Bailing Out Health Insurers and Helping Obamacare
Jeffrey H. Anderson
January 13, 2014 8:01 AM
Robert Laszewski—a prominent consultant to health insurance companies—recently wrote in a remarkably candid blog post that, while Obamacare is almost certain to cause insurance costs to skyrocket even higher than it already has, “insurers won’t be losing a lot of sleep over it.” How can this be? Because insurance companies won’t bear the cost of their own losses—at least not more than about a quarter of them. The other three-quarters will be borne by American taxpayers.
For some reason, President Obama hasn’t talked about this particular feature of his signature legislation. Indeed, it’s bad enough that Obamacare is projected by the Congressional Budget Office to funnel $1,071,000,000,000.00 (that’s $1.071 trillion) over the next decade (2014 to 2023) from American taxpayers, through Washington, to health insurance companies. It’s even worse that Obamacare is trying to coerce Americans into buying those same insurers’ product (although there are escape routes). It’s almost unbelievable that it will also subsidize those same insurers’ losses.
But that’s exactly what it will do—unless Republicans take action. As Laszewski explains, Obamacare contains a “Reinsurance Program that caps big claim costs for insurers (individual plans only).” He writes that “in 2014, 80% of individual costs between $45,000 and $250,000 are paid by the government [read: by taxpayers], for example.”
In other words, insurance purchased through Obamacare’s government-run exchanges isn’t even full-fledged private insurance; rather, it’s a sort of private-public hybrid. 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. In this way, and so many others, Obamacare takes a major step toward the government monopoly over American medicine (“single payer”) that liberals drool about in their sleep.
Laszewski adds, “The reinsurance program has done and will continue to do what it was intended to do; help attract and keep more carriers in Obamacare than might have otherwise come.” Thus, Obamacare is being aided by having taxpayers subsidize big insurance companies’ business expenses. (Who could ever have guessed that big government and big business might be natural allies?)
But, amazingly, it doesn’t stop there. Laszewski writes that Obamacare also contains a “Risk Corridor Program that limits overall losses for insurers.” So insurers not only don’t have to pay out all of their costs; they also don’t have to swallow all of their losses.
Laszewski explains that if an insurance company expects its costs in a given year to be X, and those costs end up being more than X plus 2 percent, taxpayers will come to that insurance company’s rescue—thanks to Obamacare. In fact, once an insurance company covers that initial 2 percent in unexpected costs, taxpayers will cover at least 80 percent of any additional costs the insurer accrues.
Laszewski provides a couple of examples to help illustrate taxpayers’ unwitting generosity toward these “participating health plans” (plans sold through Obamacare’s government-run exchanges):
“f the health plan has costs at 110% of the medical cost target [the costs that the insurer expects to accrue], it will be responsible for only 102.4% of the target (a 2.4% shortfall)—only about a quarter of its losses.
“If the health plan’s medical costs come in at 120% of the expected claim cost target level, the health plan will only be responsible for 104.4% of the target (a 4.4% shortfall)—again only about a quarter of its losses.”
It’s actually only about a fifth in this example, as taxpayers would cover 78 percent of the losses, with the insurer covering just 22 percent.
Importantly, Laszewski (who’s in a position to know) says that “my sense is that health plans, because they are so insulated from big losses, will generally stand pat with their 2014 rate structures 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.”
In other words, because taxpayers will bail them out (through both the “Reinsurance Program” and the “Risk Corridor Program”), insurers won’t raise their premiums as much for 2015 as they otherwise would in response to the sicker, older risk pools that Obamacare is clearly attracting. This in turn will make Obamacare look better going forward than it should and will give its government-run exchanges another good swing at the “young invincibles,” who so far don’t seem too enamored with the product that Obama and his insurance cronies are hawking.
All of this puts two things in sharp relief: First, Republicans should attach a no-bailout provision to any debt-ceiling increase—as Charles Krauthammer has suggested—along with a provision delaying Obamacare’s liberty-sapping individual mandate (the delay of which would further undermine Obamacare’s exchanges). 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.