A few weeks ago, we were told not to listen to the hype about Obamacare’s troubles, because insurers believed it was all going to be okay. Better yet, even after a rocky start in 2014, it was going to be good for their businesses. And indeed, it is likely that the reason they agreed to let the federal government tell them what they can sell or not and at what price is that they thought this was worth it in exchange for Obamacare’s forcing citizens to buy their products.
But what will this bargain take? One large health insurer, Humana, is going to need between $250 and $450 million payment (some
or most of it could be coming from taxpayers) to compensate for their loses in 2014. AEI’s Dr. Scott Gottlieb writes the following this morning:
Humana announced that it expects to tap the three risk adjustment mechanisms in ObamaCare for between $250 and $450 million in 2014. This amounts to about 25 percent of the insurer’s expected exchange revenue. This money is needed to offset losses that the insurer will take as a result of slower enrollment in its ObamaCare plans, and a skewed risk pool that weighs more heavily toward older and less healthy members than it originally budgeted.
More than half of the money will come from the $25 billion reinsurance pool that ObamaCare provides (collected through a tax on employer-sponsored health plans). The other half will come mostly from the risk corridors. Humana is expected to book the money as revenue to offset shortfalls between what it collects in exchange premiums and pays out in medical claims.
Why is that? Gottlieb explains that the administration’s decision to grandfather some health plans by fiat at the end of last year reduced the number of people from the individual market who were forced to transition to Obamacare plans. But there are other areas where the company’s expectations didn’t materialize:
Among the other nuggets that Humana offered: Most people are selecting silver plans, but not as many as the insurer originally anticipated. Cost sharing subsidies only attach to silver plans. These are extra subsidies designed to offset out of pocket costs for consumers who fall between 150% and 250% of the Federal poverty level. The tilt toward silver plans suggests that the exchanges are still drawing heavily from this income demographic — but not as heavily as expected.
Humana management told the UBS managed care analyst team, in a follow up call, that this was a concern for the insurer. Humana is seeing more people enrolling in platinum plans than it expected. These are most likely higher cost members who are paying the higher premiums to buy down their anticipated co-pays and deductibles. In other words, they plan to tap their health coverage for medical claims.
Finally, the mix of people enrolling in Humana plans still skews toward older individuals. Only 20 percent of enrollees are below the age of 30,while 42 percent are aged 50-64. This is consistent with earlier estimates put out by the Federal government, which suggests that the demographic mix is largely unchanged.
And that’s Humana alone. Others will surely follow. Of course, it is possible that, in the long term, insurance companies will end up making a lot of money thanks to Obamacare, especially if the mandates stay in place and enforcement is vigorous. There’s a very small probability that the law could destroy the industry completely in the process, but we can see why insurers so far are standing by the law: They have little to lose and a lot to gain.
We can debate whether this payment from the government to insurance companies technically constitutes a “bailout.” But the reality for taxpayers is that, ”bailout” or not, this is another case where they could be asked to pick up some of the pieces for bad policies. Gottlieb’s piece is here.