The consulting firm Gartner has a nifty chart they use for measuring the trajectory of new technologies over the course of their evolution. Many are already familiar with Gartner’s trademark chart – called The Hype Cycle – and it’s become a kind of de-facto standard in many technology circles. That’s not to say it isn’t without its own share of controversy, but it’s often used to track other trajectories as well, and I think it can help us understand where we are in the evolution of Obamacare.
For those who may not be familiar with Gartner’s Hype Cycle – here’s the core graphic – with 5 distinct points as measured across time.
While this isn’t remotely official (or sanctioned by Gartner), given all the dire headlines over the last few months – I put Obamacare squarely in Gartner’s Trough of Disillusionment.
How did we get here? The answer is simple. Actuarial math met “for-profit” insurance and the math won. It always does. There were many individual reasons – but here’s a rough cut of seven.
- Many of the people who enrolled through Obamacare were “sicker” than first anticipated – so the premiums charged didn’t cover their healthcare expenses. This shouldn’t have been as much of a surprise as it turned out to be – because many of the uninsured arrived at that position when they were denied coverage for a pre-existing condition.
- Healthcare is really expensive, so the losses weren’t trivial (literally hundreds of millions of dollars) and public companies don’t answer to the government – they answer to their Board of Directors, shareholders, and existing customers. As a “new” line of business, Obamacare policies have their own accounting for companies that sell the policies and there’s no way to legitimately push losses in one line of business into another (without incurring the sizable wrath of existing customers, shareholders, boards).
- Insurers had very limited data on the people that were signing up and their best “guestimates” at initial pricing were wrong. No surprise here because actuarial math for N=1 is really more like a roulette wheel.
- It takes a couple of years of data to see how any new market (certainly one of this size and scope) will play out. Now we have the actual data – not just rosy forecasts, hopes and dreams.
- In a truly surprising and entirely unanticipated move, the Government removed a key variable in the pricing equation – the risk corridors (specifically designed to protect insurers against unpredictable losses).
- Insurers aren’t charities and they have no obligation to fix design flaws in government policy (either initially, or after a significant change).
- Our current government is largely dysfunctional, illustrated by the lack of a Supreme Court Justice (simply because Congress refuses to vote on viable candidates) and funding for infectious diseases like the Zika virus.
In a nutshell – the marketplace for insurance (as attempted by Obamacare) changed in significant ways (including initial design intent) and the for-profit payers are simply walking away from unsustainable (and large) losses.
So what exactly about the initial design changed? Roughly three things:
- The national expansion of Medicaid. This didn’t happen and, not surprisingly, states that did expand Medicaid are seeing lower healthcare costs generally.
- The “public option” – government-priced insurance with no profit – was removed as a condition of getting the needed Congressional votes to pass the ACA.
- The “risk corridors” – a mechanism to protect for-profit payers against outsized initial losses – was also removed as part of partisan politics.
Of course, each of these variables alone had a major impact, but collectively, they were completely unsustainable in a for-profit market.
There’s no real mystery here. Actuarial math wins every time. We’ve been fighting it for decades and we appear willing to continue this epic struggle, but it’s a losing battle. The only remaining question is when the math wins—not if. In the meantime, Obamacare today is squarely in that unenviable “trough of disillusionment.” At some point it will emerge into the “plateau of productivity,” but it’s “peak of inflated expectation” is officially an artifact of history.
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