- By all measures, 2014 has been a disastrous start for Obamacare.
- Humana anounced in an 8-K late Thurs. that it expects its Medicare revenue to be substantially higher in 2014.
- Just 9 days into O'care, and already the 1st major health plan announced its bad experience would eat into its earnings.
By all measures, 2014 has been a disastrous start for Obamacare, raising questions about whether the insurance companies will need a bailout. A $25 billion reinsurance fund will guard against outsized losses for the big health plans. Other features built into Obamacare further limit their financial risk.
But none of these provisions will fully offset health plan losses. Until now, the amount of those losses was open to speculation. Now we’ll have some hard numbers, courtesy of Humana.
The company announced in an 8-K late Thursday that it expects its Medicare revenue to be substantially higher in 2014. But any revenue gains from this additional business will be fully offset by its bad experience in Obamacare. As a result, its earnings will remain flat for the year.
The company said that it expects the higher costs will result from an older and less healthy population that’s enrolling in its Obamacare plans (the “bad mix”).
Humana didn’t disclose the exact amount of revenue that was gained from the unexpectedly robust Medicare sales, or lost on the exchanges. Those numbers will be forthcoming next week, when the company presents to investors. But we’re just nine days into the start of Obamacare, and we’ve already seen the first major health plan announce that its bad experience would eat into its earnings.
When Humana announces next week how much its Medicare Advantage business has grown over its earlier estimates, we’ll have our first hard number on just how much Obamacare is going to cost the company. As a rule of thumb, health plans are paid about $10,000 in revenue to care for each beneficiary they enroll in Medicare Advantage. Multiply that revenue by the additional number of people that Humana signed up over its prior Medicare Advantage estimates and the margin on that business, and you’ll have your first firm figure on Obamacare’s impacts.
This is arguably a rough estimate. But it’s the first ballpark measure of how much money one insurer stands to lose.