January 4, 2016

Obamacare and the Risk Corridor Financial Mess

When the Affordable Car Act ("Obamacare") was created, a little publicized provision called the Risk Corridor was written into the law.  To entice insurance providers to participate in the Obamcare insurance exchange, the Risk Corridor provision promised insurance cooperatives and insurance companies participating in the exchange that their losses would be fully reimbursed for the first 3 years.  Participating health insurance providers who made profits were required to give a portion of profits to the Obamacare program to use for reimbursing providers who lost money.

Not so fast.


Obamacare losses have been huge, way beyond prior estimates, for participating insurance cooperatives and insurance companies; only a few have made profits.  The Washington Post and other national media outlets reported in December 2015 that the Risk Corridor had only 13% of necessary funding.  Result?  Providers who lost money in by participating in the Obamacare exchange received only 13 cents for every dollar expected.

Yikes.

During 2015, more than half of new insurance cooperatives formed specifically for the Obamacare program failed.  Other previously established insurance cooperatives and insurance companies  left the program.  United Healthcare, one of the largest providers of health insurance in the United States, has stated it may leave the Obamacare exchange in 2016.

How will this financial mess affect consumers who have health insurance through Obamacare?
  1. Health insurance providers leaving the Obamacare exchange equates to less choice for consumers.
  2. Health insurance providers that remain in the exchange clearly have to raise health insurance rates - perhaps dramatically - in order to make participating in the exchange financially viable.  Dramatically increased rates only serve to entice healthy people to drop coverage (this is already happening), particularly when the tax penalty for not participating can be significantly lower than the annual insurance premiums.
  3. As more healthy people drop Obamacare coverage, the pool of people remaining in Obamacare will be sicker, creating greater costs for participating health insurance providers and, once again, subsequent increased rates for Obamacare consumers.

Outcome for Obamacare consumers?  (1) Bad.  (2) Bad.  (3) Very Bad.  A potential deadly spiral out of control for the future of Obamacare and consumers.

Glad I was able to retain my family's grandfathered PPO health insurance coverage.  What a mess for Obamacare consumers.

Please contact me if you have questions about health insurance matters.  For information about my nationwide Consulting, Expert Witness, and Tax Services visit Fouts Financial Group.

Mary Rae Fouts

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