What Are The Insurance Exchanges, And Why Are They Failing?
The 2016 presidential election has focused much attention on Obamacare. If you’ve been following the issue, you may have heard that one of Obamacare’s pain points is the implementation of the insurance exchanges. What exactly are the insurance exchanges?
In a recent episode of Straight Talk MD, Dr. Sweeny welcomed Ron Howrigon, a healthcare expert who has held senior management positions with three of the largest managed care companies in the U.S., including Kaiser Permanente, Cigna, HealthCare, and Blue Cross/Blue Shield. In this episode, Ron explains what the insurance exchanges are and why they are failing:
“Some people actually don’t even know what it means when people talk about the insurance exchanges. What is the importance of the insurance exchanges in Obamacare? What were they set up to do?”
“The exchanges are a fundamental part of Obamacare. The best way, if you’re not familiar with the health care environment, is to think of them like Travelocity for insurance. It’s set up like an electronic marketplace, where individuals (you don’t have to be part of an employer group) could go online, compare policies from one carrier to another, and know that those policies were actuarially equivalent.
So, in other words, in order to be a bronze plan on the exchange you have to actuarially cover roughly 60% of all the predicted expenses. It is a fundamental part of allowing access to individuals to buy insurance in a marketplace, where they could understand it, it was easy to do etc. And it also created the vehicle for the federal government to subsidize the purchase of that insurance for lower income individuals.”
"The best way, if you're not familiar with the health care environment, is to think of them like Travelocity for insurance."
“I looked back on your November 2013 article, when Obamacare was just being instituted, and at that time you actually predicted that the insurance exchanges would fail in 2017. That they would succumb to the death spiral. Did your prediction come true?”
“I think for the most part it has. And, in some ways, the scary part for me is that it was worse than what I even thought it was going to be. And I thought it was going to be pretty bad. The evidence that we can see that it’s failing in 2017 is that all of the insurance companies have taken massive losses on the members that they’ve enrolled to the exchanges. And now we’ve got pretty much everybody – United, Aetna, Cigna, etc. – running away from those markets, dropping those markets and leaving that business.”
"We've got pretty much everybody - United, Aetna, Cigna, etc. - running away from those markets, dropping those markets and leaving that business."
“It’s interesting when you think about the fact that what you’ve got is a marketplace, with 12 to 15 million customers, and none of the big insurance companies want to sell them their product because they know they’ll just lose money. Why are the for profit insurance companies losing so much money?”
“You know it’s a lot of factors. The biggest factor is what we’ll call the ‘mix of patients’ or the ‘severity load of the patients’. We know, in this country, that 5 percent of the people consume over half of all the health care expenses in a normal population. We also know that the bottom bottom 50 percent of the people consume less than 5 percent of the health care.
In order for health insurance to work you’ve got to get an awful lot of those young healthy people to cover the very few sick people that are going to consume all of the cost. If that mix is off, if you get a slightly higher percentage of the the sicker people or a slightly lower percentage of the young healthy people, it doesn’t work financially. It becomes a real difficult problem. That’s happened in the exchanges. The mix has been much different than anybody thought it would.”
"They're having a hard time attracting young healthy people, and the people that they got are incredibly sick."
They’re having a hard time attracting young healthy people, and the people that they got are incredibly sick. It makes sense when you realize that a lot of those people have gone a long time without insurance. So there will be a lot of pent up demand. A lot of uncontrolled disease states etc.
In addition, these people by nature are lower income. They make just enough money not to qualify for Medicaid, but don’t work in a high price job where you’d have insurance offered to you. Those people are going to have very different issues. They’re going to have a higher incidence of things like diabetes etc.
It’s a very difficult population. It’s a population that probably needs insurance almost more than anybody else, but one where the insurance companies can’t price their product such that they can make profit on it. None of those insurance companies are going to continue to provide insurance to people that they can’t make money on.”