In absence of any competition why wouldn't insurers be clamoring to fill the void, potentially making them the one and only insurer?
Only in states where premiums can increase without limit. Some require regulatory approval of increases.
There's also another problem. 80% of Obamacare (Patient Protection & Affordable Care Act) premiums are required to go to approved medical expenses. Fraud investigation, management overhead, and profit must come out of the remaining 20%. If expenses fall below 80%, then the companies have to rebate the excess at their cost (i.e. they pay the cost to rebate). But if medical expenses are above 80%, they can't collect more in premiums to make up for that. And they can't collect anything if management overhead takes 20% or more of their costs.
In the first few years of Obamacare, there was a program where the government would bail out insurers in that situation. But that was billed as a temporary program and it is no longer in operation.
The 80% limit creates a situation where the upside is limited, but the downside is not. Why would an insurer want to take that kind of risk?
The only insurers who can profit in this situation are ones who can set the premiums and medical expenses high enough. Insurers have no incentive to control costs, as the higher that costs are, the higher their profit. An insurer who careful reviews medical expenses to ensure that they contribute to the health of the customer has to both pay to do that and loses money as a result. What was intended as a cost control measure actually forces premium increases.
Insurers can always rebate excess premiums. But if they set premiums too low, they have no way of recovering that. This forces them to maximize their premiums. But it doesn't ensure that they make money. If there are large, actually required medical expenses at the end of the year, they can still end up losing money. Because until the end of the year, they want to spend 80% of the premiums they collected on medical expenses. That maximizes their profit (as their profit is limited to less than 20% of approved medical expenses).
The net result is bad for both the insurer, which has to act in a bizarre way to get any profit, and for customers. Yes, they have an easier time getting procedures (both necessary and unnecessary) approved in the earlier parts of the year. But as the year comes to a close, there is effectively a hard limit on expenses, necessary or not. So in return for easier approvals in part of the year, they get much more difficult approvals for the remainder.
A traditional insurance company works the opposite way. It estimates its expenses and chooses a premium that is above expenses and competitive with that of other insurers. So it has competing goals. If it raises premiums too high, no one buys its insurance. If it sets premiums too low, it loses money. But its goals align with those of customers. They want premiums as low as possible but all their necessary expenses covered.
With both Obamacare and traditional insurers, if the customers are exceptionally sick and have higher than expected medical expenses, the insurer takes a loss. But traditional insurers balance that. If the customers are exceptionally healthy and have lower than expected medical expenses, they make a profit. Obamacare insurers have no balance there. They have an extra cost in that situation.
On the bright side, the Obamacare exchanges are only a small part of the market. But that also limits the benefit from participating. The exchanges aren't profitable for insurers. And the risk is high. One customer in Iowa costs $12 million. Iowa only has about 72,000 customers on the Obamacare exchange. That's about $170 for each customer in Iowa. Or about $14 a month.
In Iowa, they can plan around that existing customer and charge every customer an extra $17.50 (the $14 in medical expenses plus the allowed $3.50 overhead) a month. But what happens if there's another one? Or what happens if there are a few of the most expensive procedures, like transplants? They can't plan for those expenses. If someone happens to need a million dollar transplant, that's a big hit to an insurer.
What if there is a bad flu season? Instead of one very expensive customer, there are many somewhat more expensive customers. From the insurer's point of view, it's just as bad to have every customer cost an unexpected $15 a month as to have one customer cost $12 million.
Traditionally, insurers would handle this by reinsuring with other (perhaps larger) insurers. Or by saving premiums from one year to use in another. Or by accepting a loss this year in the expectation of making it back in future years. But Obamacare doesn't allow those solutions. The 80% has to be spent on approved medical expenses in the current year.
