Obamacare Doomed As Insurers Lose $2 Billion On Plans In 2016 (Prompting 2017 Rates To Soar)

Tyler Durden's picture

The typical rosy Democrat narrative on Obamacare highlights the decline in uninsured Americans as evidence of its great "success" while conveniently ignoring the fact that most of the "newly insured" are actually coming from the expansion of Medicaid.  The fact is that Obamacare is a debacle and is on the verge of collapse (see our previous post "Obamacare On "Verge Of Collapse" As Premiums Set To Soar Again In 2017"). 

Our reasoning is quite simple and is the same reason Obamacare was doomed from the start.  As we've pointed out numerous times in the past, the true downfall of Obamacare will be in its inherent "adverse selection bias."  "Sicker/older" people have every incentive to enroll while "younger/healthier" people, the ones that were supposed to subsidize everyone else by buying policies they didn't need, are choosing to simply pay their penalties instead.  So what you're left with is a pool of "sicker/older" people who consume a massive amount of healthcare but whom don't pay "their fair share" because Obamacare specifically caps the rates that can be charged to the "sicker/older" people at 3x the rates charged to "younger/healthier" people (who cares if they consume 20x more healthcare...3x just sounded about right). 

And as a recent article from Bloomberg confirms, the negative impacts of "adverse selection bias" are playing out in insurers' financials.  Per Bloomberg, the major U.S. insurers are set to lose roughly $2BN on Obamacare in 2016.  UnitedHealth has announced they lost $850mm on Obamacare in 2016 while Aetna, Anthem and Humana are expected to lose about $300mm each.   

Obamacare advocates had hoped that big government subsidies to consumers would persuade healthy people to sign up for the ACA plans. But the policies have largely been taken out by older, less healthy people who are more expensive to insure.What we are left with … is a highly subsidized program for relatively low-income people,” says Dan Mendelson, the CEO of consulting firm Avalere Health. “We’re not getting to the broader vision of a robust private market structure that enables a broad swath of Americans to purchase their insurance.

In the end, the fate of Obamacare boils down to simple math.  Each person that signs up for insurance has some expected present value of future healthcare consumption...believe it or not the insurers are pretty good at calculating these values.  Insurers agree to post significant sums of capital to underwrite those future healthcare costs but expect a return on that capital.  Now, in theory, the insurers don't really care whether premium dollars come from the "sicker/older" people or the "younger/healthier" people so long as the aggregate dollars collected meet their minimum return on invested capital thresholds.  That said, with rates capped on "sicker/older" people and the absence of "younger/healthier" people signing up, there simply aren't enough dollars in aggregate being collected to provide that return to insurers.

So, insurers are left with 2 options: (1) pull out of Obamacare or (2) implement massive premium hikes.  Well, turns out they're actually doing both.

Per Bloomberg, UnitedHealth has announced plans to exit 31 of the 34 states where it currently offers ACA policies, Aetna is dropping 11 out of 15 states and Humana is reducing it's offerings to just 156 counties down from 1,351 a year ago.  Meanwhile, insurers are also hiking premiums by 24%, on average, for the remaining states in 2017 (see our previous post: "Obamacare Sticker Shock: Average 2017 Premium Surges 24%").   Despite Obama's promise that Obamacare would increase options and lower costs, it is, in practice, doing the exact opposite as Cynthia Cox of the Kaiser Family Foundation points out that "as many as a quarter of all U.S. counties, mainly in rural areas, are at risk of having just a single insurer for next year."

On Aug. 15, Aetna said it will stop selling Obamacare plans in 11 of the 15 states where it had participated in the program, reversing its plan to expand into five new state exchanges in 2017. “The exchanges are a mess as they exist today,” says Aetna Chief Executive Officer Mark Bertolini. “They’re losing a lot of money for a lot of people.

