What? You Mean Obamacare Isn’t Working?

The big news driving markets today, and pressuring the Dow Industrials, is that insurance giant UnitedHealth Group (UNH) is lowering its 2015 earnings projection to $6 a share from a previous range of $6.25 to $6.35.

Now, reduced profit forecasts aren’t ever a good thing. But this revised profit forecast has a more pernicious, and extremely troubling, cause.

The reason why UNH expects lower 2015 earnings, simply put, is Obamacare.

According to the company’s announcement today, it anticipates big losses on the business it does via the Affordable Care Act (ACA) exchanges.

The anticipated losses are so great that UNH is actually considering withdrawing from the exchanges.

Consider that for just a moment.

The nation’s largest health insurer can’t make a profit, and indeed is losing a lot of money, on a federal scheme that was supposed to provide them with a whole lot of new customers.

This is bombshell news. It is also one of the clearest signals we’ve seen so far that Obamacare is failing.

Moreover, the very real threat of UNH to actually pull out of the healthcare exchange business has got even Obamacare proponents worried that the top-down federal program is in big trouble.

***

A story at MarketWatch explained the situation using what principals from UNH cited as the reason for the problems with the healthcare law:

UnitedHealth Group’s chief executive, Stephen J. Hemsley, said it made the move, which included a downgrade of its earnings projections for 2015, amid reduced growth expectations, the expected shutdowns of the majority of the health law’s nonprofit cooperative insurers, and signs that its own enrollees continue to increase their use of medical services, raising costs.

 …  the insurer said it is "evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017."

That proclamation sounds to me like the "last exit before toll" moment for UNH — and maybe for the entire Obamacare program.

For the record, I doubt that UNH’s profit struggles in its healthcare exchange business will force anyone in the Obama administration to recalibrate the ACA.

Yet the problems here are not just relegated to one health insurer.

According to MarketWatch:

Several other big publicly traded insurers also flagged problems with their exchange business in their third-quarter earnings. Anthem Inc. (ANTM) said enrollment is less than expected, though it is making a profit. Aetna Inc. (AET) said it expects to lose money on its exchange business this year, but hopes to improve the result in 2016. Humana Inc. (HUM) and Cigna Corp. (CI) also flagged challenges.

The story went on to cite an analysis by McKinsey & Co. showing that for 2014, the first year of the exchanges, the collective losses suffered by health insurers totaled some $2.5 billion, or an average of $163 per consumer.

***

While health insurers participating in the Obamacare health exchanges are busy losing money on the deal, enrollees in the program are actually paying up big-time.

To stop the fiscal bleeding from their Obamacare plan offerings, insurers have raised plan premiums in an attempt to mitigate the medical costs of current enrollees, which have run much higher than the companies were anticipating.

And, not only are premiums going up, but their choice of plans and plan options now are being restricted.

According to a just-published paper from think tank American Action Forum, titled, "Still Marked by Uncertainty: 2016 Health Insurance Marketplace," the Affordable Care Act offered:

 … the promise of stability and affordability. The new individual marketplace was to rival that of the employer sponsored insurance (ESI) marketplace in stability and predictability, while premiums were to rise at rates much lower than the historical average.

 … In this study we find that the cost of both the benchmark Silver plan and the lowest cost Bronze plan will increase by 10 percent in 2016.

So, let’s review.

  Health insurers are losing money on Obamacare exchanges, and now the biggest U.S. health insurer is about to exit stage left.

  The, enrollees have to pay about 10% higher premiums next year, and for plans that offer less.

  Moreover, those plans will come with higher out-of-pocket costs such as higher deductibles and bigger co-pays.

So far, I haven’t heard anything good, but unfortunately, there is more bad news.

UNH dropped 5.6% in today’s session

According to MarketWatch:

Analysts say the danger is that higher rates might discourage enrollment, particularly by the younger, healthier consumers that the marketplaces need to draw in, since they are the ones that are most likely to feel they can go without insurance.

That would have the effect of driving premiums even higher in the future, because insurers would need more rate increases to cover the costs of a smaller, sicker pool of enrollees.

