Obamacare Enters a Downward Spiral as Co-ops Fail and Enrollment Slows

National Review ^ | 10/25/2015 | by AKASH CHOUGULE 

Canceled plans, lost doctors, higher costs: That is the continuing reality for millions of Americans under President Obama’s health-care law. Unfortunately, for hundreds of thousands more, it’s about to get a lot worse.
As of this week, nine of the law’s 23 state co-ops — nonprofit health-insurance companies set up to help people enroll in Obamacare — have collapsed. Over 600,000 people who enrolled in co-op health plans will lose their insurance at the end of this year. Many of them were forced into the co-ops to begin with when Obamacare canceled their private insurance policies in 2013, meaning they will have lost their health insurance twice because of the law.
All this is despite, of course, Obama’s now-infamous promise that if you liked your health plan, you could keep it.
The bad news shows no sign of abating. According to recent news reports, eleven more co-ops are on the verge of failure. Twenty-two of the 23 co-ops lost money in 2014 despite receiving $2.4 billion in taxpayer support. The nine that have already failed received over $1 billion combined. Not even that was enough to keep them alive.
The problems causing these failures are many but boil down to this: In an attempt to gain market share, the co-ops are offering policies at rates that don’t come close to covering Obamacare’s enormous costs. As a result, enrollment in their plans far exceeded projections, making their financial holes even worse.
The co-op shared between Iowa and Nebraska fell into this trap. Offering artificially low rates, it enrolled ten times more people than expected. This resulted in premium income far below patients’ medical claims, forcing the co-op into liquidation. Now 100,000 people will have to find other plans.
Louisiana’s co-op, which had over 16,000 enrollees, went under because of what state insurance commissioner Jim Donelon called Obamacare’s “onerous burdens.” Similarly, Stacey Hatfield of the Nevada health co-op board blamed “challenging market conditions” for the failure of her state’s nonprofit, which enrolled over 20,000 people. Both failures occurred despite the infusion of nearly $66 million into each co-op from federal taxpayers.
Four others — Oregon, Colorado, Kentucky, and Tennessee — blamed yet another broken promise from the Obama administration. Last week, it announced that insurers would receive just 12 percent of requested amounts in “risk corridor” payments, which were designed as a bailout of insurers facing losses from Obamacare.
#share#But co-op customers and insurers are not the only ones facing problems. After Obamacare drove up the price of individual-market insurance by 49 percent in 2014, and then caused millions of people to see double-digit increases, again, this year and next, new-enrollee projections plummeted. Last week, the White House announced that it expects just 1.3 million new enrollees in 2016, far below the 8 million originally predicted for 2016.
These higher costs and falling enrollment numbers are exacerbating the fundamental problem that could doom the entire law. Obamacare disproportionately incentivizes people to enroll who have higher health costs and qualify for larger subsidies. As their costs to the health-care system continue to rise, so do the premiums on healthier and wealthier enrollees in traditional, non-co-op plans. Understandably, the latter then enroll in smaller numbers. That in turn forces even higher premiums on the remaining enrollees, creating a downward spiral: Over time, the enrollee pool becomes poorer and sicker and incurs ever-increasing costs.
It doesn’t require an advanced degree in economics to see why this is unsustainable. As costs and premiums continue to increase, people will increasingly avoid enrolling. And as co-ops succumb to the reality of higher rates, they’ll continue failing at their alarming pace.
Perhaps this is why Health and Human Services secretary Sylvia Burwell expects it to be “challenging” to enroll more than just one in four eligible people, despite the president’s repeated insistence that the law is working. Unfortunately for Mr. Obama and his allies, reality can’t be hidden behind lofty rhetoric or “the stupidity of the American voter.” These are the realities of his health-care law. And three years in, it’s only getting worse.
— Akash Chougule is the deputy director of policy at Americans for Prosperity.