"No one can see a bubble. That's what makes it a bubble." That was Christian Bale's character's summation of a market bubble in last year's hit movie "The Big Short," which chronicled the few investors who saw the signs pointing to the mortgage market collapse. With terrorism, email scandals and race relations dominating the headlines, has a healthcare bubble been filling up quietly behind the scenes?
Since the 2010 passage of the Patient Protection and Affordable Care Act (ACA or Obamacare), the health-care industry has seen record growth and increased revenues. Why? Illness, especially chronic, sadly is a moneymaking business. Illness requires more office visits, more hospitalizations and inevitably more bills. Obamacare halted insurance companies' practice of rating premiums based on a customers illness history, or as more commonly known, preexisting conditions.
In the 2013 roll out of the Obamacare exchanges, the promised result was that more people would have insurance coverage. Undoubtedly, this part of the law worked. By Jan. 7, 2016, more than 11.3 million Americans had signed up for Obamacare; by March, 20.3 million were covered. A large percentage of these new insureds were high-risk. As NBC reported in April, "Last month, an analysis of medical claims from the Blue Cross Blue Shield Association concluded that insurers gained a sicker, more expensive patient population as a result of the law."
While bad for insurance companies, this was very good for the bottom lines of the merging large healthcare systems and newly formed physician monolith groups. A drafter of the law admitted the law was founded on the belief that the "consolidation of doctors into larger physician groups was inevitable and desirable." With consolidation, the dollars have racked up. According to U.S. News & World Report, "from June 3, 2010, to June 30, 2015, the Russell 3000 Healthcare benchmark (an all capitalization index) posted a gain of 176.8 percent."
So there are profits, but where is the bubble? Joe Cortelli, a health insurance expert from the nationwide consulting group HIG, explains:
"We have done nothing to improve the outcomes of the 10 percent of the population that drives 80 percent of our claims costs. We have merely pumped billions of dollars into these [Obamacare] exchanges masking the real problems. Unless the government can continue to pump money into these exchanges, the end result is not that hard to imagine. It is not a question of how, but when, this will all come home to roost."
The facts support this. Millions of previously uninsurable sick people are flooding the insurance market, driving premiums sky high. As noted in the Fiscal Times, "The combination of market forces and limitations imposed by the [ACA] will put enormous pressure on insurers to up their premiums." The pressure on insurers is undeniable, including the $650 million losses recently reported by UnitedHealth.
With these losses, rates on the exchanges are exploding. Exchange premiums in Michigan are set to jump up to 17.3 percent. Virginia average premium increases could go as high as 37.1 percent. Comparing the state monthly premium averages from 2013 to 2016, almost every single state has increased significantly. There is no stop-loss. In fact, two of three federal programs to manage this exact risk are due to expire in 2017. Without these programs to fall back on, many insurance companies likely will need to jack up their premiums even higher or bail out of the exchanges all together.
So how did we miss this? Like in "The Big Short," nobody asked those actually working in the doctor's offices their opinions. Dr. Tommy McElroy, CEO of an innovative concierge practice, Echelon-Health, is puzzled: "When the [ACA] was written, nobody came around to ask doctors what would happen when the most complicated patients were shuttled to the exchange plans. A small practice can't survive; that's why doctors are being bought up by hospital groups or abandoning insurance altogether for membership medicine."
With more doctors jumping ship and healthy patients choosing to take the annual penalty rather than buy extremely overpriced exchange plans, what's left to avoid a healthcare economic freefall? President Obama and Democratic nominee Hillary Clinton both have recently touted a renewed push for a government funded "public option." What irony, as the "public option" looks an awful lot like the government bailout of the mortgage banks. Only here, it's the big health systems and insurers that are too big to fail.
"The Big Short" opens with Mark Twain's thesis, "It ain't what you don't know that gets you in trouble. It's what you know for sure that just ain't so." Providing affordable insurance to the chronically ill is a dilemma. Those who were certain the healthy exchange customers would flock to pay for health insurance that is starting to cost more than their mortgages were just flat wrong. Hopefully a more humble answer is found before this bubble bursts.