.
With Government running ALL these claims, their management could be mandated in fashion like Medicare/Medicaid, and perhaps even combining this care nationally with the VA system; allowing all trauma and intensive care facilities to work under a real economy of scale.


Healthcare Reform can only work if the High-Dollar Claims are Insured/Assured and those claims worked through the healthcare system with an efficiency in cost and management control.  Physicians in residence or early years in the surgical specialties could earn good money and Medical School expense refunding for a stint in the Large Claim Cost Health Services.


Canoe Driver's picture

Who the fuck downvoted Lester?! I'm gonna kick your fuckin' ass!

robertsgt40's picture

"Each according to his ability each according to his need" has nrver worked and never will.  With a withering middle class, don't expect grown in anything but destitution.  If my company (United Health) just took a  $500m hit, I wouldn't wait til 2017 to change course.

theallseeinggod's picture

Seems you're running out of other people's money

lunaticfringe's picture

I am starting a new blog about the worst law ever passed. Watching this mf'er crash and burn is going to be fun.


NuYawkFrankie's picture

Everything Obongo touches turns to sh!t.

Why should Obongocare be any different?

Francis Marx's picture

The situation always made me think of those who have shaky income, but then go out and buy a high end house and boat, knowing their going to end up in bankruptcy..

aliki's picture

healthcare is a simple fix. if you show up to a hospital with a gunshot wound or arm hanging out of its socket, you don't get in without a healthcare card. period. do that and watch how fast people prioritize & NOT get that $500 new iphone with a $150 a month data package + monthly netflix + the new BMW they "had to have" +++.

that puts to bed the only other fix which is a mandate; you simply cannot have people wait until something bad happens and THEN they want to sign-up. its not the way insurance companies operate. EXACTLY like auto insurance, what insurer would FULLY insure a lamborghini for $500,000 if the owner just wrapped-it around a telephone poll for $250,000 in damage? the model makes ZERO sense. much like when obama FORCED insurance companies to accept those with pre-existing conditions.

lunaticfringe's picture

The problem with your theory is that a law created in the 80's requires hospitals to accept you- and fundamentally although dwindling in number- there are decent health care providers that will fix you up pro bono because they still have an ounce or two of compassion.

The government has absolutely no BUSINESS telling you how to spend your money. Ever. Capiche?

boattrash's picture

The Medical Industrial Complex also gets a free pass on The Sherman Act (Fair Trade), thanks to the Congress-Critters with For Rent signs hanging over their asses.

They are simply allowed to use practices, that would land any other business people behind bars. (excluding banksters, but that's another thread).

rejected's picture

" thanks to the Congress-Critters with For Rent signs hanging over their asses."

And,,, Instead of a target drawn on these signs there is just a well placed hole.

SantaClaws's picture

"healthcare is a simple fix. if you show up to a hospital with a gunshot wound or arm hanging out of its socket, you don't get in without a healthcare card. period. do that and watch how fast people prioritize & NOT get that $500 new iphone with a $150 a month data package + monthly netflix + the new BMW they "had to have" +++."


Not necessarily.  In many neighborhoods where gun shootings are common, I suspect anyone without a medical card -- and who is injured and needs hospital care -- would hold up the first person they found with a medical card and use it.  It's just simpler.  Why pay those annoying premiums?

RamzaBehoulve's picture

Should have went with the exact same system as Switzerland instead of trying to just adapt it.

surf0766's picture

We should stop making people who produce pay for those that choose to sit on their ass.

CanyonWren's picture

How kind of you. I'm sure you think that anyone sick enough to not be able to work is a "non producer." Let's hope you don't end up in that position....but, you will probably justify taking government money because you are entitled to it.

boodles's picture

Let me guess, Canyon Wren.  

You're a government employee of some sort -- education?  You're sitting pretty, making a reasonable salary, knowing all your future needs will be cared for by the nanny state.  You've got a pension, don't you?  YOu've never made a dollar in the free market nor do you know how to.

You live in a house in the CO canyons, consider yourself to be a wren, a social little bird.

