Obama health official: The Obamacare 'bailout' of insurers will be financed by a new tax on everyone's health plan

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Article Highlights

  • "Bailout" money will come from a new tax levied on the insurance companies.

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  • Few if any Obamacare plans had excess profits this year, owing to the rocky rollout.

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  • The new tax will be passed onto everyone in the form of higher premiums.

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For months, there have been assertions that the mechanisms embedded in Obamacare, designed to offset losses that insurance companies will take this year on their exchange business, amount to a bailout of the insurance industry.

At the same time, it wasn’t clear where the money to pay for these “risk adjustments” would come from in the first place.

One scheme had the Obama Administration using money that it clawed away from profitable health plans to offset the losses incurred by the less fortunate insurers.

This, at least, was the way the so-called “risk corridors” were supposed to work, according to the original legislation. Problem is, it’s not clear that there will be enough health plans this year (or any at all) with excess profits that could be used to offset the losses incurred by insurers who were less fortunate.

Another scheme — the one that gave influence to the specter of a bailout– had the Obama team using taxpayer funds to directly offset the losses taken by exchange health plans. This approach had obstacles as well. Chief among them is that the money for the bailout doesn’t exist. It was never set aside.

Even if the Obama team tried to re-program slush funds that it surfaced inside the Department of Health and Human Services, a recent analysis by the Congressional Research Service makes clear that first, Congress would have to separately appropriate the funds in order for any money to be spent on the Obamacare plans.

Now we know where the “bailout” money is going to come from. It will be paid for by a new tax levied on the insurance companies.

Mandy Cohen, the Acting Administrator of the Centers for Medicare and Medicare Service’s Center for Consumer Information and Insurance Oversight, delivered that message yesterday. Cohen was testifying before the House Subcommittee on Economic Growth, Job Creation and Regulatory Affairs. She said that if funding for the risk corridors can’t be financed off the money that gets clawed away from profitable insurers (therefore allowing the entire scheme to remain budget neutral) then CMS has the authority, if not the intention to impose additional “user fees” on all health insurers to cover the higher losses experienced by the Obamacare plans.

At issue is what’s being referred to as the “three R’s.” These are Obamacare policy constructs that are designed to offset losses that insurers will take as a result of the mostly older, and less healthy mix of patients that enrolled in the exchanges.

These three R’s include: A reinsurance fund of about $25 billion (financed off a fee on commercial insurance plans) that compensate health plans that enroll a costlier pool of patients; “Risk corridors” that substantially limit insurance company losses by shifting these costs to taxpayers; and Risk adjustment that balances health plans that enroll a disproportionate share of costlier patients.

The money drawn off the newly proposed user fees (tax) would be used to finance the risk corridors. This scheme is largely aimed at shifting money between insurers that lost excessive amounts of money, and those that were profitable.

Problem is, almost everyone lost money. Few if any Obamacare plans had excess profits this year, owing to the rocky rollout. So there isn’t any money to shift around — absent, of course, some new cash infusion. That’s where the user fee comes into play.

Since Obamacare health plans were prevented from pricing products to reflect true risk, they were always going to have atypically high cost, and in turn, losses. The red ink was inevitable. Now all of us will be forced to pay for it, whether we have an Obamacare plan or not. That new tax will be passed onto everyone in the form of higher premiums.

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