Insurance company bailout built into Obamacare

Rick Moran
As it becomes more and more obvious that insurance companies are going to take a bath as a result of the skewed pool of healthy enrollees vs. sick ones, there has been talk of bailing out the insurance companies in order to keep them from abandoning the unprofitable exchanges.

We needn't worry. The bailout is in the law itself - and President Obama has apparently forgotten to mention this fact to the American people.

Weekly Standard:

Obamacare contains a "Reinsurance Program that caps big claim costs for insurers (individual plans only)."  He writes that "in 2014, 80% of individual costs between $45,000 and $250,000 are paid by the government [read: by taxpayers], for example." 

In other words, insurance purchased through Obamacare's government-run exchanges isn't even full-fledged private insurance; rather, it's a sort of private-public hybrid.  Private insurance companies pay for costs below $45,000, then taxpayers generously pick up the tab-a tab that their president hasn't ever bothered to tell them he has opened up on their behalf-for four-fifths of the next $200,000-plus worth of costs.  In this way, and so many others, Obamacare takes a major step toward the government monopoly over American medicine ("single payer") that liberals drool about in their sleep.

Laszewski adds, "The reinsurance program has done and will continue to do what it was intended to do; help attract and keep more carriers in Obamacare than might have otherwise come."  Thus, Obamacare is being aided by having taxpayers subsidize big insurance companies' business expenses.  (Who could ever have guessed that big government and big business might be natural allies?)

But, amazingly, it doesn't stop there.  Laszewski writes that Obamacare also contains a "Risk Corridor Program that limits overall losses for insurers."  So insurers not only don't have to pay out all of their costs; they also don't have to swallow all of their losses. 

Laszewski explains that if an insurance company expects its costs in a given year to be X, and those costs end up being more than X plus 2 percent, taxpayers will come to that insurance company's rescue-thanks to Obamacare.  In fact, once an insurance company covers that initial 2 percent in unexpected costs, taxpayers will cover at least 80 percent of any additional costs the insurer accrues. 

Laszewski provides a couple of examples to help illustrate taxpayers' unwitting generosity toward these "participating health plans" (plans sold through Obamacare's government-run exchanges):

"[I]f the health plan has costs at 110% of the medical cost target [the costs that the insurer expects to accrue], it will be responsible for only 102.4% of the target (a 2.4% shortfall)-only about a quarter of its losses.

Because Obamacare is so generous with your money, Laszewski believes that there will not be a spike in premiums next year - that insurance companies will hold the line on costs hoping to give the administration time to right the ship and make Obamacare pay.

And why not? Their exposure is minimal. As long as the American people don't know they are giving these companies billions of dollars to prevent a mass exodus from the exchanges, the industry will probably play ball with the White House.

It's been suggested that Republicans attach a "no bailout" provision to the debt ceiling bill, as well as a cancellation of the individual mandate. What makes this a winning strategy to my mind is that the press is going to have to explain what kind of bailout is already in the law. I doubt whether even many rank and file Democrats will be on board to bailout large corporations.

It will also put Obama on the spot as he is going to have to explain why bailing out the insurance companies is in our best interests. In the end, Obama may get his "clean" debt bill. But it will come at a price he may regret paying.


As it becomes more and more obvious that insurance companies are going to take a bath as a result of the skewed pool of healthy enrollees vs. sick ones, there has been talk of bailing out the insurance companies in order to keep them from abandoning the unprofitable exchanges.

We needn't worry. The bailout is in the law itself - and President Obama has apparently forgotten to mention this fact to the American people.

Weekly Standard:

Obamacare contains a "Reinsurance Program that caps big claim costs for insurers (individual plans only)."  He writes that "in 2014, 80% of individual costs between $45,000 and $250,000 are paid by the government [read: by taxpayers], for example." 

In other words, insurance purchased through Obamacare's government-run exchanges isn't even full-fledged private insurance; rather, it's a sort of private-public hybrid.  Private insurance companies pay for costs below $45,000, then taxpayers generously pick up the tab-a tab that their president hasn't ever bothered to tell them he has opened up on their behalf-for four-fifths of the next $200,000-plus worth of costs.  In this way, and so many others, Obamacare takes a major step toward the government monopoly over American medicine ("single payer") that liberals drool about in their sleep.

Laszewski adds, "The reinsurance program has done and will continue to do what it was intended to do; help attract and keep more carriers in Obamacare than might have otherwise come."  Thus, Obamacare is being aided by having taxpayers subsidize big insurance companies' business expenses.  (Who could ever have guessed that big government and big business might be natural allies?)

But, amazingly, it doesn't stop there.  Laszewski writes that Obamacare also contains a "Risk Corridor Program that limits overall losses for insurers."  So insurers not only don't have to pay out all of their costs; they also don't have to swallow all of their losses. 

Laszewski explains that if an insurance company expects its costs in a given year to be X, and those costs end up being more than X plus 2 percent, taxpayers will come to that insurance company's rescue-thanks to Obamacare.  In fact, once an insurance company covers that initial 2 percent in unexpected costs, taxpayers will cover at least 80 percent of any additional costs the insurer accrues. 

Laszewski provides a couple of examples to help illustrate taxpayers' unwitting generosity toward these "participating health plans" (plans sold through Obamacare's government-run exchanges):

"[I]f the health plan has costs at 110% of the medical cost target [the costs that the insurer expects to accrue], it will be responsible for only 102.4% of the target (a 2.4% shortfall)-only about a quarter of its losses.

Because Obamacare is so generous with your money, Laszewski believes that there will not be a spike in premiums next year - that insurance companies will hold the line on costs hoping to give the administration time to right the ship and make Obamacare pay.

And why not? Their exposure is minimal. As long as the American people don't know they are giving these companies billions of dollars to prevent a mass exodus from the exchanges, the industry will probably play ball with the White House.

It's been suggested that Republicans attach a "no bailout" provision to the debt ceiling bill, as well as a cancellation of the individual mandate. What makes this a winning strategy to my mind is that the press is going to have to explain what kind of bailout is already in the law. I doubt whether even many rank and file Democrats will be on board to bailout large corporations.

It will also put Obama on the spot as he is going to have to explain why bailing out the insurance companies is in our best interests. In the end, Obama may get his "clean" debt bill. But it will come at a price he may regret paying.