How insurance risk is being subsidized in the Obamacare exchange plans (by you)

2013

By the time you read this the logic that follows may be out the window for 2014.

It all sounds so simple when the politicians tell it. Americans, even those with pre-existing conditions, will be able to obtain “affordable” health insurance through an Obamacare marketplace plan. Coverage will be affordable because insurance companies will compete for business thus holding down premiums (at least that’s what you read in the papers). The fact is, opening insurance to anyone with no underwriting requirements and no limit on the benefits that can be paid is risky, so risky that Obamacare contains several programs to share that risk … mostly with you and your employer.

For example: In 2014, under the transitional reinsurance program, insurers will receive a reimbursement of 80% of the individual claims that exceed an attachment point of $60,000 up to a national reinsurance cap of $250,000. So, for an individual claim of $100,000, the insurer will receive 80% of $40,000 (the excess of $100,000 over the $60,000 attachment point), or $32,000.

Where does the money come from to make these payments? From a $25 billion dollar pool of money accumulated from a fee charged for every person covered under a health plan, including your employer plan.

This reinsurance has a big impact on the so-called affordable premiums for marketplace plans. Look at the sentence in bold below. This is the estimated impact on premiums from the Department of Health and Human services regulations. In other words, if the plan selected in the marketplace costs $500 a month today, it should really cost up to about $575. This reinsurance is scheduled to last for 2014, 2015, and 2016 when the theory goes risk will stabilize and the reinsurance will be unnecessary.

What that really means of course is that premiums will then reflect the true cost of the claims incurred by all the high risk people who enroll with pre-existing conditions and all those who decide to pay the fine and not obtain coverage until they need it between now and 2016 and beyond.

The reinsurance may be “transitional,” but the ongoing expenses incurred by sick people are not. Smoke and mirrors, political rhetoric and liberal media spin don’t change that.

From Department of HHS regulations

The provisions of this final rule, combined with other provisions in the Affordable Care Act, will improve the functioning of both the individual and the small group markets while stabilizing premiums.

The transitional reinsurance program will help to stabilize premiums in the individual market. Reinsurance will attenuate individual market rate increases that might otherwise occur because of the immediate enrollment of higher risk individuals, potentially including those currently in State high-risk pools. In 2014, it is anticipated that reinsurance payments will result in premium decreases in the individual market of between 10 and 15 percent relative to the expected cost of premiums without reinsurance.

The risk corridors program will protect QHP issuers in the individual and small group market against inaccurate rate setting and will permit issuers to lower rates by not adding a risk premium to account for perceived uncertainties in the 2014 through 2016 markets.

The risk adjustment program protects against the potential of adverse selection by allowing issuers to set premiums according to the average actuarial risk in the individual and small group market without respect to the type of risk selection the issuer would otherwise expect experience with a specific product offering in the market. This should lower the risk issuers would otherwise price into premiums in the expectation of enrolling individuals with unknown health status. In addition, it mitigates the incentive for health plans to avoid unhealthy members. The risk adjustment program also serves to level the playing field inside and outside of the Exchange.