The Agenda

Sarah Kliff on PPACA and Private Insurers

This week, Sarah Kliff of the Washington Post reported on a new study produced by Bloomberg Government:

[S]hould the Affordable Care Act be found unconstititional, insurance companies will lose $1 trillion in revenue between 2013 and 2020.

To put that in perspective, $1 trillion accounts for about 9 percent of all revenue that health insurers are expected to earn in the same period. It’s one-half of a percent of the country’s Gross Domestic Product. Add up the annual revenues of America’s five largest banks – Bank of America, J.P. Morgan, Wells Fargo, Wachovia and U.S. Bancorp- and you’re still about $500 billion short of what health plans can expect to lose if the Supreme Court decides against Obamacare.

“It’s the sheer size of the number that was startling,” says Bloomberg Government health care analyst Matt Barry. “I don’t know if people fully appreciate the stakes involved here. It’s not just politics – there’s a lot of money, and a lot to lose.”

The majority of that loss — $880 billion — would be from the 16 million Americans expected to purchase coverage on the individual market. Two-thirds of that revenue would be in the form of federal subsidies, for low- and middle-income Americans to purchase coverage. The rest would come from individuals, responsible for whatever part of the premium subsidies do not cover.

This last passage struck me as noteworthy. Roughly $293 billion in insurance premiums will be paid directly by individuals, many of whom have presumably chosen not to purchase private insurance under the pre-Obamacare status quo. One can imagine that at least some of these individuals would have purchased insurance on the exchanges even in lieu of a command backed by a civil penalty. But it is also reasonable to think of these insurance premiums as the functional equivalent of tax payments, insofar as you are obligated to make them. The difference is that the tax payment is earmarked for the purchase of insurance, though of course Social Security taxes are earmarked as well. 

Kliff adds the following:

[E]ven with most money headed elsewhere, the law still leaves decent space for insurers to profit: The Bloomberg Government study estimates that, of the $1 trillion in revenue, health plans would keep $174 billion.

Note that these resources are in many cases being shifted from other sectors and other potential uses. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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