It has been six years since the sweeping healthcare legislation “Obamacare” passed.  In that time states have grappled with the prospect of instating their own exchanges to cover all adults living within 138 percent of the federal poverty line.   The feds have dangled 100 percent matching funds until 2016 and 90 percent after that for the states that expand Medicaid.  Thus far, 32 states have taken the bait, including Arizona. And as many of the critics predicted, expansion has failed to deliver on any of its promises and has now trapped states into a fiscally unsustainable program.

Higher than Expected Costs

The financial architecture of the Medicaid expansion was predicated on a larger pool of new enrollees being cheaper than that of current Medicaid members.  This premise has proven to be a complete miscalculation.  According to a recent report by the Department of Health and Human Services, new ACA enrollees cost an average of $6,366 annually, 49 percent higher than their initial predictions.  Apparently not factored into the costs were the states’ response to economic incentives – given the feds were flipping the bill – most states have exceptionally high capitation rates.  This economic fact never changes, if someone doesn’t have to personally pay for it, they will spend more.  This apparently applies to states as well as individuals.  Once again, the government has under-estimated the costs of their healthcare bureaucracy.

Lower than Expected Benefits

Proponents often cite the metric of new insured individuals as the evidence of Obamacare’s success.  There is no debate here.  Without a doubt, under penalty of a fine, more people have insurance.  However, the data surfacing reveals a deeper truth about the healthcare law.  A study conducted by economists at MIT found every one dollar of government spending on Medicaid resulted in 0.20 – 0.40 of benefit to Medicaid recipients.  Not only are the costs ($425 billion in 2011 alone) to fund Medicaid extraordinary, but the efficiency of those dollars are so low, one must ask the question, what are we even paying for?

This corroborates what past studies have already demonstrated.  In 2008, Oregon conducted an expansion of its Medicaid program, prior to the advent of Obamacare.  What was deemed as “The Oregon Experiment” showed simply insuring more individuals did not correspond to improved health outcomes for those individuals.  And yet we continue to dump more dollars into a system which does not deliver the health results for Americans.

Competition is Disappearing

Even with high capitation rates, private insurers are losing money on ACA plans.  The gorilla of private insurance, UnitedHealth Group, reported $200 million in ACA losses just in the second quarter of this year.  They are pulling out of most state exchanges.  Anthem is in the midst of acquiring Cigna Corp, they are threatening pulling out of the exchanges, should the feds stymy their merger plansCentene who recently acquired HealthNet, is facing structural financial woes as HealthNet has suffered extreme losses of its ACA plans.  Humana too is fleeing many of its exchange plans.  Aetna anticipates $300 million in losses on marketplace plans this year and has since stalled plans to enter into new markets.  Many of the Blue Cross Blue Shield Insurers are losing money in exchange states as well.  One fact is for certain, the private insurance industry is bleeding out in the public exchange market.  As higher risk consumers flood the exchange and low-risk, healthy consumers hedge their bets with no insurance, private insurers are either cutting their losses or eliminating popular PPO plans in lieu of thin network, high deductible and co-pay plans as well as higher premiums.  In rural areas, like Gila County in Arizona, the lack of choice is particularly acute.  This obvious crisis of competition is spurring the Obama Administration to call for Congress to develop its own public plan.  What could possibly go wrong with that?

The deficiencies of heavily subsidized public healthcare systems are well documented.  In the 1990’s several states tried their hand at developing their own state systems.  They provided “guaranteed issue” and “modified community ratings” which eventually led to the squeezing of the individual health market, the decline in the number of private carriers, and eventually a bust of the system over all.  Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington have all been down this road before; all have suffered the same obvious disastrous results.  Furthermore, though the Obama Administration and supporters had a rosy outlook of the Medicaid expansion effort, critics at the time were spot-on accurate with the consequences we are seeing today.

At the end of the day, the failings of Obamacare and Medicaid expansion should be a surprise to no one.

 

 

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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.