Obamacare has gone from the president's greatest achievement to a 'slow motion death spiral'

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Aetna to drop Obamacare

It has not been a good week for the Affordable Care Act (ACA), better known as Obamacare.

A slew of news, from insurers dropping out to possible fraud among healthcare providers, has all accumulated in a deluge of negative headlines for one of President Obama's signature law.

In fact, it's gotten so bad that it appears that the whole program itself may be in doubt.

While there are issues, and this past week highlighted many of them, it does appear that there is a long road ahead before we have a definitive understanding of Obamacare's survival and a good chance that it makes it.

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WASHINGTON, DC - MARCH 04: Ryan Burrows, right, protests with others that are not in support of the portions of the Affordable Care Act on which the Supreme Court of the United States was hearing arguments on Wednesday March 04, 2015 in Washington, DC. (Photo by Matt McClain/ The Washington Post via Getty Images)
Protestors hold placards challenging 'Obamacare' outside of the US Supreme Court on March 4, 2015 in Washington, DC. The US Supreme Court heard a second challenge to US President Barack Obama's Affordable Care Act. The US Supreme Court faces a momentous case Wednesday on the sweeping health insurance reform law that President Barack Obama wants to leave as part of his legacy. The question before the court is whether the seven million people or more who subscribed via the government's website can obtain tax subsidies that make the coverage affordable. A ruling is expected in June. AFP PHOTO/MANDEL NGAN (Photo credit should read MANDEL NGAN/AFP/Getty Images)
Protestors hold placards challenging 'Obamacare' outside of the US Supreme Court on March 4, 2015 in Washington, DC. The US Supreme Court faces a momentous case Wednesday on the sweeping health insurance reform law that President Barack Obama wants to leave as part of his legacy. The question before the court is whether the seven million people or more who subscribed via the government's website can obtain tax subsidies that make the coverage affordable. A ruling is expected in June. AFP PHOTO/MANDEL NGAN (Photo credit should read MANDEL NGAN/AFP/Getty Images)
Demonstrators from Doctors for America in support of U.S. President Barack Obama's health-care law, Obamacare, hold signs while marching in front of the U.S. Supreme Court in Washington, D.C., U.S., on Wednesday, March 4, 2015. A U.S. Supreme Court argument over Obamacare's tax subsidies divided the justices along ideological lines, potentially leaving two pivotal justices to decide the law's fate. Photographer: Andrew Harrer/Bloomberg via Getty Images
Anna Salerno holds a sign and waits with other protestors for President Barack Obama to arrive at the Temple Emanu-El in Dallas, Wednesday, Nov. 6, 2013. President Obama is visiting the charity to thank local volunteers that are working to sign people up for the health insurance under the Affordable Care Act. (AP Photo/LM Otero)
Anti-abortion demonstrators hold signs during a Priests for Life protest outside the US Court of Appeals for the DC Circuit Court as the Court hears the oral arguments in the 'Priests for Life v. US Department of Health and Human Services (HHS)' case in Washington, DC, on May 8, 2014. The case centers around the HHS mandate in the Affordable Care Act, known as Obamacare, that religious organizations must cover contraceptions and abortion as part of their health insurance benefits, even if that goes against the organization's religious beliefs. AFP PHOTO / Saul LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Anti-abortion demonstrators hold signs during a Priests for Life protest outside the US Court of Appeals for the DC Circuit Court as the Court hears the oral arguments in the 'Priests for Life v. US Department of Health and Human Services (HHS)' case in Washington, DC, on May 8, 2014. The case centers around the HHS mandate in the Affordable Care Act, known as Obamacare, that religious organizations must cover contraceptions and abortion as part of their health insurance benefits, even if that goes against the organization's religious beliefs. AFP PHOTO / Saul LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Anti-abortion demonstrators hold signs during a Priests for Life protest outside the US Court of Appeals for the DC Circuit Court as the Court hears the oral arguments in the 'Priests for Life v. US Department of Health and Human Services (HHS)' case in Washington, DC, on May 8, 2014. The case centers around the HHS mandate in the Affordable Care Act, known as Obamacare, that religious organizations must cover contraceptions and abortion as part of their health insurance benefits, even if that goes against the organization's religious beliefs. AFP PHOTO / Saul LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
Anti-abortion demonstrators hold signs stating they regret their abortions during a Priests for Life protest outside the US Court of Appeals for the DC Circuit Court as the Court hears the oral arguments in the 'Priests for Life v. US Department of Health and Human Services (HHS)' case in Washington, DC, on May 8, 2014. The case centers around the HHS mandate in the Affordable Care Act, known as Obamacare, that religious organizations must cover contraceptions and abortion as part of their health insurance benefits, even if that goes against the organization's religious beliefs. AFP PHOTO / Saul LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
DORAL, FL - APRIL 23: Joyce Zaritsky, Bob Williams, Serena Perez and Mayte Canino (L-R) show their support for the Affordable Care Act in front of the office of U.S. Rep. Mario Diaz-Balart and Sen. Marco Rubio (R-FL) on April 23, 2014 in Doral, Florida. The protesters wanted to ask the politicians if they still want to repeal their constituents health care now that more than 8 million Americans have signed up for health insurance under the Affordable Care Act. (Photo by Joe Raedle/Getty Images)
A demonstrator in support of U.S. President Barack Obama's health-care law contraception requirement holds up a sign outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
A demonstrator in support of U.S. President Barack Obama's health-care law contraception requirement holds up a sign outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