Actually, there was also a 3rd option proposed by insurers to cut ACA losses.  Insurers also attempted mergers as a way to reduce costs and alleviate some of the profitability pressures inflicted by Obamacare but Obama's Justice Department isn't too keen on the idea.  Per Bloomberg:

Insurance companies were hoping that a wave of mergers would help them cope with ACA-related red ink. In July 2015, Aetna struck a deal to buy Humana and Anthem agreed to buy Cigna. But the U.S. Department of Justice sued to block both transactions, saying they’d harm competition. “The synergies from the two mergers would have subsidized a lot of losses,” says Ana Gupte, an analyst at Leerink Partners. “That could have helped them manage some of the pressure they’re seeing on the exchanges.”

Meanwhile, the media is now starting to spin a narrative that Aetna CEO,  Mark Bertolini, effectively attempted to blackmail antitrust officials over the approval of his proposed merger with Humana.  Per another report from Bloomberg

Aetna Inc. warned antitrust officials more than a month ago that it would pull out of Obamacare’s government-run markets for health insurance if the U.S. attempted to block its $37 billion merger with Humana Inc.


In a July 5 letter to the Justice Department from Chief Executive Officer Mark Bertolini, Aetna said that challenging the merger “would have a negative financial impact on Aetna and would impair Aetna’s ability to continue its support” of plans sold under the Affordable Care Act. That would leave the insurer “with no choice but to take actions to steward its financial health.


“If the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint,” Bertolini wrote. He said that the cost of litigation and debt taken on by Aetna, the need to plan for a breakup fee it would owe Humana, as well as cost savings from a successful deal, would all factor into Aetna’s need to pull back.


“By contrast, if the deal proceeds without the diverted time and energy associated with litigation, we would explore how to devote a portion of the additional synergies (which are larger than we had planned for when announcing the deal) to supporting even more public exchange coverage,” Bertolini said in the letter.

Since when did corporations taking actions to make money for shareholders become a crime in this country? 

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Dave Whiteman's picture

watch this video   https://www.youtube.com/watch?v=1pRPBKJQnyU


how governments lie about being broke

bamawatson's picture

he likes his legacy
he will keep his legacy

Bumpo's picture

Obviously, this is just more evidence that Trump's campaign is "imploding"

FireBrander's picture

LOL, no, amazingly this not evidence of Trumps implosion (like we need more).

What this is, is, evidence of the "insurers" sowing the seeds of increased government funding of the exchanges.

The "Health Industry" takes in THREE TRILLION PLUS in "payments" and turns that into a TWO BILLION DOLLAR loss  after payouts and expenses...lol..yeah right.

This is like Amazon losing money day after day while Bezos goes from being a broke Bozo to a billionaire bozo.

As a business, the LAST thing you want to do is have a taxable paper profit..and for health insurers, the easiest way to get more money out of politicians is to claim poverty, and promise calamity, if they don't get "increased funding".

Never One Roach's picture

Obamacare is a cornerstone of Hillary Clinton's platform; she fough alongside pelosi and reed and Obama to get it passed.

Richard Chesler's picture

She's an evil corrupt witch with no place in executive office.

Good luck explaining that to your average libtard.

end times prophet's picture

Fuuck the insurance companies.  They pushed this turd on the american public with their financial support of the democrats.  They were at the table when the law was written (unlike the taxpayer).  They got served a sh!t sandwich and now it is time for seconds.  Make them participate in the exchanges until they are bankrupt and when they are unemployed sign them up for the high deductable narrow network crap that the survivors are selling.  Sow the wind, reap the whirlwind.

junction's picture

Left out in most discussions is the criminality of American drug companies, Big Pharma, who own the empty suits at the FDA and the Justice Department.  Six generic drug companies that sell the antibiotic doxycycline all in unison in October 2013 started raising the price of the drug from its sell price of $20 for a bottle of 500 pills of 100mg doxycycline hyclate.  By April 2014, that bottle of 500 pills cost $1,849.  The price now is still about $3 a pill.  Obama's criminal appointees did nothing about this obvious price fixing.  Nor did anyone at CMS complain when Trump enemy Paul Singer made $500 million raising the price of colchicine, a 2,000 year old gout drug, from a nickel a pill to $5 a pill, justifying the increase by the monopoly he got using fraudulent drug trials.  A billion of thievery here, a billion there, it adds up.  And lets not get into Gilead Sciences drug Sovaldi, a ripoff drug that copied two decades old Protide technology to get a patent illegally.  Criminals run America.

