As United Health Care, one of the nation’s largest insurers, announced it would withdraw from the Obamacare exchanges, the insurance industry as a whole seems to be falling apart. A number of high profile insurers, including Blue Cross Blue Shield, have been laying the groundwork for sizable premium increases next year. A study released last month found that costs for insurers had risen by 22 percent, a clear indicator that consumer prices are going to have to go up to prevent more companies from following United Health’s lead.
None of this is especially surprising. Back when Obamacare was first proposed, smart people who understood how insurance worked looked at the model and, with eyebrows raised, pointed out the obvious flaw that would prevent the program from working: the insurance death spiral. The death spiral works like this: When the pool of people who sign up for health insurance is older and sicker than insurance companies expect, costs end up being higher than projected. Companies have to raise their prices (premiums) in order to make a profit. Higher prices cause some people to drop their plans as being too expensive, and the people most likely to do this are the ones who need insurance the least. This makes the remaining pool still more costly than before, and the cycle begins again, until nobody can afford insurance anymore.
Like clockwork, this is what we have seen under Obamacare. Every year since the law’s enactment, the Department of Health and Human Services has fallen short of its enrollment goals, despite increasing penalties for those who choose not to be insured. Premiums have risen predictably and deductibles are soaring as well. In 2015, the average deductible for a Bronze plan obtained on the exchanges was $5,181. In 2016, it was $6,850. That’s an increase of more than 25 percent in just one year. That’s not going to be a sustainable model, especially since a third of people signed up for Obamacare don’t have the money to cover their deductibles now.
As for premiums, according to a project by the Manhattan Institute, at least eight states have seen their premiums double under the Affordable Care Act since 2013. Meanwhile, median weekly earnings have only increased about seven percent since 2013, so it’s not as if people are going to be able to shoulder these costs with ease.
The obvious question is: How much longer can this go on? It’s impossible to know for sure, but what is certain is that the insurance law destined to shape Barack Obama’s legacy is collapsing faster than anyone ever imagined. United Health will not be the last insurer to cut and run from a clear money-losing situation. Others will follow, and this will only accelerate the death spiral. But the even more important question is: What happens next? Will the Left be able to leverage Obamcare’s unravelling into a single payer system, as they have always wanted to do, or will the folly of government planning be evident enough to the average person that we are able to implement some market based solutions to the nation’s health care woes? Given that the frontrunners for president in both parties support universal health care, it’s going to be an uphill battle.