Demonstrators in support of U.S. President Barack Obama's health-care law contraception requirement hold up a sign outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
Demonstrator Alan Hoyle holds a bible as he stands outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
Demonstrators in support of U.S. President Barack Obama's health-care law contraception requirement hold up signs outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
Demonstrators opposed to U.S. President Barack Obama's health-care law contraception requirement hold up signs outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
Demonstrators opposed to U.S. President Barack Obama's health-care law contraception requirement hold up signs outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
Demonstrators in support of U.S. President Barack Obama's health-care law contraception requirement hold a sign outside the U.S. Supreme Court in Washington, D.C., U.S., on Tuesday, March 25, 2014. Hobby Lobby, a family-owned business that says it looks to the Bible for guidance, is seeking a religious exemption from the requirement that employers cover birth control as part of worker-insurance plans. Photographer: Andrew Harrer/Bloomberg via Getty Images
MIAMI, FL - SEPTEMBER 20: Deborah Dion (L), Hattie Coleman and other protesters gather in the office of Florida State Rep. Manny Diaz as they protest his stance against the expansion of healthcare coverage on September 20, 2013 in Miami, Florida. As the protest took place, the Republican led House in Washington, D.C. by a 230-189 tally passed a short-term government spending plan that would eliminate all funding for 'Obamacare.' The Florida State government is also working against the Affordable Care Act by refusing to set up its own health care exchanges and they also have highlighted concerns about the navigators, federally funded workers who will help enroll people in health plans. (Photo by Joe Raedle/Getty Images)
Anti-abortion protesters pray outside the US Supreme Court on the third day of oral arguements over the constitutionality of the Patient Protection and Affordable Care Act on March 28, 2012 in Washington, DC. The 26 states challenging the law argue that Obama's Affordable Care Act must be completely repealed if the requirement that all Americans buy health insurance -- known as the 'individual mandate' -- is found to be unconstitutional. AFP PHOTO/MLADEN ANTONOV (Photo credit should read MLADEN ANTONOV/AFP/Getty Images)
A masked pro-Obamacare demonstrator stands outside the US Supreme Court June 25, 2012, in Washington, DC, as they await the court's ruling on the Healthcare Reform Law. The court announced the decision on healthcare will not happen before June 28. AFP PHOTO/Jim Watson (Photo credit should read JIM WATSON/AFP/GettyImages)
Anti-abortion protesters pray outside the US Supreme Court on the third day of oral arguements over the constitutionality of the Patient Protection and Affordable Care Act on March 28, 2012 in Washington, DC. The 26 states challenging the law argue that Affordable Care Act must be completely repealed if the requirement that all Americans buy health insurance -- known as the 'individual mandate' -- is found to be unconstitutional. AFP PHOTO/MLADEN ANTONOV (Photo credit should read MLADEN ANTONOV/AFP/Getty Images)
UNITED STATES – MARCH 27: Rep. Michele Bachmann, R-Minn., speaks during the Tea Party Patriots rally protesting the Affordable Care Act in front of the Supreme Court as the court hears arguments on the health care reform bill on Tuesday, March 27, 2012. (Photo By Bill Clark/CQ Roll Call)
UNITED STATES – MARCH 27: Tea Party Patriots supporters hold signs protesting the Affordable Care Act in front of the Supreme Court as the court hears arguments on the health care reform bill on Tuesday, March 27, 2012. (Photo By Bill Clark/CQ Roll Call)
Ronald Brock moves his anti-Obamacare sign as protestors, press, and passersby wait for decisions in the final days of the Supreme Court's term, in Washington, Wednesday, June 25, 2014. The court has yet to announce its finding in Sebelius v. Hobby Lobby Stores. The chain of arts-and-crafts stores does not want to provide insurance coverage for certain forms of contraception that it finds objectionable on religious grounds. The justices ruled Wednesday that a startup Internet company has to pay broadcasters when it takes television programs from the airwaves and allows subscribers to watch them on smartphones and other portable devices.The justices said by a 6-3 vote that Aereo Inc. is violating the broadcasters' copyrights by taking the signals for free. (AP Photo/J. Scott Applewhite)
Protestors block traffic near the White House in Washington, Thursday, June 5, 2014. In response to President Obama’s decision to delay the deportation review he ordered from the Department of Homeland Security, United We Dream protested near the White House to highlight the urgency of the administration acting now. (AP Photo/Susan Walsh)
Carlos Padilla of Seattle, Wash., holding flags, and other protestors block traffic near the White House in Washington, Thursday, June 5, 2014. In response to President Obama’s decision to delay the deportation review he ordered from the Department of Homeland Security, United We Dream protested near the White House to highlight the urgency of the administration acting now. (AP Photo/Susan Walsh)
Demonstrators display signs during a protest on West Florissant Avenue in Ferguson, Missouri on August 18, 2014. Police fired tear gas in another night of unrest in a Missouri town where a white police officer shot and killed an unarmed black teenager, just hours after President Barack Obama called for calm. AFP PHOTO / Michael B. Thomas (Photo credit should read Michael B. Thomas/AFP/Getty Images)
Pakistan protesters from the Jamaat-e-Islami party gather around a protester dressed as US President Barack Obama effigy during a pro-Palestinian demonstration against Israel's military campaign in Gaza, in Karachi on August 17, 2014. Indirect talks between Israelis and Palestinians for a long-term truce in Gaza resumed on August 17, 2014, with just over a day left before a temporary ceasefire is set to expire, a Palestinian official said. AFP PHOTO/Rizwan TABASSUM (Photo credit should read RIZWAN TABASSUM/AFP/Getty Images)
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Obamacare's terrible, no good, very bad week