Just remember that those of us who actually WORK to pay your government salary have had it.  We're tired.  You're not.  We're paying the taxes that keep you sitting pretty.  We're risking our capital to make our small businesses work.  

Do you know what our biggest problem is, CW?  the government.  It's the regulations, taxes and demands, like Obamacare, that are killing us and the free way we choose to live our lives.  If you want to be communistic, that's fine.  Create a wee community or go live where others share your values.  But don't ask us to pay for you.  THat's all.  You're free to create a small community within the larger community where you pool your money and dole it out to whomever you feel needs it.  The rest of us would rather earn our own keep, give as we see fit, and take care of ourselves.

I'll trust my family and neighbors if I get sick.  I prepare for my own future.  I'm responsible for my own choices.  If I smoke, have unlimited sex partners, become obese, take drugs ... I'll pay the consequences for my own behavior.  But I'll be damned if I'll pay the consequences of your behavior.

Much of illness is preventable.  Not all of it, but much of it.   


CanyonWren's picture

I'll entertain your condescending and inaccurate perception of me because it's a holiday. I usually work on Fridays.

Actually, no, I'm not a government employee at all, and I'm not sitting pretty. I'm a college grad, self employed--living the "American Dream," so have to buy my own insurance--it isn't supplied to me by a corporation. I work hard--50 hours a week--to put food on my family's table. My daughter has to have after-school care so that my husband and I can work--it's expensive. I don't live in the canyons, I live in the burbs. I drive a Subaru. I live in a 1,200 sf house. I use coupons at the grocery store, and never buy anything unless it's on sale. My husband is a commercial fisherman in Alaska, so is "self employed" and isn't covered by corporate or small business insurance. It is up to us to find a plan that works for us, but all those plans will be serious hits to our life if we have to pay our deductible. 

You're right--the problem is the government, but not the entire government. The problem is Republicans in Congress and the corporations who support them, who make sure most Americans don't have the ability to obtain affordable health care because they are in the pocket of the insurance lobby, who pays for their reelection campaigns. See, my family nearly went bankrupt several years ago because I had a medical condition that cost me $40K. My isurance cost me $700 a mont for only catastrophic coverage, and my family deductible was....wait for it.....$25,000. Blue Cross Blue Shield. I had to pay for everything up to that point to keep our monthly premiums "low" to where we could afford them. 

How is health system remotely serving the average American's ability to make ends meet? It doesn't. And, it shouldn't be that way. People shouldn't go bankrupt when they get sick or in an accident. Anyone who thinks so is either a schill or is brainwashed by the elite who are making millions by the present system. 



cornflakesdisease's picture

You have to understand, 80% of Zerohedge members are emotionally crippled, divorced, engineers whose only though is themselves.  Herbs and vitamins can hold schizophrenia at bay and ward off cancer, auto accidents, and MS.

My doctor was like the above commenter.  That is until his son developed liver faliure and need a transplant.  Never seen a republican turn into a democrat so fast.  They're broke now.  One's a doctor and the other is a lawyer.  But insurance has a $1 million cap.  The flight to get him to the hospital the same day so he didn't die was $55,000.  But hey, the insurance company paid $10,000 of it.  The true cost of the flight?  About $4,300.

Greed is good, right?

I'm all for a free market, but when it comes to health care, national insurance like Japan or Switzerland would be the lesser of the evils overall.


Red wing, blue wing, same turkey.

CanyonWren's picture

Thanks for your comment, much appreciated. I know I'm wasting my time here, but I care, so thought I'd give it a try. 

Canoe Driver's picture

Who is downvoting these commenters who are absolutely right? Once there is a very large,diverse population in a country, the only answer is a national healthcare system, with a single-payer. This determination is a simple matter of arithmetic, capitalism notwithstanding. Again, are we to suppose that Canada, the U.K. and Australia have single-payer systems because they are all stupid?

Urban Redneck's picture

That would never work in 'Murica, the law is only about 30 pages long.... And since there is no official English translation, there is no way American lobbyists and Congress critters could understand it, because they can't even read it.