FireBrander's picture

Vioxx - A Merck drug in the market from 1999 to 2004

Number of people killed in the USA:

Min – 26,400

Estimated – up to 500,000 killed/injured worldwide.

It was discovered that Merck deliberately withheld the true danger associated with Vioxx's use.

Merck settled for $4.85 Billion and withdrew the drug.

Merck CEO Raymond V Gilmartin resigns and walks away with $50,000,000 in compensation along with a platinum parachute package.


Summary: A MINIMUM of 26,000 dead (in the name of maximizing profit) and not one Merck Exec was prosecuted; instead they were all handsomely rewarded.




nmewn's picture

ObamaCare, the stupidity of the democrat voter.

FireBrander's picture


ObamaCare, the BRILLIANCE of Corporate America and PROOF of what proper "lobbying" can buy you in DC.

Escrava Isaura's picture

The problem is private—for profit—care. Obamacare is the first step to bring them down and nationalize healthcare in the US.

However, your post is correct on the last two points.



in4mayshun's picture

Your lack of understanding of human nature and reality is disturbing. There is nothing wrong with profit as long as a true competitive market exists. The worst thing to happen to healthcare was insurance. If Americans had to pay out of pocket for medical services they would be a fraction of the cost they are now because no one could afford what the insurance companies pay.

nmewn's picture

So, you're saying Obama, Reid & Pelosi didn't want it and swallowed their "honesty & integrity" by accepting lobbyists money?

Or are you saying they're FUCKING STUPID?



I'm NOT fucking done.

Obama, Reid & Pelosi willfully, with malice of forethought...PASSED A GODDAMNED LAW...to force the young & healthy to SUBSIDIZE the medical expenses of the sick or old.

Has any apology for the abuse of the young & healthy ever been offered? No. Any compensation for the abuse? No.

That is what the hell it is, they said it at the time...it was..."a feature"...not a fucking bug...USING THE LAW...TO FORCE A SELECTED FEW...INTO COMMERCE.

So now I'll ask another question, because you have deigned not to answer my last, who is more guilty of this two pronged CRIMINAL OFFENSE...the one where trust was placed who abused that trust for money or the one who bribed them to betray that trust with money?

angel 1's picture

Your summary is incorrect.

Max Cynical's picture

If the insurance companies are losing SO much money, why is their stock trading at record levels?

WorkingFool's picture

The outcome was never in doubt. Socialism is a big lie. The only thing that really matters is what happens next. Do we turn to free markets or more government t force?

Consuelo's picture



 If the .gov 't force' as you suggest, means the choice of a .gov employee being able to put food on the table, vs. going hungry, what do you think...?

N0TaREALmerican's picture
N0TaREALmerican (not verified) WorkingFool Aug 17, 2016 4:55 PM

When have the smart-n-savvy people ever wanted free-markets?   Only dumbasses want to complete.   The smart-n-savvy people try to consolidate power, not diffuse it. 

WorkingFool's picture

Separation of economy and state - you know, America

Withdrawn Sanction's picture

In the meantime, to aggravate the adverse selection problem, I wonder how many taxpayers are simply checking the 1040 box that certifies the named taxpayer has a viable health insurance policy?  I mean, if it's OK for public officials to lie to our faces, why cant taxpayers simply return the favor?  

gregga777's picture

Patriotic Americans should check 'Yes' regardless of coverage to protest the Unconstitutional ObamaCare healthcare insurance corporation subsidy. The criminal crony healthcare insurance corporations bribed the political parasites to pass this law and bribed the Supreme Court to say it was legal. It's an Unconstitutional law!!!

