Cracks In the Obamacare Crystal Ball

Health insurance companies make money by predicting the future. To set rates, quants with complex computer algorithms try to estimate not just the health of the people who will sign up for their plans but also the chances that those people will later get sick or injured or otherwise run up big medical bills. If they do their math right, the insurers make money. If they miscalculate, you get something like the crisis roiling the Obamacare marketplace today.

The insurance giant Aetna announced in mid-August that it has lost roughly $430 million so far on the federal health care exchanges, the marketplaces where uninsured individuals and small businesses can find coverage. That loss might have been sustained, it argued in a July letter, if the Justice Department had approved an upcoming corporate merger. But when the merger hit regulatory roadblocks, the company announced it would sharply reduce its participation in the exchanges next year. Aetna’s not alone. Humana and Blue Cross Blue Shield have also cited losses when announcing pullbacks from the exchanges. UnitedHealthcare, which estimates it has hemorrhaged $1 billion since 2015, says it plans to leave all but “a handful” of exchanges next year.

“I think we’re seeing a fish-or-cut-bait moment for insurers,” says Edmund Haislmaier, a health-policy expert at the conservative Heritage Foundation. “They now have a couple years of data, and they’re seeing that the market is not particularly good for them.” Some experts have argued that the exodus presages Obamacare’s imminent collapse.

But like the algorithms that make the insurance business hum, the real story is more complicated. When large, national insurers pull out of markets, smaller, regional insurance companies can be expected, at least in the short term, to take up the slack. So while Aetna’s departure from 11 of the 15 public exchanges where it currently operates will lead to fewer choices for some customers–particularly in Arizona and the Carolinas–many others won’t see much of a difference.

That’s not to say Obamacare doesn’t face strong headwinds. After setting premiums too low three years ago, many insurers have been consistently losing money on the individual exchanges, where the average consumer is sicker–and therefore more costly to cover–than the general population. If younger or healthier people sign up during the next enrollment period, beginning Nov. 1, the market will stabilize. But the future is hazy. “If the market continues to grow, insurers will be more interested in it,” says Gary Claxton, a vice president at the Kaiser Family Foundation. “If it doesn’t, their skepticism might increase. But it’s too early to tell.”

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