Blue Cross and Blue Shield of North Carolina is reporting heavy losses on its Affordable Care Act business, and that has revived the “train wreck” chorus from the tireless opponents of “Obamacare.” But the early losses don’t mean that the law itself is off the track. Rather it seems more a case of insurers adjusting to a new market.
Blue Cross told insurance agents last week that it lost in excess of $400 million on ACA policies during the program’s first two years. That’s a heavy loss, but it hardly signals that the ACA will not work. It has worked. The ACA has succeeded in greatly reducing the number of uninsured people, it’s working well in other states – some of which have cut rates – and it has met a major need here. North Carolina has achieved the third-highest ACA enrollment in the country.
That Blue Cross set its premium prices too low is what happens in new markets. Providers experiment and adjust. The law anticipated this early volatility and compensates companies that experience high losses.
State Insurance Commissioner Wayne Goodwin, usually a reliable consumer advocate, unfortunately joined the alarmists with a panicky letter to Sylvia Burwell, secretary of the U.S. Department of Health and Human Services. Goodwin told Burwell that if the losses continue, “insurers may withdraw from the individual market in North Carolina altogether.”
That seems an inflated worry from a commissioner whose department has approved some of the biggest rate hikes in the nation. North Carolina insurers selling ACA policies raised rates by an average of 27 percent this year – with Blue Cross getting an average rate hike of 32 percent. That should stop the bleeding and may even overcompensate.
The real problem in North Carolina isn’t the health care law, but the state’s resistance to it. The Republican-led General Assembly’s refusal to set up a state exchange or expand Medicaid – unlike 31 other states – has contributed to high medical costs. A state-run exchange would have drawn more insurers into the market to share risks and attract more customers. Medicaid expansion would put some people now covered by private insurance under government coverage.
Meanwhile, Blue Cross is focusing on cutting costs concentrated in one area of the ACA: policies sold outside of the regular enrollment period. Insurers say some uninsured people are using the enrollment period exceptions to pass their major medical expenses on to an insurer. They buy health insurance just before a major operation, for instance, and run up big bills immediately. Such customers throw off the risk projections and lead to premiums being set too low.
Blue Cross plans to give special enrollments more scrutiny, and the federal government is phasing out some enrollment exemptions. Those two steps could limit the number of people gaming the system. Also, Blue Cross reduced the cost of ACA policies by ending commission payments to agents and brokers who sell the policies. The two other insurers who sell policies under the ACA in North Carolina, United Health and Aetna, have also ended ACA commissions. This will save insurers in the short run, but removing the incentive to sell ACA policies may ultimately reduce the number of younger, healthier people enrolled, making the pool of those insured older, sicker and more expensive to cover.
Some of the higher early losses by Blue Cross resulted from weaknesses in the ACA that can be fixed administratively, and some may stem from Blue Cross’ failure to properly assess the market and individual applicants.
Gary Claxton, a Kaiser Family Foundation vice president who studies the health care market, said Blue Cross’ losses reflect the nature of a new market and missteps by the government and insurers, but the ACA itself can do what it was designed to do.
“If they can get it administered better, there is no reason why it shouldn’t work,” he said. “It works better in states that have expanded Medicaid, but there’s no reason why it can’t work in any state.”
There’s no train wreck. The ACA is working and rolling into its third year.