Theta_Burn's picture

And still, after making a deal with the devil (the evil corps. OR the bribed idiots, take your pick) and completely destroying the HC industry, they are losing BILLIONS.

If it wasn't so tragic for millions, it would be hillarious..

...at least michele obama's friend got millions for, then millions more to fix the exchange website, THAT should have been the tell, where this disaster would lead us all..

Theta_Burn's picture

Everyone I know whos just starting out.

Its virtually impossible to check.



Hohum's picture

Although "socialist" health schemes seem to contain costs a little better.  You know, America's cost problem didn't begin with Obamacare.

Theta_Burn's picture

It did however add about 6 more idiots pushing papers around for every doctor in the ssystem...so theres that at least.

Hohum's picture


No, in other courtries it didn't.  Health outcomes at least as good as the USA with FEWER costs.

FireBrander's picture

Socialism? Wholly fuck! You think our Health Care system is Socialist? It's CRONY CAPITALISM dipshit.

The ONLY true Socialist Health Care in the USA is the VA Medical System..and REPUBLICANS fall over each other promising to increase funding and improve results at the VA.


If you're against Socialized Medicine, I sure hope you're all for "repealing" the VA Medical system; are you?


29.5's picture

You're right. Don't tell a "conservative" this unless you are prepared for an unbalanced reaction. You will immediately be greeted with anti-usa rhetoric. If you want to die, tell them that not only you don't want to pay their bills, but their "service" was for globalists the last couple decades.

OutaTime43's picture

How about actually taking a look at the earnings data from all these health insurance companies. They are making a nice profit even WITH Obamacare. They aren't losing money net.  Aetna is just pissed because the US government is blocking their merger with Humana due to anti Trust concerns. Tell the facts man!

Pure Evil's picture

The article states that exactly. One might have to read all the way to the end, but it's in there.

Theta_Burn's picture


Even the honorable elizabeth warren said very recently that "the health of the American people should not be used as political pawns" concerning Aetna. good sound bite nontheless lizy...

Son of Loki's picture


Good luck finding a decent doctor. I know most are highly trained and know alot but with all the paperwork and crap from insurance, they hardly spend time with you anymore. Plus, it takes forever to get into their office many times.

I decided to pay more for organic everything [almost] and stuff myself with veggies every day [between donuts] so I could avoid the doctors, bankruptcy, and suffering with something like whatever Hillary has.

Plus, the good looking girls are usually slim and they admire a guy when they see me order vegetables, etc. That, plus wearing my Save the Dolphins T-shirt turns them on. It's incredible how much girls like dolphins!

"Want to come to my place and we can watch Free Willie together?"

Yen Cross's picture


  Zerocare was doomed from the start. Where's that assclown [ Ari Emanuel] the architect of Zerocare????  Crickets????  Chirping???

  Here's another reclusive Morlock, that's on "time out".  Jonathan Gruber



Yes, Jonathan Gruber Is an Obamacare Architect. You probably remember the videos that surfaced last year of MIT economist Jonathan Gruber joking about how the Affordable Care Act's passage was made possible by the stupidity of the American voter and the deception of lawmakers in Congress.Jun 23, 2015

    P-S.S.*** This meatball completes the TRIAD>>>   Ezekiel Emanuel


  My name is Yen Cross, and I NEVER forget.

ghengis86's picture

It's not a bug; it's a feature.

monad's picture

Harvest dem bones. Never let a good kidney go to waste. You ass I could have made 5 grand off your corpse.

Hubbs's picture

Wait a minute. Gruber was hired and paid well to design a health insurance program that could be "sold" to the public. He accomplished his task. He got ACA to pass. Why? Because he knew that Americans were, for the majority, stupid enough, ignorant enough, entitlement minded enough that it would pass. He may be an asshole and an apex parasite of society, but he calculated and gamed the system well.

