Why is UnitedHealthcare thinking of bailing on Obamacare?

UnitedHealthcare (UHC), the nation’s largest health insurer, will likely pull out of Obamacare in 2017. Citing high costs and huge potential losses, they warned that 2016 will probably be their last year offering health insurance through the Obamacare exchanges.

Is this another example of greedy insurance companies with fat cat CEOs gouging the system? Or are economic realities interfering with the “hope and change” of Obamacare?

UHC isn’t really selling insurance. Instead they sell something much different, “prepaid health care.” Insurance looks forward at the probability of a costly event, such as getting sick or injured, occurring at some future point. Based on the probability of such an event, a cost is calculated which a person can pay, as an insurance premium, to mitigate the future financial risk. For insurance to work, a large group of people must pay into the system, so there are sufficient funds to pay for the medical care of the few who need it.

Obamacare, on the other hand, looks backward at costly events that have already occurred. An example of this is the coverage of expensive preexisting diseases such as diabetes or cancer. Patients with these conditions pay the same premiums as someone who is healthy, and this turns the risk-premium calculation on its head.

Imagine not having to purchase homeowner’s insurance until your home is already on fire. That is how Obamacare works. Individuals can save money by not purchasing insurance until they are sick or injured and actually need it. UHC, or any other insurance carrier, is required to sell this person insurance at the same price as if they were healthy. After racking up huge medical bills that UHC must pay, the individual can cancel their policy until they need it again in the future.

What if we could forgo home insurance until our house is flooded or a tree falls through the roof, then pay premiums for several months while the insurance company rebuilds our home, after which we cancel the policy? How long would these insurance companies stay in business?

This is what UHC is up against. The young and healthy, if given a choice between their iPhone data plan, Netflix, and Amazon Prime versus purchasing health insurance they will not likely need, choose the goodies. Who then does purchase health insurance? Those already sick, needing expensive treatments and medications. With state limits on premiums, insurance companies are stuck paying the bills for the costliest patients without any premium support from the healthy who have no medical bills.

This is great for those with preexisting conditions, but not so good for the insurance companies paying the bills.

Health care insurance is the only type of insurance operating in this way, devoid of economic reality. Bad drivers cost more and will pay higher premiums as a result. Smokers are more likely to die prematurely or suffer illness, and, as a result, their life and disability insurance premiums will be higher. Not so in health care.

UHC is simply reacting to the economic rules of the game that they are forced to play by. When the deck is stacked against them, they can continue to play and lose money, or else quit the game. No surprise that they are choosing the latter course.

Brian C. Joondeph is an ophthalmologist and can be reached on Twitter @retinaldoctor. This article originally appeared on the Independent Journal.

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