On Monday night, Aetna announced that it would be dropping around 80% of their policies offered through the ACA's public health exchanges after sustaining large losses on the Obamacare business.

This makes Aetna the third of the "big five" insurance firms (which include Humana, United Health Care, Cigna, and Anthem) to announce a serious cut to their Obamacare business.

Whether or not Aetna did this due to business losses, as the company claims, or because of the Department of Justice's lawsuit blocked their merger with Humana is still up for debate, but regardless, the firm will be out of nearly all of the exchanges by 2017.

In addition to the Aetna news, the New York Federal Reserve put out a study Tuesday that showed one out of every five businesses in the bank's district — which includes parts of New Jersey and Connecticut — said they were reducing hiring due to Obamacare.

On top of all of that, the Center of Medicare and Medicaid Services (CMS) asked for public comment on instances in which healthcare providers directed patients to Obamacare over Medicare or Medicaid in order to make higher profits.

All in all, not a great week.

"This goes against the whole idea of insurance"

The biggest news was obviously the announcement by Aetna, which also highlighted some of the biggest issues with the ACA's exchanges.

Aetna lost $200 million pretax in the second quarter on its public exchange, and is not the only insurer to sustain large losses. For patients, this means that premium costs are also increasing dramatically year-over-year.

This happened for a few reasons, according to Cynthia Cox of the Kaiser Family Foundation, a nonpartisan healthcare policy think tank.

For one thing, the types of people signing up for the exchanges are generally sicker and more expensive to cover than insurers like Aetna expected.

"A lot of the people signing up currently are expensive to insure and that's why you're seeing so many companies losing significant amounts of money," Cox told Business Insider.

This mirrors Aetna CEO Mark Bertolini's statement on the reasons for leaving the exchanges. Bertolini said that the people signing up for Aetna's offer were "high-cost" than the firm expected.

Jeffrey Anderson, a senior fellow at the conservative Hudson Institute, said that the problem is that there is a high likelihood that no young people will ever sign up for Obamacare.

