(Bloomberg) — Failing insurers. Rising premiums. Financial losses. The deteriorating Affordable Care Act market that the health insurance industry feared is here.
As concerns about the survival of the ACA exchange system intensify, the role of nonprofit “CO-OP” health insurers — meant to broaden choices under the law — has gained prominence. Most of the original 23 CO-OPs have failed, dumping more than 800,000 members back onto the ACA markets over the last two years.
Many of those thousands of people were sicker and more expensive than the remaining insurers expected — and they’re hurting results. With more of the nonprofits on the brink of folding, the situation for the remaining providers looks dire. Anthem, for example, is facing an estimated $300 million in losses on its exchange business for individual plans this year, after turning a profit in 2014 and almost breaking even on the program in 2015, according to the company.
“These CO-OPs have attracted, we think, disproportionately high health care utilizers,” Gary Taylor, an analyst with JPMorgan who follows the industry, said in a telephone interview. Their former members “are now enrolled in these for-profit health plans. That’s been a factor driving the deterioration in their profitability.”
Large insurers including Aetna and UnitedHealth Group have already pulled back from the ACA markets, citing losses. Anthem has said it remains committed to the program.
“Are we in an Obamacare ‘death spiral?’” health insurance consultant Robert Laszewski asked in a Sept. 9 bulletin to clients, where he described the grim scenario. In a death spiral, as options for coverage shrink, insurers attract increasingly sick patients and suffer losses. That forces them to raise rates, driving away healthy, profitable customers. Facing more losses, they raise rates again, causing more healthy people to leave, and so on — until all that’s left are high premiums and a small pool of the unwell.
People getting insurance in the ACA markets still have access to affordable plans, said Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, which oversees the health care program.
“America is on stronger footing today because of the Affordable Care Act with 20 million gaining health coverage and the uninsured rate is at the lowest point on record,” he said in an e-mail. “Consumers are satisfied with their coverage, have better access to care, and greater financial security — core metrics of success.”
Some insurers may already be feeling the burden of increasingly sick patients. Anthem’s then-Chief Financial Officer Wayne DeVeydt said in April the company was “disproportionately picking up market share” in states where CO-OPs had folded. On a July conference call, Chief Executive Officer Joseph Swedish said that as the insurer had brought in new membership, its costs of caring for patients with heart disease, diabetes and especially dialysis had increased. Jill Becher, an Anthem spokeswoman, said the CEO’s comments referred to the company’s overall ACA membership.
The company expects to break even on its ACA business next year and return it to profitability in 2018, Swedish said last week at a conference in New York. Still, some analysts aren’t convinced. David Windley, an analyst at Jefferies LLC, cut his rating on Sept. 13 to “hold” from “buy,” citing in part Anthem’s “potential to inherit sick members from peers exiting exchanges.”
Aetna and Humana are each on track to lose at least $300 million on Obamacare this year and have joined rivals in leaving many areas where they sell ACA plans. The broad retreat of payers — including CO-OPs — “is one of the contributing factors to our inability to responsibly maintain our current footprint,” T.J. Crawford, an Aetna spokesman, said by phone.