Knoxville, TN Could Be Ground Zero For The Obamacare Explosion

For the 40,000 people living in and around Knoxville, TN, Humana was the only insurance company providing healthcare coverage for the 2017 plan year.  That said, even with their monopoly in the market, Humana still couldn"t figure out a way to make money on the Obamacare exchanges in the 16 Tennessee counties where it was the sole insurer.  As such, the company has decided to cancel its coverage in 2018 potentially leaving Knoxville"s 40,000 residents with no healthcare options at all.

Per the map below from the Milwaukee Journal Sentinel, while most of Tennessee is covered by Blue Cross and Cigna, the 16 counties surrounding Knoxville in the eastern portion of the state will have to find a new insurer to fill in for Humana by July 1st or residents there simply won"t have access to healthcare for the 2018 plan year. 

And while Blue Cross and Cigna could theoretically expand their coverage map in Tennessee to pick up Humana"s former markets, Insuance Commissioner Julie McPeak said she"s "not optimistic" that would happen absent "some changes to the regulatory system, either by Congress or the administration."  Which, of course, sets up Knoxville as "ground zero" for the "Obamacare explosion" predicted by Trump.  

Tennessee Insurance Commissioner Julie McPeak said she has had many "challenging conversations" with the state"s two remaining insurers -- BlueCross BlueShield of Tennessee and Cigna -- about covering the Knoxville market next year. The carriers, however, want more flexibility to limit their exposure to sick, costly enrollees, she said. For instance, they are concerned that Obamacare eliminated their ability to cap their lifetime payouts to their policyholders.

"I"m not optimistic that one of our existing insurers would like to expand their coverage area without some changes to the regulatory system, either by Congress or the administration," said McPeak, who has criticized Obamacare.

Insurers have until July 1 to file their 2018 plans in Tennessee, but they"ll likely make their decision in the next month or two. Cigna said its participation depends on market conditions and regulatory approval of its policies. BlueCross BlueShield said it is still reviewing its options.

"The current uncertainty makes it difficult to assess what our product offerings for 2018 might be," said Roy Vaughn, a senior vice president at the insurer, which has lost more than $400 million on the exchange over the past three years. "All options are on the table for 2018."

Meanwhile, as we pointed out last summer, Humana was apparently still unable to make money in TN despite a 59% increase in premiums for the 2017 plan year... so one can only imagine how much higher rates will have to go in 2018 (data source:  Charles Gaba).

 

In the end, as we"ve noted before, the Obamacare exchanges around the country are stuck in a negative feedback loop where healthy people are refusing to sign up, which leads to losses for insurers, which leads to higher rates, which, of course, leads to even fewer healthy people signing up. 

In conclusion, it appears that Trump was right yet again:

ObamaCare will explode and we will all get together and piece together a great healthcare plan for THE PEOPLE. Do not worry!

— Donald J. Trump (@realDonaldTrump) March 25, 2017

The Democrats will make a deal with me on healthcare as soon as ObamaCare folds - not long. Do not worry, we are in very good shape!

— Donald J. Trump (@realDonaldTrump) March 28, 2017

Obamacare 'Explosion' Could Come On May 22nd, Here's Why

After a stunning healthcare defeat last week, delivered at the hands of his own party no less, Trump took to twitter to predict the imminent "explosion" of Obamacare.

ObamaCare will explode and we will all get together and piece together a great healthcare plan for THE PEOPLE. Do not worry!

— Donald J. Trump (@realDonaldTrump) March 25, 2017

The Democrats will make a deal with me on healthcare as soon as ObamaCare folds - not long. Do not worry, we are in very good shape!

— Donald J. Trump (@realDonaldTrump) March 28, 2017

As it turns out, that "explosion" could come faster than anyone really expects as legislators and health insurers have to make several critical decisions about the 2018 plan year over the next 2 months which could seal Obamacare"s fate.

As the Atlanta Journal Constitution points out today, the Trump administration has until May 22nd to decide whether they will continue to pursue the Obama administration"s appeal to provide subsidies to insurers who participate in the federal exchanges. 

Of course, any decision to remove those subsidies would likely result in yet another massive round of premium hikes and further withdrawals from the already crippled exchanges where an astounding number of counties across the country have already been cut to just 1 health insurance provider.  And, as we"ve pointed out before, higher rates = lower participation = deterioration of risk pool = higher rates....and the cycle just repeats until it eventually collapses.

As background, in 2014, House Republicans sued the Obama administration over the constitutionality of the cost-sharing reduction payments (a.k.a. "taxpayer funded healthcare subsidies"), which had not been appropriated by Congress.  Republicans won the initial lawsuit but the Obama administration subsequently appealed and now Trump"s administration can decide whether to pursue the appeal or not.

One key to insurers selling plans in the marketplace are reimbursements they receive called cost-sharing reductions. These aren"t the same as the tax credits that people receive to help pay their premiums; it is financial assistance to help low-income people pay their out-of-pocket costs, such as deductibles. The Congressional Budget Office projected those payments would add up to $7 billion this year and $10 billion in 2018.

But for insurers, there"s a question over how long that money will be delivered, due to an ongoing political and legal dispute about whether the cost-sharing money should be distributed at all.

In 2014, House Republicans sued the Obama administration over the constitutionality of the cost-sharing reduction payments, which had not been appropriated by Congress. The lawmakers won the lawsuit, and the Obama administration appealed it. Late last year, with a new administration on the other end of the suit, the House sought to pause the proceedings — with a deadline for a status update in late May.

