As most of the political world has been focusing on the presidential race, Obamacare has gotten off to a rocky start in 2016. This could be a major drag on Democrats come November.
On Thursday, the Department of Health and Human Services reported that fewer than 13 million individuals signed up for Obamacare plans for 2016. Though the administration is trying to argue that this 12.7 million number beat expectations, nobody is buying it.
HHS officials set an artificially low target of 10 million signups for the year – essentially flat from 2015 – so they would have something to beat.
"While exchange enrollment will meet the Administration's modest 10 million person goal, it does appear that growth in this market has slowed," Caroline Pearson, a senior vice president of healthcare advisory firm Avalere said in a statement.
The statement noted that in the first two years of Obamacare, exchange enrollment fell roughly 20 percent from what was initially announced, because those who signed up either didn't keep up with their premiums or obtained other coverage. On this basis, Avalere estimated that year-end enrollment would actually be roughly 10.2 million in 2016.
This is significantly lower than the 21 million individuals the Congressional Budget Office initially projected the law would signup in 2016, below the downwardly revised 13 million CBO projection, and effectively flat from a year ago.
Perhaps even more significant than the headline number, HHS also revealed that just 28 percent of those who signed up for coverage are between the ages of 18 and 34 – which is the same proportion as last year, and well south of the 40 percent target that HHS said was crucial to the exchanges remaining viable. It's necessary for Obamacare to enroll a critical mass of younger and healthier individuals to offset the costs associated with offering coverage to older and sicker individuals.
During the initial botched launch of Obamacare in late 2013 and early 2014, there was a theoretical debate about whether the risk pool would be stable. But that is no longer theoretical. Insurers have now had a chance to look at actual claims data from Obamacare enrollees, and it isn't encouraging for insurers.
UnitedHealthcare, the nation's largest insurer, has said it may have to exit Obamacare due to $720 million in losses it racked up from participating in the program. Though other insurers haven't gone as far as to openly discuss an exit plan, they've confirmed that the business hasn't been a money maker. On Feb. 1, Aetna's said it had "serious concerns about the sustainability" of the exchanges. Anthem and Cigna have also said they haven't made money from Obamacare plans.
Given that Obamacare was unprofitable for insurers heading into this year and the size and composition of the 2016 risk pool looks to have remained roughly the same, insurers have no reason to believe the exchange business will improve anytime soon.
Investors in publicly traded insurers won't remain patient forever, sitting back as participation in Obamacare perpetually restricts earnings growth. In order to survive, Obamacare has to become profitable for insurers, or else they'll continue to jack up rates or exit the government-run exchanges altogether. This in turn would mean fewer insurers competing on the exchanges, and still higher rates.
Further exacerbating the problem is that several federal backstops that were put in place to cushion the financial blow to insurers either won't provide as much money as originally anticipated, or will expire by the end of 2016. That means in 2017, plans will have to start surviving on their own.
And that brings us to the presidential election. In trying to stave off a challenge from socialist Sen. Bernie Sanders, former Secretary of State Hillary Clinton has whole-heartedly embraced Obamacare, promising to build on it. "Before it was called Obamacare, it was called Hillarycare," she has been saying regularly on the campaign trail.
She'll own Obamacare and its problems going into the general election assuming she's the nominee, and according to the schedule put out by HHS, insurers who wish to participate in Obamacare will have to submit their initial rates in the late spring. After back and forth with HHS over the summer, they'll start to become finalized in the fall. That means for months leading up to the election, voters are going to be hearing more and more about staggering rate increases coming in 2017. And this year, open enrollment – when individuals shopping for insurance can start to go online and see the premiums on new plans -- begins on Nov. 1, or just one week before the election.
This means that for the months, weeks, and days leading up to the election, the Democratic presidential nominee and all of the party's Congressional candidates are going to have to contend with news of sky-rocking rates coming from Obamacare as insurers struggle to make the business profitable. Considering that Republicans owe their current House and Senate majorities to Obamacare, this should be a scary thought for Democrats.