New data: Obamacare plans are money losers, but not for the 'reinsurance fund'

Shutterstock.com

Article Highlights

  • A lot of attention is being focused on the reinsurance mechanisms built into Obamacare.

    Tweet This

  • Insurance premiums will continue to rise well into the future as various reinsurance mechanisms start to sunset.

    Tweet This

  • The LA Times reported today on an avg 16% increase in the premiums charged for grandfathered health plans in CA.

    Tweet This

 lot of attention is being focused on the reinsurance mechanisms built into Obamacare (the so-called “three ‘Rs’). These policy tools are designed to offset the losses that insurers may take on the Obamacare plans. In part, these potential losses stem from the fact that an older and less healthy pool of people are enrolling for the coverage than was originally estimated by insurers, and the feds. The losses are also a result of deliberate policy decisions that prevented the health plans from being priced to meet their true costs.

Some Republicans have dubbed these reinsurance tools a bailout for insurers, and these legislators are proposing bills that would repeal certain parts of this scheme. The insurer Wellpoint put out data today about its California health plans that will bolster these “bailout” arguments. The filing from Wellpoint shows how much money the insurer is bleeding on the Obamacare plans, and how much reinsurance money is be used to offset these losses.

The kernel came in a rate filing that Wellpoint posted with that State. The Los Angeles Times reported today on an average 16% increase in the premiums charged for grandfathered health plans sold in California this year. The hikes will take effect April 1 for some 300,000 consumers who currently have health plans they purchased in the individual market. Some premiums will rise as much as 25%. That’s the headline. But even more news was buried in what Wellpoint said about the rates charged on its non-grandfathered plans.

Deutsche Bank managed care analyst Scott Fidel was perhaps the first to notice this in a note to clients this afternoon. A closer analysis of the rate filing shows that Wellpoint is assuming in its proposed rates that its ObamaCare-compliant health plans (sold both on and off the exchange) will be very unprofitable for 2014, but for the anticipated recoveries from the reinsurance fund. Wellpoint’s projections for non-grandfathered plans includes expected reinsurance recoveries of 10.8% of premium.

This also suggests that insurance premiums will continue to rise well into the future, as these various reinsurance mechanisms start to sunset, and insurers have to make up the difference. By 2016, the $25 billion reinsurance fund is expected to wind down entirely. Right now, without those subsidy dollars, these plans lose money for the foreseeable future.

You can follow Dr. Scott Gottlieb on Twitter @ScottGottliebMD. For more from the AEI health policy team, follow @AEIHealth.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Scott
Gottlieb

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.