Administration Still Bailing Insurers Out of Obamacare Exchanges

money-rollsThe Obama Administration refuses to concede defeat in its struggle to save Obamacare’s exchanges. The exchanges lost one quarter of their members in 2015. The Blue Cross Blue Shield Association has reported its insurance plans have enrolled people significantly sicker (and more expensive) than anticipated. Finally, UnitedHealth Group, the nation’s largest insurer, will drop out of most of the exchanges in which it is participating.

Desperate to induce insurers to continue participating in exchanges, the Administration suggested it would make illegal payments from “risk corridors,” a risk-mitigation mechanism that moves money between insurers to stabilize their profits in Obamacare’s first three years. Republicans in Congress put a stop to that in 2014. So, the Administration proposes apparently illegal payments from another risk-mitigation fund, called “reinsurance.”

Reinsurance is described in section 1341 of the Affordable Care Act, which directs the Secretary to collect $20 billion from insurers for the years 2014 through 2016. This $20 billion is then paid out to insurers which disproportionately enroll very expensive patients, according to calculations determined by the U.S. Secretary of Health & Human Services and the National Association of Insurance Commissioners.

The Secretary is also directed to figure out how much of the $20 billion each insurer is liable to pitch into the fund. This calculation is an appropriate item of rule-making. However, section 1341 also states the same calculation is used to raise another $5 billion from insurers over the same three-year period: $2 billion for 2014, $2 billion for 2015, and $1 billion for 2015.

That money is supposed to go straight to the U.S. Treasury, not back to insurers via reinsurance. Guess what? In its rule, the Department of Health & Human Services stated it would only send half a billion dollars back to Treasury for 2014 and 2015, instead of the full $4 billion.

One politician, U.S. Senator Ben Sasse (R-NE), is holding Health & Human Services accountable for sending $3.5 billion of taxpayers’ money back to health insurers. In the scheme of Obamacare, $3.5 billion is not a lot of money. Its misdirection by the Administration to health insurers shows how worried Obamacare’s architects are about insurers staying onboard.

Comments (26)

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  1. The Big Ham says:

    Ezekiel Emanuel was on morning Joe this morning. He could not be more disconnected on what is happening in the market. Sadly the media members interviewing him were actually believing the nonsense he was saying. He said United Health Care pulling out of only a few markets is not a big deal. He said they have only announced pulling out of three and they really weren’t a major player anyway. What an idiot! Let’s see United healthcare controls most of the administration In the country for SCHIP so they are already getting the young and healthy kids. They have one of the strongest STM plans in the country so the are getting the older healthy. Why take a loss on the poor and unhealthy when you are already reaping the rewards of the ACA. Maybe someone should tell zeke if United lost a Billion $ and they pull out. Someone else will lose the next Billion. He must have got his PH.D. From cracker jacks….

  2. Ron Greiner says:

    A $3.5 Billion dollar (Illegal) payoff is not big money? That’s no burden? Obamacare ran TIME, America’s oldest heath insurance company and in 44 states, out of business. Now Obamacare will ask the parent company Assurant to pay part of the $3.5 Billion because they were on the Exchange in 2016? What a country!

    Give these DC central planners (MAFIA) all of the money in premiums, fines, reinsurance, taxes and fraud. I feel comfortable that these crooks and gangsters will distribute the wealth fairly.

    Bro – Obama is wheeling’ and dealin’

  3. The Big Ham says:

    Bad News for small business next year.
    Virginia is the first state with proposed rates for 2017 are in. You think health insurance is expensive now just wait. looks like virginia will average 25% increases. Sadley Virginina is one of the states politicians are saying are working.

    Proposed Rates increases
    Aetna Health Inc. (a PA corp.) 93187 Aetna Health Maintenance Organization – Small Group – 93187VA004 04/11/2016 26.01% 01/01/2017
    Aetna Life Insurance Company 38234 Preferred Provider Organization CB – Individual – 38234VA015 04/12/2016 15.91% 01/01/2017
    CareFirst BlueChoice, Inc. 10207 BlueChoice Plus – Individual – 10207VA040 04/11/2016 24.71% 01/01/2017
    CareFirst BlueChoice, Inc. 10207 BlueChoice – Individual – 10207VA038 04/11/2016 25.92% 01/01/2017
    Golden Rule Insurance Company 41892 2015 Product – Individual – 41892VA038 04/11/2016 58.59% 01/01/2017
    Group Hospitalization and Medical Services Inc. 40308 BluePreferred – Individual – 40308VA024 04/11/2016 25.91% 01/01/2017
    Optima Health Plan 20507 Optima Vantage Off – Individual – 20507VA122 04/08/2016 26.95% 01/01/2017