At its worst, this cycle can feed on itself, creating what the industry calls a "death spiral."

When the whole Obamacare idea was proposed, there was a phrase often bandied about that it was going to "bend the cost curve" so that healthcare became less expensive.

Well, so much for that idea.

It’s ironic to me that with a product that is basically illegal not to have … and one that you can get a subsidy to pay for if you qualify … that the government still can’t get enough healthy people to enroll in the exchanges so that the scheme works.

Sadly, I think recent events show that Obamacare is yet another government boondoggle suffering the fate that so many government plans suffer …  and for basically the same reason.

That reason is a failure to respect simple and immutable laws of economics.

***

Are you the least bit surprised that health insurers are losing money on Obamacare exchanges? Have you seen your health insurance premiums go up, even if you aren’t in an Obamacare exchange? Everyone I’ve spoken with has seen their personal health insurance costs go up, and that’s not a coincidence.

Let me know what you think by leaving me a comment on our website or by sending me an e-mail.

***

It was another mixed day of trading in the markets that ended with the major U.S. indices finishing flat to down. Gold provided a small bright spot, with the December futures contract gaining $9 on interest-rate hike expectations.

Here’s what else we will remember about today …

•  The House of Representatives passed a bill to rigorously vet potential Syrian and Iraqi refugees. The "American SAFE Act of 2015" calls for background checks and approval from the FBI, Homeland Security and other high-level officials on each applicant. President Obama has said he plans to veto the bill.

•  Mobile payment processor Square (SQ) had a solid first day of trading. Shares opened up at $11.20 and closed just above $13, a 45% gain over its $9 IPO price.

•  Match Group (MTCH) found a love connection with its new home, the Nasdaq. The parent company of dating service sites like Match.com and Tinder jumped 22.8% above its $12 IPO price to close at $14.74.

•  No Santa rally for Best Buy (BBY)? The big-box retailer dropped 2.1% today after reporting a revenue miss in Q3 and issuing cautious holiday sales guidance.

Good Luck and Happy Investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

Your thoughts on “What? You Mean Obamacare Isn’t Working?”

  1. I’m on my wife’s insurance plan. She works for the biggest healthcare provider in the Phoenix area. We’ve watched our health plan costs almost double in the three years we’ve been here. Our copays are higher and our provider pool is much smaller than it was three years ago. Even the insurance customer service reps can’t keep up with all the changes. Places I sought care for a year ago are no longer providers in network. Barely able to move I drove to 3 different locations (after calling before each drive) today before I found one that both our insurance and the provider could confirm when I arrived was covered under our plan. Physical therapy is not an option for me due to ridiculous co-pays that were prior affordable so I guess it’s Percocet at $10/month until I can afford the $600/month for PT. Today I also found out that in the entire Phoenix metro area we are entitled to in-plan coverage with just two pediatricians. Obamacare is hurting everybody. Never have I known insurance to cost so much and provide so little benefit.

  2. At my company (Toyota) employee paid premiums for our ESI have increased over 40% for 2016. How is this “affordable” for anybody? It seems this is another step towards socialism. The “haves” paying for the “have nots”. Fair?

  3. When Obama came into office our health insurance was $478 per month for a family of 4 with a $2,000 deductible. Since that time we have had to drop both of our sons off of our policy and raise our deductible to $8,600 and our premiums are now $1,352 per month!!!
    Obamacare, like the man, is a complete failure based upon lies.

  4. America is broke! Is the ACA the best plan the leader of our country could come up with? I recommend that all those in congress take a 25% pay cut and subject them to the same healthcare nightmare that the average citizen is faced with and cut the lifetime pension benefits for serving ONE two year term in congress. That would be a good start.

