The End of the Affordable Care Act?


Recently the Wall Street Journal published an article titled Highmark Sues U.S. Over Affordable Care Act, in which the insurer says it didn’t get nearly $223 million it was owed under the ACA’s ‘risk corridors’ program. To me, this heralds the logical end to an illogical program. Chickens really do come home to roost: health insurers that were either silent on the ACA or went along with it willingly are now looking for the inevitable handout. There has never been an insurance program that is run by the government that you could call successful. I can go back to the days of the Joint Underwriting Associations (JUA) that were set up by states to handle the uninsurable driver. Then there are the Children Health Insurance Plans (CHIP) that were run by states to, again, handle the uninsured problem. In each and every case the actuarial soundness of the program was ignored. All of these programs circled the drain. When the actuarial experience––the absolute quantified numbers––say that the insurer needs to increase rates, the politicians in charge deny reality and let the program slide, withholding the rate increases required to keep the program viable. After a little while, the program in question starts asking for money from whatever level of government created the mess, and the politicians can’t come up with the money. So the claim checks start to bounce, and no one gives a hoot—because the whole program was designed to make politicians feel good.

There are lessons to be learned from the ACA experiment. Chief among them is that no matter how noble, altruistic, and politically correct a government program can be for some problems, the solution usually lies somewhere other than in another bureaucratic initiative where the overriding philosophy is “the end justifies the means.” The history of the ACA, though currently incomplete, will show that the top-down, my-way-or-the-highway approach leads to animosity, failure, and ultimately back to square one. In point of fact, the number of uninsured—allegedly the problem that was to be solved—never changed under the ACA. Could this lawsuit be the demise of the Affordable Care Act?



David Merkel

When I went to a conference of mostly health and pension actuaries in 2009, this is what all of the health actuaries that I talked to said would happen, in terms of eventual claims costs.

The lawsuit by Highmark will decide whether the insurers take losses for trusting the government, and rates rise a lot, with firms dropping out, or, the government borrows more, makes insurers whole, and expensive medical risks are subsidized.


In response to your statement; “In point of fact, the number of uninsured—allegedly the problem that was to be solved—never changed under the ACA”

This is a blatant lie. Gallop recently released data showing that the number of uninsured has drastically dropped from a high of 18% in the 4th quarter of 2013 to 11.9% in the 4th quarter of 2015. No matter how you compute the numbers there are more that are insured now then before the ACA.

Also this brief post leads one to believe that the ACA is a Government ran health care system. Which in reality is FALSE. There is no Government ran healthcare program in America. Lori Robertson from in her article about the claims of a Government ran healthcare system she states “the law’s regulatory provisions are more like putting the government between you and your insurance company. The ACA says insurers can’t have caps on coverage, can’t deny customers based on preexisting conditions (or charge them more), and can’t spend more than 15 percent or 20 percent on non-medical-related costs. It also requires coverage of preventive care, such as cancer screenings, with no cost-sharing.”

Brad O’Brien

Just wanted to say thank you for your great article in California Broker.

I’m a medical malpractice insurance agent in California, long time subscriber to California Broker..
it was so nice to read such a plane, simple and intuitive explanation of the challenge presented with expanding care to everyone in complete disregard to cost and the insurance model.

I wondered if you would be willing to share your article so that I could forward to some of our clients (we insure healthcare facilities, organizations, physicians, surgeons, medispa’s etc.

Thank you again for taking the time to share such an insightful and spot on analysis of the challenge and reality of our healthcare challenge.

John Sarich

A few weeks ago I published a blog post regarding the current state of the Affordable Care Act (ACA). Specifically, the blog was titled: “The End of the Affordable Care Act” it was prompted by the Highmark lawsuit against the federal government for payment of the losses Highmark incurred in 2014 and 2015. In 2014 Highmark incurred losses of $223 million and has losses of $500 million in 2015. Well, that blog post generated more than a few comments so I thought it might be useful to fill in some of the blanks on that post.
When the ACA was originally crafted, the federal government needed private insurers to develop ACA insurance policies that would conform to the mandates of the ACA, and understood that in the early years the insurers would likely lose money due to the anticipated risk profile of the insurance population that would buy their health insurance from the ACA. Recall that the overriding issue was the need for “young and healthy” to buy ACA coverage to offset the large numbers of older and less healthy citizens that would also buy coverage. The overriding reason for the Affordable Care Act was to reduce the number of uninsured in the overall population.
Let’s take a look at the uninsured issue.
First of all, let me say that much of the data on the ACA is very biased. The information from the government is full of data that is hard to corroborate with other sources and has been shown to be more than a little untruthful. Recall that “you could keep your current health plan,” “You could keep your doctor,” which continues to put a taint on data coming from the CMS. To wit, the number of uninsured that existed prior to the ACA and the dramatic drop since the ACA. Not to be a naysayer, but here is an example of what I mean. Forbes (February 2013) reported that “The gold standard Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) joined together to project costs and coverage of Obama Care. Their most shocking finding: We will have 30 million uninsured at least through 2022.” Keep that 30 million figure in your head. “To soften the blow, CBO-JCT study reported that there were 53 million uninsured on the eve of Obama Care. At least Obama Care will reduce the uninsured population by 23 million or 40 percent.” Now the plot thickens vis a vis the data/information/how it was sold. “The authoritative Bureau of the Census finds 48 million uninsured, not 53 million. It seems that the higher CBO-JCT includes some 7 million undocumented immigrants and 5 million or more eligible but not enrolled in Medicaid. Hence the number of uninsured citizens and legal residents was 36 million, not 53 million as Obama Care was being passed. . . In fact this was the number cited by Obama.”
In another article by Forbes (January 2016) Avik Roy noted: “For all the taxes and regulations and spending contained in Obama Care, what’s remarkable about the law is that it has only reduced the percentage of U.S. residents without health insurance by 2.7 percentage points between 2008 and 2014. The total U.S. population in 2014 was 318.3 million, meaning that the total impact of Obamacare on the uninsured population, on a 2014 adjusted basis was around 8.6 million.”
The net-net of all of this is that, as I noted in the blog posting, the ACA hasn’t done much to solve the uninsured problem. When 2015 and 2016 numbers are available, expect the percentage of uninsured to rise since the ACA is only available to legal residents of the U.S. With the influx of illegal immigrants the numbers of uninsured will be growing not shrinking.
A couple of final thoughts. First of all, make no mistake about it, with the ACA we do have government run healthcare. The ACA administration might be done by private insurance companies, but the rules and the oversight is by the government/CMS. When the government can determine how medical colleges are operated and what teaching hospitals are to teach, then we’ve pretty much ceded healthcare to the bureaucrats. How about you? Who does your doctor work for? If they are in private practice then the doctor works for you. If she deems that you need a particular test, then you get the test. If your doctor is employed by some other entity, then your doctor is working for them, not you.
Finally, with what we have seen over the last couple of years with the ACA, I have coined a new term: “constructive uninsured.” The constructive uninsured will be considered insured by the government and the political class because it makes them look good. But these are the people that cannot afford Obamacare outright, but end up buying a plan with exceedingly high deductibles and co-pays so as render the plan useless. With the average household living paycheck to paycheck and with a health plan that has a $7500 deductible and $50 copays the odds of getting that cough looked at, or your recent back pain diagnosed aren’t very good. One would think that for a trillion dollars (the assumed 10 year cost of the ACA) that we wouldn’t have 30 million people uninsured.

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