JAMA Forum: Why Are Private Health Insurers Losing Money on Obamacare?

Uwe Reinhardt | News @ JAMA | August 25, 2016

The report last week that Aetna, one of the major US health insurance companies, would leave most of the health insurance exchanges established under the Affordable Care Act (ACA) of 2010 follows similar accounts the media that Anthem,  Aetna, and other large private health insurers are contemplating withdrawing from the so-called ACA marketplace. The companies say the reason behind these actions is they are losing hundreds of millions of dollars on the business coming to them from these exchanges. To make up for the losses, some insurers, though by no means all, have quoted premium increases in excess of 25% for 2017.

This development seems puzzling, as it comes in an era of historically low growth in total national health spending. The latest estimates published by the Centers for Medicare & Medicaid Services (CMS), which provides estimates of current and projected national health spending, indicate that spending growth at only 4.8% in 2016 and project health care spending growth to be only 5.8% per year for the decade 2015-2025.

Furthermore, as a report published by the Urban Institute notes, even in 2010, the year the ACA became law, its impact on total national health spending was estimated to be an increase in annual spending of only 2.5% above what would have been spent anyway. In addition, the report also notes that the CMS now projects that total US national health spending during 2014-2019 will be $2.5 trillion lower than projections made in 2010. Why, then, in the face of these historically low growth rates, have premiums on the ACA health-insurance exchanges for 2017 increased at such high rates?...