Unsustainable losses from Arizona’s Obamacare exchange have forced the nation’s largest insurance provider, United Healthcare, to cease operations in the state's exchange. In addition, BlueCross BlueShield, the second largest insurance provider has stated that it will “evaluate all options,” which may result in some Arizona counties with no insurance company provider coverage.
Even with billions in corporate welfare payment to insurers and subsidies to enrollees, insurers remain unable to break even. Even as insurers begin to flee, federal bureaucrats continue to invent new ways to recklessly spend taxpayer dollars keeping this law afloat.
Given these two companies are the only providers in some counties, their exits will almost certainly have a chilling effect on Arizona Obamacare enrollees, especially those in rural counties who already had few options. If larger companies with the economics of scale to absorb major losses cannot survive on Obamacare exchanges, smaller insurance companies have little chance of survival.
Obamacare finances its programs through a web of wasteful and cronyist spending programs, but these are still not enough for the system to work, as proven with Arizona. In fact, many of these programs -- both on the enrollee side and the insurer side -- do not work, or have been abused by the government to make billions in illegal payments.
On the enrollee side, individuals have access to the advanced premium tax credit (APTC) and cost-sharing reduction (CSR) payments. The tax credit reduces the cost of health insurance premiums for enrollees, but the federal government has repeatedly failed to verify whether it is properly making payments.
Worse, CSR payments – which reduce out-of-pocket health insurance costs – have been paid out for several years despite Congress never appropriating any money for these payments. This practice was recently declared illegal by a federal court. According to an estimate from the Congressional Budget Office, illegal CSR payments would have totaled more than $150 billion over 10 years if not stopped.
On the insurer side, Obamacare plans are subsidized through three programs: Obamacare reinsurance, risk corridors, and risk adjustment. Like the APTC and CSR payments, these three programs have been abused by government bureaucrats.
In theory, the risk corridor program encourages insurers to take on high risk individuals by transferring funds from insurers who made money on an Obamacare exchange to those that experienced losses. In practice, the budget neutral program was only able to bring in 12.6 percent of what insurers requested for 2014, totaling $360 million. Again, the federal government attempted to unlawfully pay the full 100 percent, only to be blocked by Congress.
Another program, Obamacare reinsurance, takes funds from employer-provided health plans and funnels it to Obamacare exchanges. This program also failed to take in as much as the federal government promised, and yet again the administration has ignored the law in an attempt to bail out insurers. Using $6 billion raised from a hidden health insurance fee and through diverting $1.7 billion from the Treasury Department, the Obama administration has illegally funneled $3.5 billion into the reinsurance program in order to bail out insurers.
Unfortunately, this is not a pattern unique to insurers in Arizona. UnitedHealth has warned that it will have no chance but to leave most Obamacare exchanges and other insurers may soon follow. The exodus of insurers from Arizona’s Obamacare exchange -- and nationwide -- proves that this law is not working, even with billions in wasteful and unlawful payments and subsidies.