Spot insurance markets

Obamacare/ ACA was in the news last week. Some relevant summaries, and comment below.

United Health pulling out of the Obamacare exchange market

UnitedHealth reported one problem after another: An expensive risk pool that lacks the younger and healthier consumers who are supposed to buy overpriced plans to cross-subsidize everyone else....People join the exchanges before they incur large medical expenses—insurers are required under ObamaCare to cover anyone who applies—and then drop out after they receive care. The collapse of the ObamaCare co-ops is recoiling through the market.

... Commercial insurers are being displaced by Medicaid managed-care HMOs, with their ultra-narrow physician networks and closed drug formularies.

From the WSJ blog,

...Health plans say they have had more sick people, and fewer healthy people, sign up under the new rules than they need to keep prices stable. ...It’s also cited as a factor in some insurers’ decisions to withdraw products from the market or offer more limited choices of providers this year. Health Care Service Corp., which owns Blue Cross and Blue Shield plans in five states, already has pulled out in selling through HealthCare.gov in New Mexico, and yanked its preferred-provider organization offerings in Texas.

From Rising rates pose challenge to health law

Federal officials are pushing people to evaluate their options and consider switching plans to try to keep costs in check, in a message regularly summarized as “shop and save.”

In about half of the states using HealthCare.gov, people in popular plans can pay lower premiums in 2016 than they did in 2015—as long as they are willing to switch to a plan with a different insurer, usually with a narrower network of doctors and a higher deductible. 

A story:

Kimono England...said... Their health plan’s decision to withdraw its “preferred provider organization” product this year tipped her over the edge.

She said she now has only a narrow provider-network option that doesn’t include her local doctors,...she decided to enroll in a Christian health-care sharing ministry, in which members agree to pay each other’s health bills... since the ministry won’t pay for an expensive specialty shot her husband needs four times a year they are thinking of buying a health plan just to cover him.

The move by the England family would mean that five people with relatively low medical costs exit the insurance risk pool, and one person with large expenses remains—bad news for the insurance industry.

Also,  Mary Kissel interview of Holman Jenkins (video)

Comments:

Let's beyond the standard headlines -- "Millions more covered!" "But they're all medicaid or high subsidy!" (For example here.) "Premiums going up!" "Not if you shop!" and so forth.

Health "insurance" seems to be moving to a spot market, in which large numbers of people change plans, sign up, or leave every year, and in which large numbers of companies change their plans and coverage every year.

The churn on the individual side and its spiraling costs was a predictable (and widely predicted) response to the ACA, which addressed preexisting conditions by mandating insurers to cover anyone at the same price. The joke around the passage of the ACA was that health insurance would consist of a cell phone, which you use to buy coverage on the way to the hospital.

Yes, open enrollment is only once a year, but it's not really a constraint. Most conditions involve years of care, and you can wait six months to ramp up big expenses. A binding non-insurance penalty close to the cost of insurance was never going to pass.

Moreover, the problem is not so much insurance vs. no insurance, it's the right to move around between plans. Buy a bronze high deductible policy one year. If you get sick, move to a gold low deductible big network policy the next year.

The tragedy here is what was lost. Yes, individual insurance had big problems. But before the ACA, there were millions of people who bought insurance when they were healthy; that paid guaranteed-renewable premiums in a large stable health insurance companies, so that when they got sick, they would still have good affordable health insurance. Sure, it didn't work for people who moved across state lines, who got jobs with employer-provided group plans, and many suffered various snafus. But for many self-employed people and small business owners outside the big company - big government nexus, it actually worked ok.

Those relationships are all gone now. If ever we do move back to long-lasting, individual insurance, that you buy when healthy so that it covers you when sick, the millions of people who did the right thing and bought in to the system are now gone.

It's more surprising, at least to me, that annual chaos is breaking out on both sides.  Plans are discontinued, companies leave the market, coops come and go bankrupt, networks change, and many of us have the pleasure of annually sorting through health insurance policies, trying to figure out which ones cover the doctors, hospitals, and medications we are using or might need next year, all likely to do it again in the next year.

Our "federal officials" are not only not bemoaning this chaos -- they're encouraging it! "Shop and save." Shop because your plan got canceled, they changed your network, they vastly raised your premiums, and so forth. Save because they won't pay your claims.

I guess Americans need something to do between Thanksgiving and New Years. Together with shopping for cell phone contracts, cable and internet bundles, and figuring out our frequent flyer programs, this should keep us all plenty busy. Winter in the Republic of Paperwork.

Will the supply churn continue? One view of this is simply that companies need time to adapt. They made optimistic assumptions about their pools, find they're losing money and have to adjust. In time, we will again see stable offerings by stable companies.

Maybe, but I doubt it. If people keep playing games, moving to high cost policies when they get sick, health insurance for those of us not getting subsidies will be astronomically expensive. It ceases being insurance.

A different view is that the supply churn is the industry's way of solving the problem. By changing networks and coverage each year, by canceling policies frequently, by companies forming, dissolving, entering and leaving markets,  they keep us on our toes. A stable wide network plan with reasonable cost will attract too many sick people. So, the answer is, keep it unstable.  The same kind of price discrimination by complexity that pervades airlines, cell phones, and credit card contracts, might pull in healthy people who don't have time to spend three weeks a year finding out what doctors are covered by what plan.

Related, I suspect the industry is finding a way to segment the market. There are really four separate health insurance systems: 1) Expanded Medicaid. 2) Highly subsidized premiums based on income. 3) Non-subsidized individual policies. 4) Employer provided insurance for high income people with full time jobs. The first three were supposed to be parts of the same market, but it's fragmenting, with medicaid and subsidized plans giving out low cost low quality care.

This is not a grand conspiracy theory. Like most outcomes in economics, it's not obvious any of the participants understand what's going on, and an evolutionary process settles on outcomes that "work" in the regulatory environment and don't lose catastrophic amounts of money.

Health insurance really does not work as a spot market, of course.

The answer? For those who haven't been reading this blog very long (collections here and here), it is straightforward: Lifelong, deregulated, guaranteed-renewable, individual insurance, bought when you're healthy, carried along from state to state and job to job, with employers contributing premiums rather than setting up group plans. Deregulation of supply, so that for most procedures you can just pay cash and not be rooked by made up prices.