Aetna, one of the country’s largest insurers, made headlines Tuesday when it announced it is pulling out of health care exchanges in 11 of the 15 states where it now offers insurance.
That’s not surprising — the exchanges are the centerpiece of the Affordable Care Act (ACA). And Aetna is a major presence: It had about 800,000 exchange customers at the end of June benefiting from the right to buy insurance and to pay the same price as anyone else their age, without regard to their health.
As a result, the company’s announcement is being seen as a huge blow to the ACA, and is raising questions about the viability of the program. But this does not necessarily mean that we are witnessing the gradual death of the program nicknamed Obamacare. The system still can work.
But before looking at potential solutions, it’s worth looking at what prompted the decision by Aetna — and other insurers before it — to consider backing out.
Most people who buy insurance on the individual exchange are eligible for the income-based subsidies that are part of the ACA. In many cases, these subsidies will cover the bulk of the cost of the insurance.
But Aetna claims its reason for leaving is that the insurance pool on the exchange is less healthy than average. Other insurers have also cut back their participation, ostensibly for the same reason. Aetna, for example, claims that it has lost $430 million on the exchanges over the last two and half years. To put this loss in perspective, this would be a bit less than 0.3 percent of its about $150 billion total revenue over this period. And while this loss is not bankrupting the company, insurers are certainly not in business to lose money, so its alleged losses are a serious issue.
(As an aside, it is worth noting that Aetna is currently fighting the Justice Department over plans to merge with another major insurer. It therefore seems at least possible, as Sen. Elizabeth Warren has suggested, that Aetna could see announcing pulling out of exchanges as a way to put pressure on the Justice Department to allow the merger.)
But assuming the losses are real, it is important to note that they are due to the mix of people who are buying insurance on the exchanges, not rapidly rising health care costs. In fact, health care costs have risen far less rapidly than the Obama administration predicted when it proposed the ACA. Spending on health care services, which accounts for the bulk of health care costs, rose just over 4% annually from 2010 through 2015.
This suggests that there are two ways to address the problem with ensuring the exchanges are viable. One would be to force insurers to take the less healthy people on the exchanges as a condition of being able to insure more healthy people outside the exchanges.
This goes to the root of the fundamental problem the ACA was set up to solve. Insurers are always happy to ensure healthy people, because they mostly end up sending the insurance company checks for nothing. The point of the ACA was to keep the less healthy people and the more healthy people in the same pool. Making participating in the exchanges a condition of doing business in the state is one way to effectively accomplish this result.
The other route is the public option that President Barack Obama proposed in his campaign for health care reform. If the government offered a Medicare-type plan in the exchanges, it would likely draw in a large enough pool that it would be able to offset the cost of less healthy people with plenty of healthy insurees.
Either of these routes could get around a problem of the exchanges drawing a less healthy pool of applicants. And that in turn suggests the issue is not so much whether the exchanges can be kept intact — they can. Instead, it comes down to something else: whether Congress wants to ensure that as many people as possible are able to actually get health insurance.