Insurers’ Obamacare losses may reach $5.5 billion, U.S. says

Back to TopCommentsE-mailPrintBookmark and Share

Health insurers such as Indianapolis-based WellPoint Inc. and Louisville-based Humana Inc. stand to receive $5.5 billion next year to cover losses from Obamacare in a program the law’s opponents label a bailout.

The money, outlined in President Barack Obama’s proposed budget for the fiscal year that begins in October, is designated to help insurers who find the cost of the law higher than expected, based on the percentage of older, sicker people who sign up compared with younger enrollees.

Under the Patient Protection and Affordable Care Act, insurers who record a profit of 3 percent or more on their Obamacare business would put some of the gains into a government-controlled fund. Companies whose claims cost at least 3 percent more than their premium revenue can access the money.

“If you want to insure the uninsured, and you want to set up a competitive marketplace and drive health-system improvement, you’re not going to do that without off-loading some of the risk for insurance providers,” Dan Mendelson, the president of Avalere Health, a Washington, D.C., consulting firm, said.

The administration expects to collect enough from profitable insurers to cover the costs of payments to other companies in the risk corridors program, Emily Cain, a spokeswoman for the U.S. Office of Management and Budget, said in an e-mail.

‘Safety valve’

The program is “an important safety valve for consumers and insurers as millions of Americans transition to new coverage in a brand new marketplace,” Cain said. “The Administration intends to operate the risk corridor program in a budget neutral manner, with payments in equaling payments out.”

About 4 million people have so far signed up for private health plans from companies under the act known as Obamacare. Insurers participating in the law’s new health exchanges are required to cover everyone who applies for a plan, regardless of their health.

The risk corridors program was adopted from earlier federal health programs that rely on private insurers, including Medicare’s prescription drug benefit. It was designed to protect insurers temporarily while the new health program is introduced and expires after 2016.

At least one insurer, Humana, has said it expects to seek money from the pool. The company said in a Jan. 9 regulatory filing that it expected new Obamacare customers to be sicker and costlier than anticipated, after the U.S. government’s decision to let healthier people keep their existing plans.

Republican criticism

Republican opponents of the Affordable Care Act have called the program a handout to insurers, warning that payouts may exceed the amount collected.

“The risk of a bailout has always been high,” Sen. Marco Rubio, a Florida Republican, said at a Feb. 5 hearing. “As many of us predicted, these exchanges have not attracted enough young and healthy people to sign up.”

Rubio said Obama increased the likelihood of the program costing taxpayers when the president announced a policy last fall to allow healthy people to keep their existing insurance plans. About 2.6 million Americans received cancellation letters from their insurance carriers at the end of 2014, according to a study published online Tuesday by the journal Health Affairs. The letters caused a political headache for the president, who had promised that people with insurance they liked wouldn’t have to change plans under Obamacare.

Repeal dropped

House Republicans earlier this year considered legislation that would repeal the risk corridors. Those plans were dropped after the Congressional Budget Office said on Feb. 4 that the health law’s programs to reduce risk for insurers, including risk corridors, would save the government $8 billion over the next 10 years.

Obama’s budget plan also proposes to save about $402 billion over the next decade mainly by reducing spending in Medicare, the $513 billion program for the elderly and disabled, and Medicaid, the state-run program for low-income people that will cost the federal government $308 billion this year.

The budget targets drugmakers for much of the cuts, including paying $117 billion more in rebates for medicines used by federal health program beneficiaries. Obama’s 2014 budget contained a similar proposal that Congress didn’t adopt.

Obama also proposes to spend about $14.6 billion over a decade to train new health providers. The U.S. shortage of primary care physicians is estimated at 8,000 doctors by the U.S. Health Resources and Services Administration.


  • Republican Demogoguery
    the Republicans have done everything they can, particularly in Indiana, to discourage people from understanding and signing up for the Affordable Care Act. This will be one more opportunity for them to demagogue the program rather than to try to provide improved health care to those that do not have it.
  • We'll never go forward until we can get along
    Nothing is ever going to get resolved or come close to success if BOTH the Democrats and Republicans don't stop finger pointing. Regardless, $5.5 Billion in losses that the government is going to have to bail out is unbelievable and not good business. If I managed a budget like this, I'd be in jail or bankruptcy court.
  • Red dog
    Red dog: Medicare Advantage is the private sector, for-profit alternative to regular Medicare. But is not less expensive. It is a lot more expensive, and has been more expensive since its inception. Initially, it was called Medicare + Choice. Private insurers said they could deliver all Medicare services but at less cost. They said, "Give us 95 cents rather than the full $1 for Medicare. We'll still make a profit." That program did not last very long. Insurers were losing money and had to stop. Then they said give us more than regular Medicare. That is why, today, it costs 6 billion more to cover persons receiving Medicare Advantage.
  • Bailout
    You demo guys don't get it. Has to be run as a FOR PROFIT model...if not it is doomed. Pure and simple.
  • Money for friends
    Republicans were not worried about bailouts when they pushed through Medicare Part D as a thank-you to the drug companies that supported them.
  • Added GOP hypocrisy
    GOP groups have spend untold millions trying to convince young people not to sign up for insurance, and GOP ran states have done absolutely nothing to get young people insured. So for them to "complain" that young people are not signing up, is pure and utter hypocrisy. Just another example of how GOP is managing to run down this country.
  • Hypocrisy
    Lots of hypocrisy here on the part of Republicans. They have no problem giving BILLIONS of taxpayer money each year to insurance companies for Medicare Advantage, but they are up in arms in giving BILLIONS to these same insurers when it comes to Obama Care. If Medicare Advantage did not exist and all Medicare recipients received regular Medicare, taxpayers would save BILLIONS every year. No Republican has any interest in reducing taxpayer dollars for Medicare Advantage. I have tried for years to get them to face this issue, but they ignore me. But if I wrote and told them to cut those corridors, I would probably get a handwritten thank you.

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