Health insurance meltdown before 2018 elections is inevitable

Photo by Kordite.

Photo by Kordite.

On January 1, 2018—ten months before the mid-term elections—the market for individual health insurance will collapse, leaving over 10 million people facing either zero coverage options or huge premium increases. I base this prediction not on my sentiments as a Democratic partisan, but my experience as a former Blue Shield of California director of public policy.  

The meltdown will happen regardless of whether or when Obamacare is repealed. Trump and his fellow Republicans in Congress can avert it only by enacting a comprehensive and credible Obamacare replacement within a few months of taking office (impossible) or doubling-down on Obamacare and increasing its government funding until they replace it (unimaginable).

A meltdown is inevitable because the individual market depends on the willing participation of commercial health insurers to function, and if they think the market is headed for major disruption they will either abandon it or jack prices way up to compensate for the increased risk to their bottom lines.

We just saw that dynamic play out on a smaller scale this fall. Over the last year, insurers have grown increasingly concerned that the mix of regulations and subsidies that make up the Obamacare marketplaces are not attracting enough healthy enrollees to balance out the sicker ones and keep underlying costs from exploding.  Fearing big losses next year and beyond, a number of insurers, including two of the nation’s biggest, pulled out of the marketplaces and the remaining ones raised premiums for 2017 by an average of 25%.

With the Trump/Republican takeover, insurers now have far more to fear from those marketplaces. It’s likely, as most observers expect, that the new regime will enact a repeal bill soon after the inauguration that won’t take effect until after the 2018 elections. But that ploy to deliver on a hot-button campaign promise without having to contend with the messy reality of doing so is doomed. Trump effectively repealed Obamacare with his election and the fallout has already been set in motion.

With all of the business planning and regulatory approvals involved, insurers will have to decide on their 2018 participation in the Obamacare marketplaces by late spring next year. With the repeal fuse lit and demagogues rabidly hostile to Obamacare holding the reins of power, insurers weighing participation will have two big concerns: the threat that Republicans won’t be able to resist launching pre-repeal, destabilizing attacks on Obamacare and the risk that the repeal handwriting on the wall will deter younger and healthier people from signing up for coverage.

The most immediate threat to the stability of the Obamacare marketplaces comes from Republicans’ control of the purse strings. Even if full-scale repeal is put off for two years, Trump could immediately yank funding for subsidies that benefit the lowest-income Obamacare enrollees. Since those subsidies are paid to insurers after they have issued policies with specially reduced deductibles and co-pays, failure to fund them would leave insurers on the hook for potentially huge losses. Last year, for example, insurers were reimbursed $7 billion.

Funding for those subsidies could also be killed if Trump simply declines to fight for them. Congressional Republicans went to court against the Obama Administration in 2014 to block them and won a favorable federal district court ruling earlier this year. If Trump drops the pending appeal, the funding will stop. Before insurers can make a rational decision to participate in the 2018 marketplaces, they'll have to trust that Trump will pursue the appeal, win the case, and continue the funding.

And that’s not all. Insurers will also have to convince themselves that despite the looming shadow of repeal, Obamacare sign-ups will proceed normally this year and next.  It’s impossible to know for sure what will happen, but it’s easy to imagine that younger and healthier people, who’ve so far been the least likely to enroll, will be even less inclined to do so knowing that it’s all about to end. That prospect and the uncertainty that surrounds it will lead insurance company actuaries to recommend to management big rate hikes or nonparticipation.

When Obamacare went live in 2014, insurers also faced uncertainty about the mix of healthy and sick enrollees that would enroll. To persuade insurers to participate and refrain from fully reflecting that uncertainty in their rates, the health reform law included a provision to reimburse insurers for outsized losses in the first three years of the program. The only way to stabilize the market in the face of the new risks insurers face would be to extend that loss reimbursement provision. But Republicans are hardly about to change their tune to “repeal, reinforce, and replace.”

The disaster awaiting millions of Obamacare enrollees in 2018 is just one of many ways that people will suffer under Trump.  But hopefully this betrayal of the voters on one of his marquee campaign promises (“Repeal and replace with something terrific.”) will be stark enough that they will make Republicans pay dearly for it in the mid-term elections.