The Trump administration and House lawmakers have to report to the judge this spring. If the Trump administration drops the appeal, it would mean the subsidies would stop being paid — a huge blow to the marketplaces and millions of people. If lawmakers wanted the payments to continue, they would have to find a way to fund them. One opportunity for that is coming up fast, the continuing resolution that must be passed by April 28. If the Trump administration continues the lawsuit, it will be in the odd position of fighting its own party.

The CBO estimates the payments would total roughly $10 billion in 2018.

As we"ve noted before, several large insurers, including UnitedHealth Group and Aetna, have already made the decision to exit Obamacare due to financial losses.  Now, Molina Healthcare is also pondering whether it would be able to continue to participate in the absence of federal subsidies.

Big insurers like UnitedHealth Group and Aetna have mostly left the individual market over the years, citing financial reasons. Several counties across the country only have one insurer offering ObamaCare plans.

Now Molina Healthcare is signaling it may downsize its presence in the market, or pull out altogether, if Congress or the administration doesn’t act to stabilize it. Molina has 1 million exchange enrollees in nine states this year.

“We need some clarity on what’s going to happen with cost-sharing reductions and understand how they’re going to apply the mandate,” said Molina CEO Dr. Mario Molina.

Asked if Molina would leave ObamaCare if the payments are stopped, the CEO said: “It would certainly play into our decision. We’ll look at this on a market-by-market basis. We could leave some. We could leave all.”

Mario Molina, chief executive of Molina Healthcare, predicted that if the cost-sharing reductions are not funded, it could result in premium increases on the order of 10 to 12 percent.

While all this uncertainty swirls, health insurers must decide — soon — whether to make rate filings to sell insurance in 2018. The deadline varies by state, but for those that have marketplaces run by the federal government, it is June 21. Filing doesn"t mean that insurers will participate; they"ll have months more to negotiate and could still drop out. But it"s the first step toward offering plans in 2018 and should provide a signal about what the marketplaces are likely to look like.

Meanwhile, it seems pretty likely that Obamacare couldn"t survive another collapse in coverage like we saw in 2017 (charts per the New York Times):

2016 healthcare insurance carriers by county:

2017 healthcare insurance carriers by county:

The first step is admitting you have a problem.

Federal Judge Blocks "Anticompetitive" Anthem Aquisition Of Cigna

Moments ago a federal judge blocked health insurer Anthem from acquiring rival Cigna, the second court ruling in recent weeks to deal a decisive blow to health insurers seeking consolidation as a cure to the substantially higher operating costs plaguing the industry as a result of Obamacare.  The ruling echoed a decision by a different judge last month who blocked Aetna’s plans to take over Humana.  Though the two proposed insurer combinations were different in many ways, both judges found that merging top industry rivals threatened higher prices without the necessary patient benefits to offset those higher costs.  Per the Wall Street Journal:

The decision, by U.S. District Judge Amy Berman Jackson, said the proposed $48 billion deal violated federal antitrust law because it would create an unacceptable reduction in the number of companies that can serve large national employers that insure their workers.

Of course, as the Journal notes, while the decision could be challenged by Aetna, rising tensions between the two companies make an appeal unlikely. 

While Aetna is considering a possible appeal in its case, Wednesday’s ruling almost certainly kills the Anthem-Cigna transaction, as discord between the companies has grown considerably since they announced their deal in July 2015.

At the deal’s inception, the insurers said their marriage would create a diversified, innovative and more efficient health insurer. But the two sides’ relationship soured over time as they clashed over leadership styles and visions for the future.

The companies squabbled during the Justice Department’s review of the transaction and eventually accused each other of violating the merger agreement.

As we noted last summer, several massive health insurers were forced to pull out of Obamacare exchanges all around the country after losing $100"s of millions of dollars serving unprofitable markets in 2016.  Aetna even warned that failure to close proposed mega-mergers in the industry would only result in further withdrawals and less customer options. 

In a July 5 letter to the Justice Department, reviewed by The Wall Street Journal, Aetna said that if the Humana deal drew a legal challenge, “instead of expanding to 20 states next year, we would reduce our presence to no more than 10 states.” In addition, the letter, signed by Aetna Chief Executive Mark T. Bertolini, said the insurer believed “it is very likely that we would need to leave the public exchange business entirely and plan for additional business efficiencies should our deal ultimately be blocked.”

Sure enough, one month later, Aetna executed on its warning with a dramatic reduction of its Obamacare offerings. It may only escalate from there.

The company said in the letter that an antitrust suit or a successful prevention of its deal would create financial strains that would force it to pull back from the exchanges, where it was losing money. “Although we remain supportive of the Administration’s efforts to expand coverage, we must also face market realities. Our customers expect us to keep their insurance products affordable and continually improving, and our shareholders expect that we will generate a market return on invested capital for them,” the letter said.

While it is undisputed that contrary to expectations, Obamacare has ended up being a far greater drain on profits than insurance providers had expected - on August 2, Aetna disclosed that its ACA plans had lost approximately $200 million in the second quarter of 2016 and were expected to lose more than $300 million this year - this type of "bargaining" with the government is disturbing, as it suggests a quid-pro-quo arrangement with the government is not only possible but expected when making corporate decisions.

The two maps below prove the point above beautifully by illustrating the epic collapse of Obamacare coverage in just 1 year.  A collapse that has left a stunning number of people across the country with only 1 option for health insurance.  Meanwhile, healthcare shoppers in Pinal County, Arizona will actually be left with no options in 2017 as all carriers have abandoned service there. (charts per the New York Times)

2016 healthcare insurance carriers by county:

2017 healthcare insurance carriers by county:

Of course, if Republicans have their way then the entire original premise of this merger may be rendered moot in a few months anyway.