  5. Brad,

    Prior to Obamacare I had an HSA for both me and my wife. The deductible was $1,500 the monthly premium was $467. We were one of the ones that our insurance company did not allow us to keep that plan when Obamacare came into existence. We went to the best silmilar plan that Obamacare offered, Silver, HSA $2,000 deductible. The premium went to $837.65 per month (we are not eligible for subsidy). This year the deductible for that plan is increasing to $2,600 and the monthly premium is increasing to $984.23. This Obamacare is really working out great???? So basiciallly we are self insured because our insurance doesn’t being paying anything until we have paid $5,200 (our combined deductible first). We are both in good health and only see our doctor for routine checkups. I personally think we have to scrap Obamacare now and probably go to a single payer system such as Medicare. I don’t know how the country is ever going to pay for it but if we think the cost of insurance is high now, just wait a few years.

    Dave H.

  6. Tsk – Tsk. No need to worry about anything folks. Our beloved central planners have provided us protection from these evil insurers through the relatively new, billion dollar / year, taxpayer funded Consumer Protection Agency. Hah – let them try to defraud us now I say! (sarc. off)

    In the meantime, for all your folks paying for the peace of mind that comes with “Long Term Disability Ins.”, read the fine print. No matter how much or how long you have been paying monthly premiums to your insurer, you will now be handed off to Social Security within 9 – 12 months of your claim (so that you can pay yourself while reducing your future retirement benefit). How else do you think 48% of Americans were forced onto the government sponsored disability rolls.

    Life in America is exceptionally good if your on the crony-corporate team. For the rest of us – well at least we’re free. Free to be regularly sodomized by our “elected” public “servants”.

  7. The fact that UHC reported dim prospects is not surprising. I fully expect the other insurance companies to all eventually declare the same in the coming year, as the full effects of this atrocious law takes effect in 2016 / 17. It is all part of the eventual grand plan — Universal Health Care.

  8. What? You mean to tell me that all those people with incurable illnesses that require specialized(i.e. expensive) drugs just to continue living are causing health care costs to go up even though Mr. Obama gave us his word it wouldn’t happen! I find it really difficult to believe Mr. Obama couldn’t force economic forces to obey him.

  9. I know someone at the low end of the income scale. and they are delighted with the AFC Act- they pay almost nothing, and they have been taking advantage of it.

  10. My understanding was that ACA did restrict how much insurers could charge over their actual paid out claims expense (I believe its 20% including broker commissions) however it did nothing to stop the hospitals from overcharging. Most cities now have fewer hospitals, mostly non-profit – though their exec’s make $3-5Million each/yr. Though our family is currently healthy, we are paying for those with pre-existing conditions, maternity care, and those with chronic conditions. This has increased our costs tremendously.

    For our family of 4 we’ve seen the following change in health insurance premiums:
    Yr Monthly Premium Yearly Premium % Increase
    2011 $395 $4740
    2012 $585 $7020 48%
    2013 $620 $7440 6%
    2014 $859 $10,307 39%
    2015 $1132 $13,581 32%
    2016 $1333 $15,998 18%
    This coverage each year was basically for the same HSA plan with high deductibles ($5K individ/$10K family). We pay $20K in premiums + deductibles now before the insurance company pays a cent. After deductibles are fulfilled we pay 30% of every charge and insurance pays the other 70% (our share used to be 0% after deductible before ACA). If my math is correct we’ve had an increase of 338% in our premiums in 5 years. But it looks like the rate of increase has slowed in the last 2 years.

  11. It is blatantly obvious to me that the ACA and the Medicare Part D have sabotaged and ruined my previously excellent health care!

  12. Hi Brad,

    The Fed. Gov’t either mis-calculated or they knew all along or near the roll-out that the numbers would not add up. Just demographically speaking baby boomers are FLOODING into retirement with massive strains beginning on the healthcare system. Meanwhile the millennials are healthy and not participating in the healthcare system as they should.

  13. I take no position on whether the ACA is a good thing or a bad thing. However, the current situation points up the fact that the US apparently had a lot of sick people that were not being treated. I can only assume that the insurance company’s costs are escalating because they are paying claims for treating these sick people.

    Is providing treatment to these people a good thing or a bad thing? Is it a good thing or a bad thing if we have a tax situation that rewards people who have health insurance coverage through an employer but does nothing for those who are forced to purchase health insurance on the open market, if they can even afford it?

