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I'd like to welcome Robert field to knowledge at Wharton Robert is a professor of health care management at
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Drexel University also a law professor and he is also a lecturer of health care management here at Wharton and we're
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here to talk today about news that's been out recently about Obamacare which
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could cause some to have questions about its viability and that's because some
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very high-profile insurers have announced that they're withdrawing from the program or at least largely
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withdrawing I guess the poster child for that would be Aetna and they're withdrawing they say because of
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sustaining substantial losses and so you we've seen some headlines that suggests
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that Obamacare's on the ropes is on this kids it's in a death spiral and I'm
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guessing that things aren't quite that extreme so we asked Robert to come in
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and give us his views on what might really be going on right well it seems as though whenever Obamacare gets a cold
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the experts say it's pneumonia and it's on its deathbed and and all is lost I
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don't think we're anywhere near that situation right now do we know five or
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10 years from now where things will go of course not but for right now it's still functioning and a few things we
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need to remember number one of the 20 million or so people who are now insured who were not before Obamacare most of
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those have gained insurance through Medicaid and the recent announcements of the insurers have nothing to do with
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Medicaid and even if the exchanges went away Obamacare would mean new insurance for millions and millions of people in
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terms of the exchanges volatility in a brand new insurance market like this is to be expected Obamacare is not unique
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this is hardly the first time that we've tried something like this Romney did it
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in Massachusetts in 2006 Bush did it in Medicare in 2003 when he beefed up Medicare Advantage which is a choice of
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private plans on a structured market and he did the same thing with Medicare prescription drugs where you go to a
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website and choose a and their government subsidies and it determines what kind of coverage you can
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get so we know this kind of mechanism can work we also know that it takes a few years for the market to even itself
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out so this this is not the death throes of Obamacare could we could I ask you to
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give us a brief explanation of what an exchange is how it works in this case so then when we get into details it will be
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more clear sure so if you are an individual who does not get covered through your employer or not old enough
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for Medicare you're not poor enough for Medicaid you go to a website and every
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year between november and january you can select an individual policy in a manner that's similar to Travelocity or
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Expedia you see a choice of options and they have different deductibles and copays and premiums and networks and you
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decide which one works for you and different companies presumably and in most areas different companies in many
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areas now it's only going to be one company however each company has a number of different plans okay so you
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may not have your choice of companies but you will still have a choice of different plants okay and I understand
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that in some counties because I think this is done on a county-by-county basis that there's I we're down to one insurer
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but you're suggesting that even there you've got a choice of class right so
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the significance of there being one insurer is you have less market competition and it's gonna be harder to
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hold down prices so those people may well pay more but they will still have a choice of different kinds of plans
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different deductibles copays networks of providers and so forth I mentioned Aetna
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which is I guess the the highest-profile company that's a talking about pulling
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out of most of the exchanges that was above them but not all of them right and it was citing some pretty big losses
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almost a half a billion dollars I believe other companies have cited some pretty big numbers as losses and so this
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is I guess the grist for saying that things aren't working so well and and they may be they may be heading into a
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downward spiral could you but that but then there's this other wrinkle with that now where it was good
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oh she a ting I should say it was attempting to merge with humana i believe it was right and the Justice
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Department was putting the kibosh on that right and so they somehow i don't know threats the right word but they
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they suggested that if that was not approve then maybe they weren't going to
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be so interested in participating continuing to participate in certain exchanges so could you explain that is
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that like a kind of form of blackmailers or some might say well you I guess you could call it that you could call it a
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negotiating strategy if you wanted to be kinder Etna and Humana have wanted to merge the bigger insurer would have more
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market power the Justice Department has been concerned about that market power and threatened to challenge the merger
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in court and back in July aetna told the Justice Department that if they went through with that aetna would withdraw
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from most of the exchanges so they would say you're worried about lack of competition we're going to show you lack
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of competition we're just going to pull out so it calls into question whether
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these losses were really so unsustainable or whether this is a litigation strategy right so but in
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fairness were they saying that that they were losing money and this merger would
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allow them to not lose money and therefore if it wasn't approved they would have to pull out because they were
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losing money or how did they actually phrase it yeah they didn't say that they
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would stop losing money they said that they would pull out of the exchanges or are they implied that they would so it
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was it was more a tit-for-tat and and the merger deal was not approved and they did in fact pull out well it's it's
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for the court to decide at this for still not okay but they pull that they do not pull out of every market they
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stayed in a few and United that pulled out of many markets before that stayed in a few which means it preserves their
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right to come back in at a later date so it suggests they haven't given up on the
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whole law of course they aren't the only big insurers in the market there are
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others who are seen to be doing very well thank you is that right Kaiser base in California hydrobromic hazard
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Permanente has tended to do quite well now their plans are mostly available in California in the
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but they actually double down on their efforts and they're going to be expanding their market presence many of
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the Blue Cross plants around the country have been doing okay almost all of them
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participate and then there are some other smaller jurors that have been doing all right so it's not Universal
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deathbed throughout the country it tends to be focused on certain companies in certain areas another point you make in
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in your blog and I know you've written about these things is that in general
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these insurance companies are doing very well with government programs their profit margins are very good on Medicare
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and Medicaid could you just talk about the the bigger picture of insurance and government programs sure so our private
