September 2016 Newsletter
Affordable Health Care for All?
In This Month’s Issue
Amid the revelation that another large insurance provider is pulling our of the federal health care exchanges in a number of states and as President Obama wraps up his final term, we examine what has thus far been the legacy of his signature legislative achievement; the Affordable Care Act.
Over the course of this president’s two terms in office, there has been no issue more polarizing between the two parties than the Affordable Care Act, popularly known as Obamacare. Republicans have long repeated the mantra that repealing the legislation is a top priority for party lawmakers, and the House of Representatives has voted to repeal the bill in pieces or in its entirety dozens of times, despite not having articulated an alternative. On the other side, Democrats say the package is one of the single greatest steps forward in American health care in the history of the of the country. It is possible that nothing greater epitomizes the current political climate better than the rhetoric on this issue. We do not yet know what the eventual fate of the system will be, but with the announcement that Aetna will pull their offerings from the exchanges in eleven states next year, it is a prudent time to assess what, if any, progress has been made towards the goals set forth in the Act and what this change could mean for the consumer.
The recent announcement by Aetna follows on the heels of similar announced cuts in planned offerings from UnitedHealth and Humana, moves which will sharply reduce the number of counties in which they offer plans. In Aetna’s case it is cutting its presence down to 242 counties, from 778. According to the consultant group Avalere, these combined moves will leave one-third of the population with just a single available insurer on the exchanges and more than half the country, 55%, may end up having two or fewer insurers to pick from.
As of late August, Pinal county in Arizona has thus far had no insurers at all file to offer exchange plans in the county, potentially leaving residents there with no access to the federal health care system, although other insurers still have time to move in before open enrollment starts in November.
Like the other two announcing cuts, Aetna explained the decision as a way to “limit our financial exposure moving forward,” following a pretax loss of $200 million in the second quarter and losses totaling $430 million on individual insurance products since January 2014. Health care analysts have cited a malfunctioning risk pooling mechanism as a main driver of losses among the insurers. So far at least, the younger, healthier people that were supposed to offset the on-boarding of those with preexisting conditions and those needing expensive care have simply not signed up in the numbers the proponents of the law had hoped they would. However, 2017 could be a turning point in enrollment as the penalty for not being insured escalates to $969 per household; a sum which could spur healthier young premium payers to sing up.
In the meantime though, the trends of premium growth and access deterioration are poised to continue into 2017. In addition to rising premiums, another oft cited criticism of the plans available through the exchanges is that they often come with high deductibles, leaving many consumers with large out of pocket costs until insurance kicks in. A survey by United Benefit Advisors claims that the median in-network deductible for employees increased by 50% from 2015-2016 from $1,000 to $1,500.
Figure 1 – ACA Premium Growth by State
Only five states saw premium decreases over the last year, the largest being Indiana at -12.1%. This is clearly the outlier in the data, as twelve states saw premium increases greater than 20%, including Oklahoma, which saw their average lowest-cost silver plan increase in price by 41.8% in one year.
Despite the evidence presented of rising premiums and a growing lack of available plan diversity in many areas, there is one measure by which the law has had an unquestioned effect; upwards of 20 million people have insurance today that did not have it before the ACA was passed.
A yearly survey from the Kaiser Family Foundation has been tracking the progress of the Act in California since 2013. California is the country’s most populous state and has fully embraced all of the provisions of the law, including the available Medicaid expansion. Their survey in 2014 found that 58% of the uninsured population of that state had gained coverage since the year before. In 2015, that number rose to 68% and the latest survey for 2016 puts coverage of the previously uninsured population at 72%. If you remove undocumented workers from the survey results (who are not eligible for either the ACA plans or Medicaid), that coverage ratio rises to 78%.
A separate report from the Commonwealth Fund examined the country’s remaining uninsured population of approximately 24 million and claims that “88% of them have incomes below $16,243, were young adults, worked at small firms, and/or are Latino.”
Figure 2 – Coverage Estimates: Repeal vs. No Repeal
According to the Congressional Budget Office, significantly more people currently have and will continue to have health insurance with the law in place rather than without it.
The disproportional representation of the Latino population among the uninsured has widened considerably since the passage of the ACA. In 2013, Latinos comprised 29% of the uninsured, a margin that has widened to 40% since then, a rate which is more than double their representation in the overall population.
The report also highlights the major differences between states that expanded Medicaid under the ACA and those that didn’t, claiming that 34% of the remaining uninsured, or roughly 8 million people, have incomes low enough to qualify for Medicaid, but live in one of the 20 states that did not adopt that provision of the Act. All of these states either have a Republican controlled legislature or a Republican governor. The difference is stark. In states where the Medicaid provision is present, only 17% of adults under the income line are uninsured, whereas 41% of those adults in that category are uninsured in states that did not expand the program.
As with most things in politics these days, reality appears to fall somewhere in the middle of the extremes we hear coming from our representatives. The outcome of the elections this November will likely be the determinant for the future of the ACA and President Obama’s healthcare legacy.
Chart of the Month
Following the trend from last year, premiums are expected to go up again in many states for 2017. According to independent analyst Charles Gaba and Politico, the average rate increase request is 24%. For instance, Cigna and Humana recently revised their filing for rate increases in Tennessee, from 23% to 46% and from 29% to 44%, respectively.
Important Disclosure Notices
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.
Investing involves risk, including possible loss of principal.
Securities offered through LPL Financial, member FINRA/SIPC.
Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and The Philadelphia Group are separate entities from LPL Financial.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Companies mentioned are for informational purposes only and not meant as a recommendation, and investments in these companies may not be suitable for all investors.
Tactical allocation may involve more frequent buying and selling of assets and will tend to generate higher transaction cost. Investors should consider the tax consequences of moving positions more frequently.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.