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Aetna's Obamacare pullout means the 'insurance death spiral' has arrived

Obamacare supporters and protesters gather in front of the U.S. Supreme Court to find out the ruling on the Affordable Health Act in front of the U.S. Supreme Court in Washington, DC.
Stephen J. Boitano | LightRocket | Getty Images
Obamacare supporters and protesters gather in front of the U.S. Supreme Court to find out the ruling on the Affordable Health Act in front of the U.S. Supreme Court in Washington, DC.

Aetna the nation's fourth-largest health insurer, just decided to stop offering plans on Obamacare's exchanges in all but four states in 2017. The firm says that it was losing roughly $300 million per year on these policies. And it projected that its losses would only increase, since the share of covered individuals "in need of high-cost care" was growing, according to CEO Mark Bertolini.

Aetna isn't the only insurer giving up on Obamacare. UnitedHealth, America's biggest insurer, will sell plans in just three states next year, down from 34 this year. Humana will offer coverage in just 156 counties in 2017, 88 percent fewer than this year.

In other words, the insurance "death spiral" has arrived. Obamacare's critics have long predicted that exchange plans' high premiums and deductibles would keep all but the sickest Americans from enrolling. These people would need so much medical care that insurers would lose money no matter how much they raised premiums. Eventually, insurers would have no choice but to pull out.

President Obama and Democratic presidential nominee Hillary Clinton have proposed a novel solution to this government-created problem — more government. They're pushing for a government-run "public option" that would usher in de facto single-payer health care. That'd be a disaster for consumers and taxpayers alike.

Americans searching for plans on Obamacare's exchanges are finding increasingly slim pickings. For instance, Blue Cross Blue Shield of Minnesota recently announced it will only offer "narrow network" plans that limit which doctors and hospitals enrollees can see.

Insurers that haven't pulled out of Obamacare are requesting premium hikes averaging 24 percent next year. And some states have it far worse. Many Georgians could see a hike of 65 percent. The 600,000 Texans enrolled in Blue Cross Blue Shield may face a 59 percent premium increase.

This pattern of insurer opt-outs and huge rate increases isn't sustainable — and the Obama administration knows it.

That's why President Obama has called for a public option — a government insurance company that would compete against private insurers on the exchanges. This public option would supposedly succeed where private insurers failed, delivering the magic trifecta of low premiums, accessible coverage, and a healthy balance sheet. Hillary Clinton promises that she'll create such a public option if elected.

There's no doubt that a government-run insurer could set low premiums and offer coverage in every state — key progressive goals. But it'd lose billions doing so. Just look at Obamacare's "CO-OPs" — non-profit health insurance companies which were billed as an alternative solution to the public option that did not make it into the final law. They've failed spectacularly.

Obamacare established 23 of these Consumer Operated and Oriented Plans. They were selected by the government for showing a "high probability of financial viability" and received $2.4 billion in taxpayer money.

All but seven have gone belly up. The failures of these government-run insurers have left hundreds of thousands of consumers scrambling to find new coverage.

Initially, a public option would be just another money-losing government boondoggle. But it could quickly transform into something far worse — a de facto single-payer healthcare system.

That's because politicians could let a "public-option" insurer lose money indefinitely in order to ply people with heavily-subsidized health plans. Private insurance companies, which have to actually turn a profit, wouldn't be able to compete. They'd be driven out of the market. And that would leave the government as the sole provider of health plans.

Taxpayers would be stuck with a money-hemorrhaging, politically untouchable insurer. And this public option would eventually have to ration care and fix prices to control costs, just as existing government insurance programs like Medicaid and the Veterans Health Administration do. That would diminish patients' ability to actually get care.

Aetna's pullout represents yet another blow to Obamacare. Unfortunately, President Obama's and Hillary Clinton's plans for reviving it could destroy private insurance altogether.

Commentary by Sally C. Pipes, president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The Way Out of Obamacare (Encounter 2016). Follow her on Twitter @sallypipes.