    The concept of insurance is to create a large pool of resources to cover the costs of extraordinary individual events. I am not a liberal, but it seems to me that that is what the ACA is designed to do. Give those people in the US that don’t have access to health insurance a chance to get that coverage. All this backbiting and nathering by those who probably have a nice employer (and thereby tax payer supported) sponsored health plan is nothing more than “I’ve got mine and I don’t care whether anyone else has it or not.”

  14. Your comments on the health care problem simply shows that we should eliminate the insurance companies from the equation and go to a single payer system. Medicare for all. But I really feel sorry for the healthcare CEO’s. They’ll probably have to get along with a million dollars or so less in their seven figure bonuses. Oh, the pain.

  15. After drawing S.S. for seven years, I have received back almost all of what I put in. My wife recently had heart and lung failure and it will be interesting to see that bill and what Medicare paid. Bet it’s close to what she put in over the course of her employed years.

    You don’t need it until till you do. I’m an avowed small government person and conflicted about the role of government in our lives. You can raise the retirement age for S.S. but what to do about health care needs/insurance?

    A recent spinal injection for low back pain was billed at $3,000 and Medicare paid $200. No wonder supplemental insurance costs are so high. It’s easy to say single payer solves everything but then what would the tax burden be and how do we keep it from being another bloated government program.

  16. Judging by the comments a lot of people don’t have a clue and can’t even discuss the issue because they don’t understand the nomenclature. Health care is not health insurance for example. If you think things are bad now just think how bad it will be with single payer. One need only look at Canada ( my home country) or England to see how seasoned single payer plans fare. Once you implement a scheme like that you will never be able to get rid of it even if most people hate it. Many thousands of Canadians come to the US or go to India for elective procedures because they don’t want to wait 18 months for a hip replacement. This is caused by a deliberate delay in the approval process because every economic system needs to have some kind of demand control or inflation will run rampant. The best demand control is when people pay their own bills and individually decide what is best for themselves. When you ask any third party to pay your bills you are by the requirement of economic principles agreeing to let that third party dictate what healthcare services you will receive. The best solution for us probably would be a system similar to ACA except that it is voluntary, eliminates the employer, makes premiums paid with after tax dollars (similar to ACA’s cadillac tax), with the penalty not some tax but the guarantee that you will pay you health care bills (they can’t be discharged in bankruptcy). Hospitals would have to post all their prices and they would be required to charge everyone the same rates and not be allowed to do any pro bono work. Insurance would only be for catastrophic care. I can guarantee that if your health care system employed these and a few other pro capitalist principles that our costs would not be the highest in the world like they are now. Unfortunately most Americans are just like most Canadians, they think that they can use government to steal from some rich people enough to pay for all their bills. They didn’t realize that there isn’t enough money even if you confiscate all of their income to pay for even a portion of the tab. Be careful what you wish for you may get it.

  17. Brad, do you think there is any way that the U.S. can join the other industrialized nations in the world in having their citizens’ health costs covered as a basic right?

  18. I am on Medicare with a supplemental policy as well as a Part D Plan. Every year the premiums have risen with no end in sight. The doctors office charges ( as well as facility fees, new item,) continue to increase. Drug prices have skyrocked even for generics. Some prescriptions are not (formulary) obtainable. How does this sound for bending the curve? Well the bend is up, not down.

  19. From the beginning, predictions for the Affordable Care Act were that initially costs may be higher. However, as people under the Act received better care and preventive care, costs would come down. It is amazing to me that so many people predicted failure and continue to denigrate the Act before it has a chance to prove it’s value. The Act itself could have been better, but was forced into compromises by the very people who now are trying to repeal the Act.

