Obamacare's critical condition

Outside the legal challenges it previously faced, the Affordable Care Act has never been as threatened as it is right now.

President Barack Obama's signature law has so destabilized the individual market for insurance that three large companies have announced they are better off not participating in the exchanges.

Aetna earlier this week announced it will exit 11 of the 15 states where it has offered plans through ACA exchanges, while UnitedHealthcare plans to exit 30 of its 34 states, and Humana is pulling out of 88 percent of the counties where it offered coverage.

While these big players are cutting their ACA losses, they're fortunate enough to have other business lines to fall back on. Without those buffers, the new health insurance cooperatives that started with funding through the ACA have mostly collapsed. To date, 16 of 23 have failed, taking billions of dollars in taxpayer loans with them.

As insurers exit and fold, the choices available to people will plummet next year. Before Aetna's announcement, there were at least 650 counties with only one insurer slated to offer exchange coverage. After Aetna's decision, it's possible that there will be more than 1,000 counties with just one insurer and several counties without any.

Insurers were hopeful that the ACA could offer a major profit opportunity for them. They were set to receive tens of billions of dollars in several types of government subsidies as well as the enactment of an unprecedented federal penalty if people failed to purchase their product. Washington delivered the subsidies - in some cases more than Congress authorized - and the penalty survived a major constitutional challenge. But, the law is producing large insurer losses and significant instability in the individual market. Why?

The explanation is simple: The coverage is extremely unattractive to the vast majority of potential buyers.

For example, the cheapest unsubsidized bronze plan (covering about 60 percent of expected health care expenses) available to a family in Winston-Salem, N.C., has a yearly premium of $11,760 and a $13,700 deductible. The cheapest unsubsidized silver plan (covering about 70 percent of expected health care expenses) has a yearly premium of $13,872 and a $10,000 deductible. In addition to high premiums and deductibles, far fewer doctors and hospitals are covered by exchange plans relative to other types of plans.

As a result, only two groups of people are buying plans to a significant extent: The first group includes single people with income below about $24,000, who receive very large subsidies to reduce premiums and deductibles. The second group includes people who expect to use a lot of health care services.

The rest of potential buyers, generally middle-class people without insurance through the workplace, are making an economically rational decision to remain uninsured. For the most part, the ACA has made them much worse off. The only plan they can buy is expensive and provides low value relative to the price. And they must pay higher taxes to finance the law's massive new spending. This includes the penalty for remaining uninsured, which is expected to equal about $1,000 for the typical payer in 2016.

Another key problem that worsens the viability of the exchanges is that people have figured out how to game the new rules. Since the ACA requires insurers to offer coverage to applicants without varying premiums based on their health, the law incentivizes people to wait until they are sick to purchase coverage. Controls put in place by the law and by regulators to minimize this behavior have not worked thus far.

The Obama administration has attempted to prop up insurers with as much taxpayer money as possible, including roughly $7 billion in payments in 2014 and 2015 that a federal judge ruled unconstitutional because the funds were not appropriated by Congress. The subsidies and corporate welfare have not worked. As choices diminish and premiums soar - they're likely to rise by an average of 25 percent next year - people will rightly demand change.