"There are too many loopholes, too many ways to get around paying if you don't get insurance," Andersen told Business Insider.

For this reason, Andersen does not believe that Obamacare will ever work and shows it is in a "slow motion death spiral." Basically, in his opinion, the only incentive structure to enter the exchanges will be when a person gets ill and needs the coverage. Since the ACA forces insurers to take people with pre-existing conditions, the insurers are forced to take on people they know will be a net negative to their bottom line.

"This goes against the whole idea of insurance," said Andersen. "You're supposed to pay it in the event that you get sick, not have it only when you are sick."

Cox, on the other hand, said there is a chance that young people eventually get onto the exchanges once the full tax penalty goes into effect.

"People haven't seen this show up on their taxes yet and they won't until April when they file for 2016," said Cox. "There's a good chance that people will see the penalty come and that will push them into the market."

This would mean that sign ups in the 2017 enrollment period could be slanted more towards younger people and inspire large companies to come back to the market.

The only issue, according to Cox, is that the tax hit may not be broken out in returns in such a way that people recognize that the individual mandate was the reason for the hit.

Additionally, according to Cox, there is a second reason that these companies aren't making money: they didn't offer the right plans.

Some smaller insurers have been able to actually turn a profit on the exchanges, unlike the larger companies. According to Cox, this is mainly because they have experience dealing heavily in government markets like Medicaid and Medicare. In those instances, the profitable companies learned how to keep costs lean and used that knowledge for their Obamacare coverage.

On the other hand, large insurers are trying to run their exchange business much like employer-sponsored plans, which are more expensive and offer a larger swath of coverage options.

"It's not so much a size problem, it's the people that have experience with these types of markets" said Cox. "The exchanges are very different from the employer-based plans companies like Aetna and United are used to. Companies that focus more on Medicaid are able to offer low cost plans people want, but also know how to control costs."

Possible solutions

According to both Andersen and Cox, there are a few fixes that can be done to help improve the law and make it more palatable for insurers like Aetna and United Health.

The biggest is bring back what is known as the "risk corridors." Essentially, during the first three years of the exchanges, this ensured that companies were spending enough money on patients. It mandated that insurers had to spend 80% of their premium payments on patients.

If companies spent less, they had to pay into the corridor pool, if they spent more they could receive money from the pool.

In practice, this meant that companies that were willing to take on high cost, sick patients, could do so while maintaining some profits. For those that only signed up young, healthy people, this penalized them.

Both Cox and Andersen agreed that some sort of re-institution and adjustment to these corridors could incentivize more companies to stay in the market and alleviate the losses.

Andersen also proposed that the link between prices be done away with. Currently, prices for the highest cost plan (for those with chronic illnesses, that are older, etc.) can only be a certain percentage above the lowest cost plans for generally healthy people.

This, in Andersen's opinion, makes it cheaper for sick people and more expensive for healthy people, exacerbating the enrollment issue.

"You're just totally changing the incentive structure and it makes no sense for anyone that isn't already seriously ill," Andersen told us.

Making these changes may not be a cure all, but they could help the law become more sustainable in the future.

A political football

Obamacare, however, is also about more than just health insurance. It has become one of the biggest political touch points since President Obama first proposed the law in 2009. In the succeeding seven years, the cries for repeal or change have continued.

"This doesn't get resolved until either the Republicans win the Presidency and both houses of Congress, or the Democrats do," said Andersen.

If the Republican party takes ahold of all three pieces of the government, said Andersen, the law is likely to be repealed and a plan, similar to the one he has proposed, would be enacted. If it is the Democrats in control, it would go the opposite way and a single payer, government-run offering could come into play.

Cox agreed with the polarization and said that the exit of companies like Aetna and other recent issues with the law have raised calls for a government option to be implemented. If the government were allowed to offer a plan, this would be an insurer of last resort and could create competitions with only one private insurer.

For now, however, with the split legislature and presidential election upcoming, Obamacare appears to be hanging around.

The uncertain road ahead

Cox, who previously expressed confidence in the sustainability of Obamacare after United Health's exit, said the fact that so many companies are leaving does raise questions about the future of the law.

"It is still too soon to say what this is really going to mean," said Cox. "As long as there is one insurer, people will still have access to subsidies and want to buy insurance."

Andersen, for his part, believes that the current course is "unsustainable," but when it gets a huge shake-up is unclear.

But for the near future, Obamacare is here to stay, with or without Aetna.

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