  20. Single payer plans will also go the way of the DOO DOO bird! The only thing that keeps most government programs afloat is Unions. Right now my employer plan has not gone up very much, maybe 3%, but what use to be a deductible is now not covered until 8,000 in med bills before anything is pay by ins. company. So I can see why the healthy are not signing up, if you pay $5,000 in premiums plus another $8,000 in med cost (just est ) what does that give worker to buy things to keep stores open? I, myself only spend about $300 for doctors a year at 60 year old, so I lucky for now

  21. Obamacare has always been lipstick on a pig. Ironically, my wife’s healthcare costs decreased substantially under Obamacare since she has a preexisting condition which made buying exchange bought healthcare extremely expensive. The insurance industry as the gatekeeper for our healthcare has got to go. Single payer, universal care works better than our disaster of a system. But I suppose the insurance and pharma industries will spend billions to keep the public scared and confused of those commie ideas.

  22. We need healthcare. Companies were cancelling healthcare long before the ACA. Maybe we can look at a single payer plan. The people who want to do away with healthcare either already have healthcare, or don’t think they’ll ever get sick. The info I’ve seen shows many of the insurance companies doing quite well, and their executives making multi million dollar paychecks. The solution does not lie in shoving sick people under the bus. Maybe eliminating the middle man, like Ron thinks, or looking at ridiculous compensation for the top executives might be a starting point. Republicans wanted the insurance companies involved in a quest for a capitalist solution and the private sector.. Maybe healthcare and fabulous profits should’t go hand in hand. Maybe the private sector isn’t the solution to all problems.

  23. Stephen J. Hemsley of United Healthcare is one of America’s wealthiest executive. Maybe he will have to take a cut on his typical $100 million a year income. Best of all, the logical move to make is for ACA to cut out the middlemen — the insurance companies — and use the better system: single payer for everyone.

  24. I agree with Rob, it was set to fail, obummer wanted single payer in the first place!! Not to worry big bernie, can fix it with socialism.

  25. The ACA is not Obamacare. Obama wanted single-payer health care. The ACA that we have today was first proposed by Richard Nixon. The ACA was designed to protect health care insurance company profits. If it is not working to protect their profits as planned, we should switch to single-payer. It is much more cost efficient.

  26. Define not working. Insurance companies may lose money because drug costs go up 3000% over a few years (see Valant VRX), or the Government promotes poor eating by subsidizing sugar. Maybe people who might die are living because they can afford health care. Maybe folks who have company sponsored plans should get taxed on that $25k benefit they recieve so that they may better understand.

  27. Obama care will never work as it is a bail out of fatally flawed rackets of health care and health insurance. What could possibly go wrong?

  28. Brad,
    It’s hard for me to believe that the news today from United Healthcare about withdrawing from the Public health exchanges is “bombshell news” for you guys…the prognosticators of the future. We all knew the lies from Obama right from the start from “this will reduce healthcare costs” but never explaining how, to “you can keep your plan and your doctor”. We all knew this was a steppingstone to a government-run single payer system that was, by design, to put health insurers out of business.

  29. From the “git-go” the whole website didn’t work, the various plans don’t work, too high premiums for those who “don’t qualify” for the so-called affordable care. It encourages physicians (and patients) to switch their plans every year, (to make it affordable for themselves) thereby at times patients losing their physicians (who are not in the “plan”). Remember Obama stating “Yea, you can keep your physician”!! It needs an immediate overhaul. I hope whoever gets into office will address this issue immediately, to SAVE OUR HEALTHCARE SYSTEM,,,,, NOT KILL IT!!!! IT IS KILLING THE PATIENTS JUST TO AFFORD THE PREMIUMS!!!

  30. If people with insurance means they need the service that they could not afford before.
    Aren’t carriers now capped as to the amount that goes into profits as opposed to going into services.
    Have you ever been denied before due to “pre-existing” conditions, which are not allowed now.
    Screening and preventive care is covered now where before it wasn’t.
    This could be the reason of declining profits but looking at their sheets they seem to still make billions.

  31. I find it just a little ironic that Stephen Helmsley is saying that United Health’s earnings picture is being affected negatively by the company’s participation in the Obamacare “exchanges”. Especially since HE was one of the biggest supporters of enacting this unconstitutional pile of garbage. Schadenfreude for Stephen Helmsley!

  32. Obamacare was designed to fail! They want everybody on the ‘Single-Payer’ Commie Care plan. Move home.

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