Doom Porn Star's picture

"Gruber was hired and paid well to design a health insurance program that could be " sold" to the public. He accomplished his task. He got ACA to pass. Why? Because he knew that Americans were ,for the majority stupid enough, ignorant enough, entitlement minded enough that it would pass. "


The American Citizenry were SOLD nothing you lying shilling POS.



"But, We have to pass the bill so that that you can find out, uh; -what is in it." 

           -Nancy Pelosi


Hubbs's picture

As I said, Gruber calculated correctly that it could be sold to the public even without having to read the bill.mSurely you have purchased things that you really didn't read up about first. We all have. And indeed the people were like sheep. Dumb enough to take ACA up the ass without ARMED REVOLT! Gruber knew what he was doing and made the "correct " assessment: The people would stand by while Congress passed the bill without even reading it. Yes, the people were sold a lie. Some knew it others did not. Most thought they were getting a freebie.

gregga777's picture

ROTFLMAO (rolling on the floor laughing my a** off).

The criminal crony capitalist health insurance lobby wrote the Obamacare Law and they have the Feral government's Infernal Revenue Satanists acting as the enforcers and they whine that they can't make a profit. Is there any more telling example of the sheer moronic incompetence of the subnormal IQ idiot 'ex-spurts' running the United States of America? These moronic idiots would f*** up a lemonade stand that any child could profitably operate. There has to be massive interbreeding going on among the elites to produce so many mentally defective people in positions of power throughout America.

Yen Cross's picture

 Hey now--- You need a permit for that " Lemonade Stand" . Someone might "stub" their toe.

Whodathunkit's picture

Just goes to show the world how fucking stupid the c suite is. They had the opportunity to capsize on everyone and the fucked it up. Ha ha

bkboy's picture

Good point.  Here is your evidence (starting stock quote is for 1/1/2008 and ending quote is for 8/1/2016):

Humana: 37.38-178.88

Cigna: 16.91 - 132.30

Aetna: 28.59 - 120.55

Anthem: 42.25 - 129.54

Not bad for corporations that are saying that will lose millions if they aren't allowed to merge.  Of course, Bloomberg didn't include any of the stock prices in their article even though I suspect the authors were sitting right next to a Bloomberg terminal or two as they concocotted this garbage.

lasvegaspersona's picture

Our local Nevada plan (Health Care Co-Op) went bankrupt and left me with bills for medications I had given patients. In addition to not getting paid for services I also lost $30,000 on the cost of these meds. I was told I'd get half of it but when the last bill was paid I got less than $7,000.

Obama care 'worked' by making providers and insurance companies pay part of the bill.

Hellova business model.

Never again for me. I will close my practice before I see Obamacare patients again. It is just too risky. These guys do not understand medicine and do not care about patients, providers or much else.

RozKo's picture

Better get ready to close the practice, the next step for the Marxists is to put a gun to your back and force you to take Obamacare patients, it will be called single payer and you'll be the single who will be paying.

lucky and good's picture

The evidence is rapidly mounting that Obamacare is moving towards failure. The cost of expanding Medicaid was $6,366 per person for 2015, this is about 49 percent higher than previously estimated and nearly half of the co-ops which were created through the Affordable Care Act, have shut down because they have been unable to remain financially solvent. The article below delves into why each day Obamacare moves closer to collapsing under its own weight.



booboo's picture

Gruber hasn't been the same since Det. John Mclean threw his brothers ass off the Nakatomi Tower. Pass the Brawndo

RozKo's picture

All the Insurance companies sold the koolaide to the public and so did  the Kaiser Family Foundation? Smart people knew what would happen but were called racist because they were against Obama and Obamacare. The Grubers will be screaming for single payer as they wanted all along. Let it crash and burn, time for stupid, fat, lazy people to feel the burn....