Consultant: ACA Protects Insurers, Shifts Losses to Taxpayers

Monday, 13 Jan 2014 05:48 PM

By Cathy Burke

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Obamacare is jacking up insurance costs, but insurers will be protected from big losses through backdoor bailouts that will be paid for by taxpayers, an insurance consultant says.

Consultant Robert Laszewski wrote earlier this month in his healthcare blog that through a "reinsurance program" and a "risk corridor program," insurers neither have to pay out all of their costs nor absorb all of their losses.

"If the Obamacare health insurance exchanges are not able to get a good spread of risk –– many more healthy people than sick –– the long-term viability of the program will be placed in great jeopardy," he wrote.

"Given the early signs –– far fewer people signing up than expected, enormous negative publicity about website problems, rate shock, big average deductibles, narrow provider networks, and a general growing dissatisfaction over the new health law –– it is clear to me that this program is in very serious trouble.

"But that trouble would not necessarily transfer to the health insurance plans participating on the state and federal health insurance exchanges," he said. "Obamacare contains a $25 billion federal risk fund set up to benefit health insurance companies selling coverage on the state and federal health insurance exchanges as well as in the small group [less than 50 workers] market. The fund lasts only three years: 2014, 2015, and 2016," Laszewski wrote.

The Weekly Standard on Monday noted that through the reinsurance program, "private insurance companies pay for costs below $45,000, then taxpayers generously pick up the tab — a tab that their president hasn't ever bothered to tell them he has opened up on their behalf — for four-fifths of the next $200,000-plus worth of costs."

"It's bad enough that Obamacare is projected by the Congressional Budget Office to funnel . . . $1.071 trillion . . . over the next decade [2014 to 2023] from American taxpayers, through Washington, to health insurance companies . . . It's almost unbelievable that it will also subsidize those same insurers' losses. "

Bloomberg blogger Megan McArdle noted, "The optics of funneling money to the insurers through these programs is absolutely terrible."

The Weekly Standard summarized two examples of how "taxpayers' unwitting generosity" toward health plans sold through Obamacare government-run exchanges works."

"[If] the health plan has costs at 110 percent of the medical cost target (the costs that the insurer expects to accrue), it will be responsible for only 102.4 percent of the target (a 2.4 percent shortfall) — only about a quarter of its losses," the Weekly Standard said.

"If the health plan's medical costs come in at 120 percent of the expected claim cost target level, the health plan will only be responsible for 104.4 percent of the target (a 4.4 percent shortfall) — again only about a quarter of its losses."

Laszewski said that because of the programs, he expects 2014 insurance rates to hold for 2015 "no matter how bad the early claims experience looks. I expect that the health insurance industry will be content to give the Obama administration one more chance to reboot Obamacare in the fall of 2014, when the 2015 open enrollment takes place."

"All of this puts two things in sharp relief," the Weekly Standard warned. "First, Republicans should attach a no-bailout provision to any debt-ceiling increase . . . along with a provision delaying Obamacare's liberty-sapping individual mandate . . . Second, Obamacare needs to be comprehensively repealed in January 2017, not modified or 'fixed' — and Republicans need to advance a winning alternative to pave the way to that crucial result."

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