The Health Insurance industry has long understood that the realities of a stable insurance market would never make us the most popular industry in the nation. On the other hand, turning the overhaul of a business as complex as the Individual Insurance market to politicians with no insurance experience coupled with the need from politicians to “please” their constituents was destined to blow up badly. It most certainly will.
I read the entire 2,000 pages of minutia that is Obamacare. It is a complex array of vaguely related mechanisms, assumptions about motivations and consequences of both harsh and subtle incentives and penalties. Many details are dependent on unknown decisions and solutions that would be determined in future months and years. Every part of the act is dependent upon the perfectly performing assumptions of every other part of the act. There has likely never been a law with so many interdependencies and unproven dynamics. The bottom line: The media/public have no idea how bad the Affordable Care Act (ACA) will be once is it fully digested (or regurgitated) by the American public. Thus far, we have just seen the tip of the iceberg.
Here is what I believe is coming:
1. The website problems will probably get fixed pretty quickly. If our massive federal bureaucracy throws enough resources at it, they will eventually get this done.
2. Unfortunately, all who experienced the private individual insurance market dynamics over the years know that in a guaranteed enrollment structure, the first year individual purchasers will be vastly more health-care-needy than can be managed (not so much young enrollees relative to old, but sick enrollees relative to healthy).
3. Young people likely will not buy in this new market. Why? Because prices of policies for their ages have been radically increased due to the 3:1 rating-by-age limitation (This means that an older individual will pay no more than three times the rate of a younger individual-a radical and overnight change in the way policy pricing works). The young were already very difficult to motivate when the private market targeted them with very low cost policies designed specifically for them-with their needs and their resources in mind. Forget that now. This program assumes each and every young person to be a perfect fit for the new, one-size-fits-all plan-regardless of exact age or life stage. On the other hand, people over age 50 will see this offer as a bargain, as they benefit from the 3:1 rating-by-age structure. They get a huge rate reduction along with enhanced coverages. Longer term, this resulting set of age-mix dynamics is a road-map to disaster.
4. Most who enroll in the exchange marketplace will be lower income, either taking full advantage of the subsidies in the limited individual market or opting into the radically expanded Medicaid program where there are no premiums and practically no out of pocket costs.
5. The overall ACA financial model will be proven wrong. The long term financial outcome will be a mess. It will require dramatic changes/adjustments in rates year-to-year-or significant new subsidies from the government.
6. Small employers (where there is no mandate to provide group coverage), especially those that have lower-income-employees will drop previous group coverage in huge numbers. Their employees will be sent to the individual exchanges to get their own share of subsidies. In the subsidized exchanges, the federal government is essentially taking over what was previously employer provided subsidies, willingly paid by those employers all these years. This will further increase the adverse financial outcome for taxpayers.
7. Many of the employers who choose to keep group coverage will renew for 2014 by December (rather than January), a trick to maintain their pre-ACA structures for another year. Once again, this will contribute further to the adverse financial outcome for taxpayers.
8. Brokers and agents will suffer overwhelming business losses. Many of these will lose their careers over the shift in funding by exchanges to inexperienced Obamacare “navigators.” These navigators will be at the center of controversy, errors, omissions and abuses.
9. The over-$10 billion reserved for risk-adjustment provisions (to help subsidize insurer’s losses due to adverse selection) will be controversial and highly debated. Look for this to become the center of accusations and industry-bashing in light of the other failures of the program
10. There will be little real progress on restructuring of the Hospital/Physician relationships into the new the Accountable Care Organizations and the Medical Homes-which the new law hoped would emerge to unify Hospitals and Physicians for more effective care. The will also be little movement from the “fee for service” toward paying for outcomes (which is hoped to help control costs). Such changes in the care delivery structure are key to “bend the cost curve”-a promised value of the ACA.
11. Reality check. As we move into the second half of the year next year, insurers will start to get the first glimpse of who they are covering and their relative health needs vs. the assumptions made when 2014 prices were set (their financial model for business viability). They will all observe vast inaccuracies in their assumptions and will have to radically change their strategies and pricing for 2015 or even whether they can continue another year.
Remember: This is all just year one. January 15, 2015 will prove to be an even more messy open enrollment than year one, with vastly higher prices and fewer participants. What a mess.
Denny Weinberg is Co-Founder of Wellpoint and a 20 year veteran Executive serving as CEO and Chief Operating Officer for many of Wellpoint’s Health related companies.