A superficial reading of the latest headlines about the health insurance industry suggests it is facing serious problems.
Rates on the Obamacare exchanges are set to rise at double-digit rates next year. California, a bellwether state, announced an average premium increase of 13.4% for 2017. UnitedHealth Group, the nation's largest insurer, has pulled out of most markets.
Most of the co-operatives set up to foster competition in the individual market are headed for bankruptcy and closure. A number of provider organizations that dipped their toes in the insurance market—Catholic Health Initiatives, most prominently—are now headed for the exits.
The two huge mergers that would take the Big Five carriers down to a Big Three have been under intense scrutiny and last week were met with lawsuits from the U.S. Justice Department seeking to block the deals. The antitrust authorities are not buying the argument made by Anthem, Cigna, Aetna and Humana that mergers are necessary to bring greater efficiency to their operations—a must if they are going to keep costs in check for their customers.
This steady drumbeat of bad news is showing up everywhere but in the finances of the major carriers. UnitedHealth, the first to report second-quarter results last week, showed a profit increase of 11% over a year ago despite $200 million in exchange-plan losses.
A quick review of the first-quarter earnings statements of the nation's three largest private carriers—UnitedHealth, Anthem and Aetna—showed earnings edging up at each amid medical-loss ratios that, while up slightly, remained generally steady.
In other words, if one looks not only at Obamacare exchanges but at the broad insurance market, insurance carriers are doing just fine. Their rates are holding remarkably steady in the face of healthcare costs that are growing at a rate at or only slightly ahead of the rest of the economy.
Now it's true that many individuals and families in high-deductible plans are paying more out of pocket. But that's because they are picking up more of the overall burden for supporting the healthcare system. That has nothing to do with the insurance industry or healthcare providers. It is a reflection of workers' declining bargaining power in the labor market.
A few months ago, Marilyn Tavenner, CEO of America's Health Insurance Plans, spoke out about the underlying reasons for next year's projected increases in the individual insurance market. Yes, there was a surge of claims from first-time users of their new plans. But just as significant was lagging enrollment. We still have 30 million people uninsured in this country. Without enough younger, healthier people in the individual pool, the rates for the sicker people who signed up will inevitably rise.
She also noted the drug industry is having no problem imposing double-digit price increases on their existing drugs while slapping exorbitant prices on new specialty and cancer drugs. Everybody with drug coverage ultimately picks up that tab.
So how do we move beyond all the bad news? The problems of the individual market and skyrocketing drug prices can be addressed only by getting everyone insured and curbing the unparalleled pricing power of the drug industry. That requires a change of policies in Washington.
As for the high-profile exits by wannabe insurers, rest assured that health insurance remains a viable business for providers. The success of integrated delivery networks such as Kaiser Permanente, Geisinger Health System and Sentara Healthcare proves being in that business can have a very positive impact on a system's ability to deliver affordable, high-quality care.
But starting from scratch is hard and requires a slow, long-term approach. You need talented managers with actuarial skills; enough capital to weather unexpected claims; the ability to organize consumer-friendly networks; and regional markets that are friendly to new entrants because they lack competition—the issue at the heart of the Justice Department's challenges to the industry's mega-mergers.
