The Sound of Crickets on


Nearly 400,000 people live in Pinal County, Arizona, a sprawl of exurban desert on the road between Phoenix and Tucson. That’s a fair number of people, more than live in the cities of St. Louis or Louisville.

But when all those Arizonans log on to this fall to renew their exchange policies for 2017, they may find nobody home. The last insurer serving their county under the Affordable Care Act’s exchange system, Aetna Inc (NYSE:AET), announced last week that it is pulling out of Arizona.

Not only Arizona, in fact, but 11 of the 15 states where it currently offers plans on the Affordable Care Act Exchanges. This will make Pinal one of over 500 counties where customers are losing the option to purchase Aetna coverage for next year. A spokesman for Arizona’s state insurance regulator told The Wall Street Journal that no insurers have currently filed to offer exchange plans in Pinal; there is still time, but not much, and the regulator cannot force any insurer to step into the gap.

Aetna is not only scaling back its existing presence on the exchanges, but walking back a previously announced expansion. This left at least one state, Oklahoma, with only one marketplace insurer for 2017. Other states may well find themselves in the same situation when fall enrollment begins.

Soon after the announcement, it emerged that Aetna’s CEO had warned the Justice Department that it would greatly scale back its presence on the exchanges if the department sought to block the company’s planned merger with Humana. The department’s lawyers went to court to block the merger anyway, and Aetna has now apparently made good on its warning.

This action immediately drew criticism from Democrats, notably Massachusetts Sen. Elizabeth Warren, that Aetna was using Affordable Care Act customers as “bargaining chips” to get what it wants from the government.

To demonstrate Warren’s antipathy toward, or ignorance of, how a free market works (I’m voting antipathy), ask yourself this question: How likely is Ford or Toyota to pull out of a county of 400,000 people, and many others like it, if the government challenges it on some unrelated business matter?

Not very likely, you probably answered. If so, you’re right. Pulling out of a market that competitors gladly served wouldn’t hurt the government, or the residents of that market, for that matter. It would hurt only the company pulling out, while helping its competitors. No rational company would act that way.

The Affordable Care Act exchanges are different because, standing on their own, they are just a money pit for any insurer that needs to make a profit, like Aetna, or even those for that merely hope to break even, like the 23 not-for-profit co-ops that were designed to provide competition to Aetna and its peers. Despite launches marked with great fanfare and substantial government financial backing, by the time this fall’s enrollment opens a week before Election Day, 16 of those 23 co-ops will have vanished. Most of the rest will be seeking big premium hikes to stay afloat. So will many of the for-profit insurers.

But it won’t matter. The Affordable Care Act exchanges are inherently flawed by design, as I and other critics have pointed out many times since the law was first passed.

If you were a CEO of a company like Aetna, you simply could not justify expanding the exchange business – or, ultimately, keeping it at all – unless there were some sort of offset to compensate your shareholders for the endless stream of losses it generated. Aetna suggested that permitting its proposed deal with Humana could at least buy the government more time with Aetna in the exchanges because of the economies Aetna could obtain elsewhere, mainly by gaining greater pricing power over doctors, hospitals and drug makers. That pricing power was exactly what the Justice Department sued to block – so of course Aetna lost any incentive to stay in most of the money-losing exchanges.

Aetna is neither the first nor the biggest company to pull back from Obamacare business. UnitedHealth Group Inc., the largest single health carrier in the U.S., announced in April that it would massively scale back its exchange offerings in 2017. The company is reducing its offerings from 34 states to “a handful.” Humana is also reducing its offerings next year, and while Anthem has not announced such plans, it too has suffered major losses on exchange offerings this year according to Bloomberg. The relatively few companies that are making money on the health care law’s expansion are those that serve a Medicaid population that does not have to pay for its own coverage.

Warren and other Democrats are on the defensive not only for the disaster their party inflicted on the health insurance system, but also for the damage it has done to the broader economy. There are 6 million Americans working part time who want full-time work, which they can’t get even when the unemployment rate is hovering around 5 percent. The Affordable Care Act’s mandate for employer-provided health insurance when workers exceed 30 hours per week on the job is an obvious factor, especially in low-wage hospitality and retail jobs, which are hot spots for part-time positions.

Democrats’ suggestion is a “public option,” putting the government directly in the exchange business to “compete” with the private insurers who are already losing money by the bucketful. If they get their way, the immediate result will be that in many places, potentially including Pinal County, the public option will be the only option. The Affordable Care Act losses that private insurers are now incurring will be transferred to the American taxpayer. And, in due course, private insurance would go away altogether, leaving us with the “single payer” – that is, government funded – health insurance system that many on the political left have wanted all along.

After all, the government takeover of the education loan business has gone swimmingly, with vast write-offs of unpaid debt looming ever larger on the horizon. What could possibly go wrong with a government takeover of private health insurance?

One of the health care reform law’s major selling points was that anyone who was already sick could still get health insurance. That feature has unraveled the exchanges, as insurers discover that most of their customers are already sick. But those sick customers can only get health insurance if someone is willing to sell it to them. In Pinal County, Arizona, it looks like the Affordable Care Act’s core promise will be as empty as its exchange come November.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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