The Affordable Care Act’s Competition Crisis

When President Obama described the Affordable Care Act’s health-insurance exchanges in late 2013, he declared they would create “more choice, more competition, [and] real health-care security” for millions of Americans. This hasn’t panned out. Nearly three years later, choice and competition have declined, a problem that is already set to worsen in 2017.

UnitedHealth Group is the latest proof. On April 19, the company announced that it will abandon the exchanges in all but a “handful” of the 34 states in which it currently operates. This could leave up to 6 percent of the Affordable Care Act’s subscribers scrambling for new plans before year’s end.

It’s easy to see why UnitedHealth Group made this choice. The Affordable Care Act has been little more than a money pit for the company. It lost $475 million on the exchanges last year, a number which is expected to grow to nearly $1 billion when this year’s projected losses are included. The spreading red ink led Mr. Hemsley to state late last year that participating in the law was “a bad decision.”

But the company’s struggles to offer a financially viable product via the Affordable Care Act are no outlier. McKinsey and Company announced in February that health insurance companies lost money in 41 states in 2014. This trend continued in 2015, when many insurers lost hundreds of millions. Aetna, which operates in over a dozen states, lost betweenthree and four percent on the exchanges last year. Blue Cross and Blue Shield of North Carolina lost more than $400 million—and another of its operators in multiple states has lost more than $2 billion. Even companies that are turning a profit, such as Anthem, aren’t making enough to ensure long-term participation in the law.

The federal government is well aware of insurers’ financial troubles. The Center for Medicare and Medicaid Services, which oversees the Affordable Care Act, quietly announced on a late Friday afternoon in February that it funneled some $4 billion to insurance companies—money that was supposed to flow into the federal treasury. But this bailout—a violation of the law’s plain text—still hasn’t been enough to make up for insurers’ staggering losses.

UnitedHealth Group is only the latest company to withdraw from the market, and as others follow suit, the result will be fewer choices and higher prices for 10-million-plus Americans who purchase from the exchange.

This problem is already a serious one. Prior to the Affordable Care Act’s implementation on January 1, 2014, some 395 insurers sold health-insurance plans through the individual market. By 2016 that number had dropped to 253, according to the Heritage Foundation. Between 2015 and 2016, 22 states and D.C. saw coverage options decline, with only 10 states seeing an increase in competition.

Some of this came from insurers withdrawing from unprofitable states—Aetna, for instance,pulled out of D.C., Utah, and Kansas late last year, while Blue Cross Blue Shield abandoned New Mexico. Another major factor was the financial failure of 13 out of 24 co-ops, non-profit health insurers created under the Affordable Care Act and seeded with over $1 billion in taxpayer money. The 12 co-ops that folded last year alone left 764,500 Americans with one less plan to choose from on their state exchanges.

The dearth of plans already affects a large portion of the exchanges. The Kaiser Family Foundation estimates that, as of 2016, consumers in 36 percent of U.S. counties have plans offered by only one or two insurers.  This number would rise to 52 percent if UnitedHealth Group exited completely.

Nearly three million Americans would be affected. Nearly one-and-a-half million would have only one possible insurer. Even more would be affected if and when other insurers begin to withdraw from the Affordable Care Act, which looks increasingly likely.

The overwhelming majority of the 11 remaining co-ops are still losing money, and all but a handful could fold in the coming months. Major insurers are also weighing whether to continue. Blue Cross Blue Shield announced in March that its individual-market customers had medical costs that were an average 22 percent higher than customers with employer-sponsored plans, which is weighing on the company’s ability to stay in the black. Humana, another major insurer that covers nearly one million in the individual market, is currently “evaluat[ing] its participation” in the exchanges for next year.

Americans won’t be able to sign up for 2017 health insurance for another six months, but it’s already evident what awaits them. The Affordable Care Act was supposed to deliver greater choice and competition, but as with so many of the other promises used to pass it, the result has been the opposite.

Nathan Nascimento is senior policy advisor and director of state initiatives at Freedom Partners Chamber of Commerce.