Rather than imploding per Pres. Trump, Obamacare actually stabilizing per S&P report; who to believe

Unsplash / Pixabay

The News:

The Obamacare markets are stabilizing for insurers, said a report released by Standard & Poor’s Financial Services LLC (NYC), but that could change if lawmakers choose to alter the healthcare law.

@SPGlobalRatings reports that #Obamacare markets are stabilizing for insurers Click To Tweet

The report said Obamacare was not in a “death spiral,” as some Republicans have claimed, and suggested insurers could soon be making money in the exchanges, so long as major alterations weren’t made to the law, according to The Hill.

“If the market continues unaffected, with a few fixes rather than an overhaul, we expect 2018, or Year 5 of the ACA individual market, to be one of gradual improvement with more insurers reporting positive (albeit low single-digit) margins,” the report said. “2016 results and the market enrollment so far in 2017 show that the ACA individual market is not in a ‘death spiral.’”

Two proposed changes in particular could alter the healthcare marketplace–canceling cost-sharing reductions and eliminating the individual mandate which states that citizens must carry insurance or risk paying a fee.

The cost-sharing reductions reimburse insurers for giving discounted deductibles to low-income people enrolling in Obamacare. Should those payments to insurers be eliminated, S&P predicted insurers would have to raise premiums due to the risk or leave the marketplace altogether.

House Republicans sued the administration of former President Barack Obama stating such payments were unconstitutional. The lawsuit is still ongoing.

Changing the individual mandate could also scare away insurers, the report warned, or cause them to add an “uncertainty buffer” in their pricing.

Democrats were quick to respond to the report.

“Today’s report from S&P confirms that the Affordable Care Act is on stable ground, but it warns that Republicans’ efforts to sabotage the law could impede that stability,” said  New Jersey Rep. Frank Pallone Jr., top Democrat on the Energy and Commerce Committee.

Steve’s Take:

Having witnessed Trumpcare collapse into ignominious defeat, President Donald Trump is still chirping that he will simply “let the Obamacare disaster explode” (or implode, then explode). But the health law’s marketplaces are actually becoming more stable and may even spawn profits for some participating health insurers by 2018, according to a new report by apolitical Standard & Poor’s.

Trump’s insistence that Affordable Care Act markets are exploding is based on some legitimately bad news for Obamacare. Health insurers announced substantial premium increases for individual plans sold through the law’s exchanges last year (although many of these increases are counteracted by federal subsidies), and insurance companies like Humana Inc. (Louisville KY) have been announcing their departure from the marketplaces, citing losses and general uncertainty surrounding the law.

Critics have predicted that this combination of events will lead to a so-called “death spiral” in which Obamacare becomes increasingly expensive and unsustainable, eventually causing a market collapse, says Fortune’s Sy Mukherjee.

But S&P’s plunge into the operating performance of Blue Cross Blue Shield plans–which make up the backbone of the individual insurance market and the bulk of the Obamacare exchanges–finds that “2016 was a marked improvement” over previous years for most BCBS insurers.

“Our analysis of 2016 results and the market enrollment so far in 2017 shows that the ACA individual market is not in a ‘death spiral,’” wrote the S&P analysts.

S&P also believes that many insurers in the marketplaces are likely to stop hemorrhaging this year, and may even start making some real money in the next.

“Looking forward, we expect insurers, on average, to get close to break-even margins in this segment in 2017,” wrote the report authors. “If the market continues unaffected, with a few fixes rather than an overhaul, we expect 2018, or Year 5 of the ACA individual market, to be one of gradual improvement with more insurers reporting positive (albeit low single-digit) margins.”

The gradual improvement makes sense considering the multiple complexities of the individual market. Before Obamacare’s enactment, this market, which is just a sliver of the overall health insurance sector, was essentially the wild west, says Fortune. There were very few rules governing benefits, medical underwriting, or discrimination against the sick; unlike in employer-sponsored health insurance, there were few entities keeping track of the market and its finances.

