In an article in the Raleigh News and Observer last week, it was announced that Blue Cross Blue Shield of North Carolina reported a profit for the first time on its ACA exchange plans. The profit was about $600 million, and that single year profit wiped out the three previous year’s losses in one fell swoop. Proponents of the ACA touted this news as proof that the ACA is working. Brendan Riley, health policy analyst at the N.C. Justice Center in Raleigh, was quoted as saying, “This is a clear sign that the ACA can and does work.” He went on to say, “Clearly things are stabilizing despite all the sabotage and politics in Washington.” If this wasn’t such an important issue, I might have fallen off my chair from how hard his statements made me laugh. Seriously? This is a sign of success? This would be like the captain of the Titanic saying, “Clearly this shows the capability of my ship to become a submarine. The Titanic now holds the record for the deepest dive, as she made it all the way to the ocean floor.”
Now let’s set aside political bias, and the fantasy land that it produces, and look at some cold, hard facts.
The only reason BCBS of NC was able to produce a profit and “stabilize” the local ACA market is because they were finally in a position that allowed them to increase rates as high as necessary to produce that profit. The consumers are insulated from these price increases because federal subsidies go up whenever premiums go up. Essentially, BCBS raises rates and the Federal government covers those increases so the people buying on the exchange don’t feel the impact. This is much different than what happens to employers and individuals who used to buy coverage prior to the exchange marketplaces.
Over the last four years the average premium for BCBS on the ACA exchanges has gone up by 79%. During that same period of time, the Consumer Price Index only went up by 5.8%. Put another way, if the price of gas went up by 79% we would be paying $5.37 per gallon, not the $2.57 we are actually paying now.
Later in the article, BCBS points out that the ACA exchange members continue to drive more cost than the non-exchange population. The average ACA member has medical expenses that are over 40% higher than the average non-ACA member. Even more concerning, the sickest 5% of the ACA population, 27,000 people, generated $267 million in revenue last year but cost $2.1 billion in medical claims. That’s right, 27,000 people, less than 1% of the 3.8 million people in North Carolina covered by BCBS, accounted for almost a third of all medical expenses.
So, what does all of this mean? First, I must seriously disagree with Mr. Riley, who seems to believe that the news of the BCBS profits are an example of the success and viability of the ACA exchange market. To me, what this news shows is a very different picture. It’s difficult to imagine Blue Cross not finally showing a profit after four years of increasing their rates 20% every renewal. With rate hikes like that, you’re eventually going to get into the black. Beyond that, the article shows that the people getting their insurance through the exchange are, on average, very sick. For those people, the ACA is a very good thing. Many of them may not have any other way to get insurance. I don’t want to gloss over what a positive impact the ACA has had on their lives; however, we can’t be blind to the fact that the only way we have made this system work is to tap into the seemingly endless federal credit card. What the article also shows is that a small percentage of those members are extremely sick and are now consuming almost a third of all health care expenses. Spending $2.1 billion on 27,000 people is not sustainable. Premium increases of 20% per year are not sustainable. Paying for these increases with more and more federal debt is not sustainable. Consider this: prior to the Great Depression, the federal debt was about 10% of Gross Domestic Product. Right after World War II, when the government had to finance the war effort, our debt grew to about 120% of GDP. That ratio went down to about 30% by the end of the Carter administration. Since the Carter administration, our government has been on a spending spree like we’ve never experienced before. The last four decades have seen our debt to GDP ratio rise from 30% to over 100% and projections have it breaking the old record from WWII within the next five years.
So, before anyone declares victory for the ACA and its ability to control costs, we should look at all the facts. As John Quincy Adams said so well, “Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.”