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Humana: Exchange Enrollment 'More Adverse Than Previously Expected'

January 10, 2014

By Avik Roy

On January 9, health insurance bellwether Humana formally announced something that industry observers have long suspected: that healthy and young people don’t think Obamacare’s insurance plans are a good deal for them. Those people, Humana indicated, are choosing to stay on their previous health plans, where allowed, instead of participating in the Obamacare exchanges. As a result, Humana “now expects the risk mix of members enrolling through the health insurance exchanges to be more adverse than previously expected.” The question now is: will taxpayers have to pick up the bill for the Obama administration’s last-minute changes to the law?

Losses on exchanges cushioned by outperformance elsewhere

Humana’s answer to this question, thus far, appears to be: not yet. The insurer “is evaluating the effects” of President Obama’s chaotic decision to allow some insurers in some states to continue old plans, and exempt some Americans from the individual mandate. But for now, Humana is “reaffirming its previous 2014 earnings guidance of $7.25 to $7.75 per diluted common share.” But that’s because Humana’s losses on the exchanges are being offset by good performance in the company’s other businesses.

Private insurers have diverged in their approach to the Obamacare exchanges. The largely non-profit Blue Cross Blue Shield plans have involved themselves with gusto, hoping that they can make up for any near-term losses by gaining a first-mover advantage and enrolling the initial crop of participants. The for-profit insurers have been more careful, participating only in states where they feel they can deliver a cost-efficient product.

Humana has been one of the for-profit players, along with Aetna, that has been most gung-ho about participating in the exchanges. “The exchanges probably are a good thing,” Humana CEO Bruce Broussard told me in an October interview. “It’s expanding coverage for people, and we think that in the long run it will be the right thing to do. In the short run, it’s got some bumps, and the industry and the government expected that. But we are focused on fixing those bumps, and to work with the government to make it both a good experience [while] driving down health care costs and improving the quality.”

But Broussard was more cautious, even back then, about the likelihood of healthier people signing up. “The verdict’s out on that, to be honest with you…the federal government and the states are trying to stimulate more and more people to sign up. I think as the penalty increases for not having insurance, probably you will see more people sign up. But in the short run, it could be [sicker] people that just need coverage.”

It doesn’t appear, thus far, that Broussard and his pro-exchange colleagues have been rewarded for their good faith. At every turn, in an effort to mitigate short-term political fallout, the Obama administration has enacted major changes to the way the exchanges are supposed to work. As a result, the prices Humana and the others set for the exchange-based plans will be low, relative to the sickly, high-spending population that will enroll in them.

Very interesting news on Medicare Advantage

In its 8-K filing with the Securities and Exchange Commission, Humana also bore some good news. Despite Obamacare’s substantial cuts to the Medicare Advantage program, seniors are continuing to choose that program over the traditional single-payer version of Medicare. “Based upon the results of the Medicare Annual Election Period, the Company expects gross sales and terminations for individual Medicare Advantage plans for 2014 to be meaningfully better than previously projected resulting in higher anticipated net Medicare Advantage membership gains for 2014,” Humana said.

This is an extremely interesting development, one that comports with what other private insurers are seeing. Richard Foster, the recently-retired chief actuary of the Medicare program, had projected that Obamacare’s cuts to Medicare Advantage would force half of the program’s enrollees back into the 1965-vintage single-payer program. That, so far, does not appear to be happening.

While this is bad news for GOP partisans hoping to capitalize on Obamacare’s problems, it’s actually good news for advocates of market-oriented reform. If private insurers can now offer a more popular and more attractive benefit to seniors, for the same price that the government can, those who have advocated a transition from government-run insurance to private-sector insurance will gain a potent new argument.

We’re not out of the woods yet on this topic. Further cuts to Medicare Advantage in 2015 and beyond may yet discourage seniors from sticking with the program. But this is one of the several areas where good news for Obamacare is good news for pro-market reformers.

Will insurers require a bailout?

But before we get too cheery, let’s return to an important topic: whether insurers will need a bailout to protect themselves from the Obama administration’s various mishaps.

Some Republicans and conservative activists are pushing a “no bailout for insurers” bill that would prevent carriers from being compensated for losses they incur for participating in the exchange. This was triggered by increasing awareness that Obamacare contains a measure known as the “risk corridor” provision that protects insurers from 80 percent of excess costs if sicker-than-anticipated people sign up for coverage. The risk corridor program lasts for the first three years of the exchanges.

Momentum for the “no bailout” bill was spurred by Washington Post columnist Charles Krauthammer, who urged such a bill as the “first order of business for the returning Congress.” It’s a political strategy aimed at taking advantage of the fact that Americans hate industry bailouts.

But there’s a big difference between a taxpayer-funded bailout for a company that has been incompetent—like General Motors—and a bailout for companies that are losing money because the government is forcing them to, as with Obamacare.

None of this matters to the anti-Obamacare hard-core, who actively want to undermine the insurers who have participated in the exchanges. If you believe that Obamacare is an existential threat to America, then of course you want the law to fail by any and all means necessary. But most Americans have a different view. While they’re skeptical that Obamacare will live up to its grandiose promises, they want the health care system to work. Republicans who want to appeal to the whole of the country should pay attention.

Original Source: http://www.forbes.com/sites/theapothecary/2014/01/10/humana-obamacare-exchange-enrollment-more-adverse-than-previously-expected/

 

 
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