November 30, 2015

Will There Be an ACA Bailout of Insurers?

Brian Blase

Former Senior Research Fellow
Summary

The Affordable Care Act (ACA) is not working out the way many insurance companies thought it would. Despite the individual mandate and massive new government subsidies delivered directly to insurers, many participating insurers, whose continued participation is essential to the ACA’s future, are losing substantial money.

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The Affordable Care Act (ACA) is not working out the way many insurance companies thought it would. Despite the individual mandate and massive new government subsidies delivered directly to insurers, many participating insurers, whose continued participation is essential to the ACA’s future, are losing substantial money.

In order to assist those insurers, the administration is now seeking a taxpayer-financed bailout for them. Congress can block taxpayer funds from being used for this purpose by extending language contained in the 2015 government funding bill. Congress could also look to end the back-end subsidy that transfers money from people with workplace coverage to insurers selling ACA plans – plans that satisfy all of the new rules of the law.

Insurers Losing Money on ACA plans

On November 19, UnitedHealth Group UNH -1.79%, the largest insurer in the country, announced it may pull out of the exchanges because of massive losses incurred selling ACA plans. United has pulled back on advertising for ACA plans, and its CEO suggests that people are taking advantage of the ACA’s new rules by enrolling for insurance, raking up large claims, and then dropping coverage.

Aetna AET -1.96% executives have made similar comments about people gaming the ACA’s new rules. Former Aetna CEO Ron Williams suggested that people who know about a potential need for health care services are using the special enrollment period to sign up for coverage.

Wellmark of Iowa reported that its “ACA members are using substantially more services and are receiving care for more chronic and critical diseases than anticipated.” According to Wellmark, “135 members who signed up for coverage, received several million dollars in health care services, and then terminated their coverage.” Wellmark also said that many people purchased the most generous coverage, used a large amount of services, and then used the special enrollment period to downgrade plans.

Twelve of the 23 health insurance companies – dubbed co-ops – established by the ACA with large federal loans have shut down because of large losses.

While there is not yet data for 2015, I estimate that insurers lost about $4 billion selling ACA plans in 2014. A recent analysis from Standard and Poor’s shows insurers are likely to incur steep losses in 2015 as well.