    • Ron Greiner says:

      Aetna Health Inc. (a PA corp.) 93187 Aetna Health Maintenance Organization – Small Group – 93187VA004 04/11/2016 26.01% 01/01/2017

      This is small group – 26% WOW

  4. Big Truck Joe says:

    If United healthcare pulled out of certain segments Obamacare market, and they’re one of the largest and most well run health insurance operations in the country, how are the others expected to compete? they won’t and the other Obamacare insurers will begin to lose as much money when all those sicker than average UHC patients go to other insurers. is any Obamacare private plan or Exchange profitable on this book of business???

  5. Barry Carol says:

    UNH said on its Q1 earnings conference call that it had 795,000 exchange members as of 03/31/2016 and it expects that number to drift down to 650,000 toward the end of the year and it will still lose about $650 million on this business this year on top of over $400 million last year.

    I think there are over 10 million people with exchange plans nationwide at this point. The Blues that dominate individual states are most likely the biggest exchange players in those states. There are 36 Blues licensees including 14 owned by Anthem (formerly Wellpoint).

    By the way, UNH also only has about 100,000 STM members and this is a company that will take in $182 billion in total revenue for 2016 including its Optum segment.

    • Ron Greiner says:

      Not all of the slimy Blues are on the Exchange. In IOWA most people have a choice of 2 plans and one of those is UHC. So when UHC terminates their insurance on the Exchange in 2017 then there will be ONE player on the Exchange! This is called managed competition, one player.

      Blue Cross of IOWA was smart and never did enter the Exchange and lose any money. Blue Cross of IOWA was rewarded because with Obamacare making Individual Medical (IM) so expensive the Blues have less competition to their employer-based plans and can now raise premiums there, their cash cow.

      • The Big Ham says:

        Not to mention Iowa also expanded Medicaid so people getting tax credit up to 300% of poverty level have there kids forced to,SCHIP. They have a choice of UHC or BCBS. Get the healthy kids used to the socialism first.

  6. betty says:


  7. Wanda Jones says:

    Dear Thinkers….

    Yes, Obamacare is flawed and Obama himself is a liar, and all the staff are raving incompetents. Just one meta-point. Even if Obamacare is repealed and replaced with something that looks smarter and more logical, this program will be mis-managed as well and there will still be moral swamps in our government. It is the government civil service, the lifetime employment, the influence of industry sub-groups like unions, and the sheer economic illiteracy of most policy-makers that will keep this ill-plowed field full of fetid regulations, and blatantly unethical executive decisions. What does America do about that, much less Congress itself?

    And underneath is a poverty of appreciation for capitalism. “Redistribution of wealth” has not received its due critique as a process that will rely wholly on “special interests.”

    Obamacare has continued the habit of our thinkers of thinking of an insurance solution as being enough. It isn’t and if that is all that is worked on, the healthcare system will suffer at its core.

    Wanda J. Jones

    San Francisco

  8. Bob Hertz says:

    Wanda and others, if you want to read about sheer incompetence and deceit in a government health program, go to Crains New York on the bankruptcy of the largest ACA co-op, Health Republic…


    I will once more remind my fellow commenters on this site that Medicare has many areas where government subsidies are directed to health insurance companies, especially since the passage of Part D and Medicare Advantage legislation in 2003.

    These subsidies are designed to preserve a stable insurance market for seniors, and to keep private insurers in the program in some manner besides just administering claims.

    Why are these Medicare subsidies just a part of doing business (and explicitly defended by Dr Goodman), whereas the ACA subsidies (which are smaller) are described in very ugly terms?

    A cynic would say that subsidies granted by a Republican Congress in 2003 get a lot more tolerance than subsidies granted by Democrats in 2009.

    I am an open minded person, I think. If I am wrong about what seems like hypocrisy, I will listen.

