Obamacare’s Competitive Markets Are Starting to Work Pretty Well


The decision last week by United Healthcare to drop out of Obamacare got a lot of attention, but the truth is that UH was a pretty small player in the exchanges. What’s more important—but hasn’t gotten much attention—is the fact that more and more Obamacare insurers are getting close to profitability. Richard Mayhew comments:

2014 was a year where there were only guesses about both the Exchange population, the market structure, and federal policy structure (specifically the risk corridor revenue neutrality restrictions. 2015 had a bit more clarity on who was coming into the market, what was working and what was not working, and what federal policy on risk corridors would actually be. 2016 is the first year where the policies are priced on functionally decent real information and some of the amazingly dumb strategic decisions have been unwound through either course changes or through exiting the market.

As a simple reminder, competitive markets should see some companies make money and some companies that offer more expensive and less attractive products lose money. I would be extremely worried if everyone was making money after three years, just like I would be extremely worried that everyone was losing money after three years of increasingly better data.

Obamacare critics have spent a lot of energy trying to pretend that premiums on the exchanges have skyrocketed, but that’s never been true. What is true is that premiums started below projections and have since risen moderately as insurers get a better grasp on their customer base. This is how competitive markets work: players enter the market with prices designed to attract market share; customers pick winners and losers; prices adjust over time; and some companies are successful while others drop out. Eventually you reach a rough equilibrium, which we’re getting close to with Obamacare.

It’s ironic (or something) that the problems conservatives are making such a fuss about are the result of precisely what they say they want: competitive insurance markets. Apparently Obamacare has produced a little more competition than they’re comfortable with.