Home > posts > The Coming ObamaCare Bailout
August 7th, 2014 3:24 pm
The Coming ObamaCare Bailout

Because of ObamaCare’s mismatched incentive structure, some savvy commentators are warning of an impending, multi-billion dollar bailout of the insurance companies selling health care policies under the law.

“Pre-ObamaCare,” writes Dan McLaughlin, “insurers had to price their policies mainly by reference to market forces (albeit in an already heavily-regulated market)… Guess wrong and you lost money. But under ObamaCare, consumers no longer have the choice whether or not to buy policies, and insurance companies no longer face any risk of losing money, because they’ve been promised a bailout. Money will still be lost, but it will be taxpayer money, and you never run out of that, do you?”

McLaughlin is talking about ObamaCare’s “3 R’s” – reinsurance, risk corridors and the risk adjustment program. I’ve written about this multi-year, $20 billion bailout before. In different ways, each is designed to subsidize insurers for lost revenue traceable to the health law’s dysfunctional mandates. The threefold scheme was buried in the legislation to buy the support of large insurance companies who would have refused to participate without it.

Now the bill is coming due.

Based on interviews and documents containing discussions between Obama administration officials and insurance industry executives, a House Government Oversight report reveals that insurers are expecting the following payments:

1)      $640 million from the Risk Corridor program for the 2014 plan year

2)      $346 million from the Risk Adjustment program

The reinsurance program redistributes money among private insurance companies, as determined by the federal government.

The numbers quoted above are two to three times higher than originally anticipated because of the high level of adverse selection – i.e. too many older and sicker enrollees, not enough younger and healthier ones. The latter group is avoiding enrollment, preferring to pay ObamaCare’s relatively low penalty. But even that is a mirage. Reports are surfacing that as many as 25 million uninsured Americans are getting ObamaCare penalty waivers for next year; further increasing the federal budget deficit.

Bailouts can be nice, if they apply to you. But as a governing strategy, they eventually bankrupt the entire system.

Comments are closed.