    I will also add that every country in Europe that uses private insurers to provide universal health coverage has some form of publicly funded reinsurance and risk adjustment program. (Denmark, Germany, Switzerland, and others.) If you demand guaranteed issue, I think you have to have subsidies.

    The ACA designers did smuggle these into the legislation, and maybe should have been more open about them. But treating them like deep scandals does not seem constructive to me.

    • I do not think it is cynical to point out that private insurers are subsidized in Medicare Advantage and Medicare Part D. It’s easy for me to say, because I disapproved of Medicare Part D back in 2003.

      Nevertheless, it is important not to let perfection be the enemy of the good. Medicare Advantage is not perfect and I have advised reforms. However, it moves from government price fixing to quasi-market price formation, which is very beneficial.

      Also, if you can figure out a way to reduce subsidies to people over 65 in our political system, I wish you good luck with it. They think they “paid into” Medicare and are just getting what they are owed. That’s why realistic proposed Medicare reforms (e.g. Paul Ryan’s) only effect people 55 and under.

      Plus a big problem with Obamacare tax credits is the bad labor market effect, about which I have written. It imposes high “cliffs” of marginal income tax rates, punishing people for increasing their incomes.

      There is a small means-testing effect in Medicare premiums, but is effectively a universal subsidy for almost everyone, so does not have that effect.

  9. Bob Hertz says:

    John, if you are opposed to reinsurance and risk adjustment funds, then I would have to ask, how would you insure the medically uninsurable in the individual market?

    I am not opposed to high risk pools if they are federal in nature and funded adequately, but that will not cost a nickel less than the more hidden taxes of the ACA that you decry.

    All I am trying to say is that if we want private insurers to do something unprofitable, we have to pay them to do it.
    Last night I read that Dwight Eisenhower proposed a large reinsurance fund to help cover high risk persons in 1953.

    The Rubio-led opposition to ‘bailouts’ was based on political gamesmanship and resolute actuarial ignorance.

    • My best case scenario is the health status insurance proposed by Professor Cochrane of U. of Chicago. That is likely a stretch because it requires abstract thought beyond the capability of our political system to manage.

      So, I am okay with risk adjustment /reinsurance but the current methods used have to be improved. CMS recognizes this. Plus, it should not be opaque to consumer. The adjustment should be transparent and actually paid to consumer so he can direct the funds appropriately.

  10. Bob Hertz says:

    Thanks John.

    I know you have probably covered this in other posts, but with health status insurance, what about the people who are high-risk today?

    Let’s say they are leaving a group plan due to early retirement, and they were diagnosed with heart disease a month before they leave the job. (this happened to me in 2007)

    How do they get their first individual policy in a world of health status insurance?

    • Ron Greiner says:

      Bob, the people on individual insurance are sick and tired of paying for employees who are sick. Why didn’t you have individual insurance in 2006?

      Was it cheaper at your job? Is that the excuse?

    • The simple answer is they cannot. Or the government could give a one time subsidy when the new system was legalized. However, anyone who ever misses a premium payment would be in trouble – and many millions would. So, we do not solve the political challenge.

  11. Bob Hertz says:

    My group insurance in early 2007 cost me $50 a month.

    I went on COBRA after leaving employment, since no insurer would accept me.

    Once COBRA ran out, I was supposed to be eligible for a HIPAA continuous-coverage guaranteed issue plan….but no carrier in MN would offer such a plan.
    (such plans of course are filled with unhealthy people.)

    That experience gave me great skepticism about the individual market.

  12. Ron Greiner says:

    Bob, you took the big gamble on group insurance because it only cost $50 a month and lost. You have “skepticism” about individual insurance because you couldn’t get it AFTER you became sick. But you don’t have “skepticism” about group insurance that terminates their sick people after taking their premiums for years. That’s odd!

    The good thing about individual insurance is that they don’t terminate their sick consumers after taking their premiums for years. See the difference?

    How much was your COBRA before it terminated you?

  13. Bob Hertz says:

    My group insurance never terminated me. I left the firm for a better job and COBRA kicked in for 12 or 18 months, I forget which. The COBRA premium was about $700 a month, which was lot in 2008.

    I agree that individual insurance plans have no employment requirement, which is a good thing.

  14. Beth says:

    I would suggest others too to use this obamacare exchange program.