So when insurers set their premiums for the first time under Obamacare’s new regulations, they were essentially playing a high-stakes poker game. How sick would enrollees be? How many would sign up? How much would it cost to cover them? And would customers remain in the market year after year?

Fortune points out that it customarily requires time, patience and plenty of adjustments–such as the steep 2017 premium increases–to both answer these questions and then make the necessary mid-course corrections to fit the emerging realities of the marketplace.

That’s finally beginning to happen, according to S&P, as insurers gain a more subtle understanding of the differences among the exchanges and adjust to the expiration of several early-year Obamacare programs meant to stabilize the markets.

But none of that guarantees that the markets will be profitable down the road. Uncertainty is the single biggest threat to insurance company participation in Obamacare, meaning President Trump and Congress’s ongoing efforts to undermine and ultimately dismantle the law could still wreak havoc on insurers and their customers if ultimately successful.

That’s a fact that nonpartisan S&P acknowledges up front.

“[I]f there are significant changes to the individual market, or if [subsidies to insurers that help reduce customers’ out-of-pocket costs] are made null and void, the market essentially has to restart with a new set of rules,” the analysts wrote.

Bottom Line:

Republicans have campaigned for more than seven years on repealing and replacing ObamaCare, and they finally have a President ready to implement their dream. In the bottom of the 9th inning, or was it one-inch from the goal line, however, they choked.

Speaker Paul Ryan and Mr. Trump worked to broker a compromise between the GOP’s moderate and conservative wings. Their bill worked off the reality that the US health system has changed under ObamaCare and thus an orderly transition is necessary to get to a free-market system without throwing millions off insurance. The GOP also is a center-right coalition with competing views and priorities, Zero Hedge notes correctly. The bill had flaws but was the largest entitlement reform and spending reduction in recent decades.

That wasn’t good enough for the 29-or-so members of the House Freedom Caucus who sabotaged a very fragile legislative balance. When one of their demands was met, they dug in and made another until they exceeded what the rest of the GOP conference could concede. You can’t have a good-faith negotiation when one party doesn’t know how to say yes–or simply won’t.

The Washington chorus now claims Mr. Ryan made a mistake by leading with health care, and perhaps in retrospect he did. But he was responding to demands for immediate repeal by the same conservatives who later abandoned him. They wanted a repeal–which was the only vote that had no chance of passing–and that’s why Mr. Ryan and Senate Republicans worked on the compromise of repeal and replace.

The critics assailed the bill as “ObamaCare Lite,” but the result of their rule-or-ruin strategy will now be the ObamaCare status quo, and Mark Meadows (North Carolina), Jim Jordan (Ohio), Louie Gohmert (Texas) and the rest of the Freedom Caucus own all of its problems.

There will be no such repeal in this Congress, and probably not in any other. Republicans run the government and that means they are responsible for what happens in health care. President Trump and Speaker Ryan are quite correct that the ObamaCare markets are buckling, and prices will rise and choices will shrink again next year on present trends. Republicans will naturally try to blame Democrats. Only problem is, they’re in charge.

Steve's Take: Can @realDonaldTrump and #GOP recover from the #Trumpcare fiasco? Click To Tweet

Perhaps Mr. Trump and the GOP can recover from this fiasco, but as an opening act to a new Presidency the total collapse of his campaign’s repeal and replace war cry is mind boggling.

To compound the snowballing calamity, the Trump Administration is now torn by an inevitable power struggle between political aide Steve Bannon, the President’s successful campaign-winning strategist, and trusted advisor, son-in-law Jared Kushner. One thing is certain: if they can’t call a truce, Kushner won’t be leaving the White House grounds before Bannon does.

The trouble here is Mr. Trump’s learn-by-gaffs, seat-of-the-pants governing initiation where he’s demonstrating an eye watering lack of the political acumen, let alone instincts, necessary to run the most powerful nation on earth. He may still start to show some aptitude for the job, but at the moment, many of us are holding our breath for the inevitable, next exclamation that Obamacare is in a death spiral, no matter what anyone else says.

Not even stodgy, apolitical S&P.