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insurance industry depends to a large extent on government programs under Medicare about thirty percent of the
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beneficiaries get their coverage through a private insurer and under Medicaid in
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every single state coverage is administered by private companies and that's a huge profitable line of
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business for them so if you take that and subtract out the Obamacare losses they're still doing very well through
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the government if we were to link the Medicaid expansion with the Obamacare exchanges the insurer's would still be
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coming out ahead on the ACA another point that you make is that some of this I think you alluded to this at the
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outset some of this is actually kind of hiccups for a program that's still fairly new and and finding its feet and
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that some of the problems that we're seeing will likely work themselves out A
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or B could be fixed without a lot of difficulty if if certain changes were made whether they can be made
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politically or not is a separate question but could you talk about those two things yeah so some of the changes
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we could make and this could be done at a state level is to sell the insurance companies you can play in the Medicaid
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expansion if you also play in the exchanges so it might mean you're going to make a little less money in total but
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the Medicaid business is worth it and that way we can make sure that they stayed in the exchanges and
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another idea which depends a lot on the outcome of the presidential election is to have what's called the public option
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to have a government program that would compete in the exchanges with the private companies so we know that each
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area would have at least two plans the surviving private plan and the government plan and we could see which
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works best but guarantee that there will always be a fundamental choice and some
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price competition and competition is it fair to say that medicare has a public option which is for a while it was the
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only option but now there's as you say you can go through private insurance so
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that's kind of a mixed system that wasn't it yeah very much so so if you
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think of traditional Medicare as you said it really is a public option and it is close to what's envisioned for the
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public option under the ACA the private side has been quite profitable quite popular almost a third of beneficiaries
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use it it's really a model for what the ACA would look like if there were a public option and then individuals could
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choose which way they want it to go and just a backtrack a little bit I believe that you have written that a lot of the
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losses that we're seeing were anticipated because there's an experience with other programs such as
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Romneycare that some of them will ameliorate they will they will go away as the system matures A or B as I say
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they could be they could get a fixed they could get a patch so I think that's
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an important point is that this this wasn't wholly unexpected what we're
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seeing right right there were a few mechanisms in place to mitigate the potential losses from this new market
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world one of them was risk Carter's so companies that did better than expected
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would put some money back into the kitties some of them that did worse would get money out of the kitty and the
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funding for that was blocked in Congress so that mechanism hasn't work in fact
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there's a lawsuit pending right now by insurance companies to try to get back
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some of that money if the idea was that it's hard for them to set premiums now
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having experience we didn't have a market like this prior to 2014 and it takes a few years in insurance to figure
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out what's what another aspect of this is that the losses for the insurer's
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they say are because the risk pool is sicker more people are getting care than they anticipated one of the reasons for
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that is because Obamacare has been successful in other ways they had anticipated when they passed a lot a lot
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of insurers would drop coverage and they would throw a lot of their employees into the risk pool well fewer employers
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than expected of drop coverage in fact employers have been adding coverage rather than subtracting it since
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Obamacare went into effect so all of these healthy working people are not in the exchanges and then we have the young
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people who are staying on their parents policies who are not in the exchanges so
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it's sort of like a balloon you push down one side and it pops up somewhere else we succeed on the employer side in
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the young adult side but it pops up in terms of a sick or risk pool in terms of the overall working of the law therefore
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it doesn't mean it's a failure it means that we need to get the balloon into
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shape rather than popping it and on the young adult side this is I guess the provision that allows children to stay
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on their parents policies until they're 26 whereas it used to be for those children with a college that they were
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covered until college and then went off roughly age 22 so as though as that group moves through and becomes 26 I
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guess that will start to add more healthy people into the pool for those that aren't on an employer right right
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so presumably if those people do go into the risk pool if they don't even employ
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the provides coverage yes it would increase the healthy contingent in that risk pool one other aspect of this
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though is that the law and the administration of it have been very lenient about enforcing the mandate that
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everyone buy coverage and a lot of people have slipped through the cracks I have preferred to pay the penalty or
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have not paid the penalty and haven't been caught so another way to address this is to be more vigilant about making
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sure that everyone buys in does that require new laws and regulations or is it simply enforcing
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what's on the books most of it could be done by enforcing ones on the books and
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I think Obama has been trying to tread a line if he's too vigilant there's going
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to be pushed back in more political resistance to the law but if he doesn't enforce it then we have the problem that
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we've got we're healthy people stay out of the risk pool so at this point I
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think if the law is going to thrive the balances do you push the other way in terms of being tougher on people who
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choose to remain uninsured anything else we should know about this while we have
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you in front of us it seems as though as I was saying the bad news about Obamacare gets plastered on the
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headlines we forget that we now have somewhere between 10 and 20 million people who now have insurance who didn't
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before now often those are not great policies but it has been a lifesaver for some we have shown that it can be done
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and going forward we have opportunities to fix it and to this day we really don't have a replacement plan a viable
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replacement plan out there and until we do it's either scrapped the guarantee of
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coverage or go ahead as we have been we don't yet have a third option so we will
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see the politics of the new Congress and the new president whether the mindset is
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to try to fix things or just push over the sand castle and go back to where we were thanks for coming in particular
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very much you