Mass insurance exodus from Obamacare to come in 2017, think tank says

A paper from a right-leaning research foundation suggests many insurers may follow UnitedHealth’s lead and exit the market by next year

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UnitedHealthcare may have paved the way for other major insurance companies to withdraw from the Obamacare market, a report published this week by the Heritage Foundation suggests.

The right-leaning think tank analyzed the performance of insurance companies that offered exchange coverage in 2014, concluding that a soon-to-expire provision in the Affordable Care Act could exacerbate insurer losses. Authors Ed Haislmaier, Brian Blasé and Doug Badger examined enrollment and financial data from the 289 qualified plans sold during the enrollment period.

They found that, in aggregate, participating insurers generated substantial losses offering exchange coverage, despite receiving federal subsidies through the health law’s reinsurance program. Specifically, the authors allege that total losses among insurers were in excess of $2.2 billion, despite receiving net reinsurance payments of $6.7 billion.

Losses were not experienced, evenly however. The authors noted that insurers with narrow provider networks tended to lose less, while the insurance cooperatives established under the Affordable Care Act incurred the greatest losses.

Given the significance of the losses, the Heritage Foundation concluded that the reinsurance subsidies were critical to heading off major rate increases. In fact, without the funding, exchange premiums would have needed to be 26% higher to cover costs.

They did make one caveat, however.

“If premiums had been 26% higher, on average, enrollment would have been lower and adverse selection would have increased,” the report said.

“Relatively healthy people and higher income enrollees, who qualify for smaller subsidies if they qualify for any subsidies, would have been deterred to a greater degree than people who expected to use more healthcare services. As a result of this dynamic effect, the premium increase would likely have needed to be substantially greater than 26% for insurers to break even on their qualified health plans in 2014.”

Yet the reinsurance program is set to operate only through 2016. Come 2017, insurers will need to raise premiums enough to cover their costs without the benefit of subsidies.

“The key question is whether insurers that continue offering qualified health plans can reverse their losses through some combination of higher premiums and plan redesign,” the authors say.

If not, they suggest, insurers may take UnitedHealth’s lead and simply leave the market.

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