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This site is the inspiration of a former reporter/photographer for one of New England's largest daily newspapers and for various magazines. The intent is to direct readers to interesting political articles, and we urge you to visit the source sites. Any comments may be noted on site or directed to KarisChaf at gmail.

Friday, March 21, 2014

Obamacare Bailouts for Insurance Companies on the Horizon -- By Walter Russell Mead & Staff, The American Interest

Megan McArdle has a blockbuster column on the “young invincibles” and the ACA. She walks through some calculations that show that unless a truly massive amount of young adults sign up for insurance in March the ACA enrollment mix is going to skew too old. Read the piece to get a sense of her reasoning. As a result of the graying of the insurance pool, insurers are going to face losses. That could mean higher premiums and even the dreaded ACA death spiral (although McArdle doesn’t think the latter will happen):
Insurers also want this to work, so they may be willing to take losses for a few years to keep premiums low—especially if the government funnels money to them through the risk-corridor program.
What this does tell us, however, is that it is now probably impossible to achieve the demographic mix that the government has been forecasting. And keeping it from happening may well prove very expensive for the federal government.
This last bit is crucial. If insurers lose enough money that the federal government has to funnel significant funds to them, the American public will probably not respond well. It will look like the government is spending even more money to clean up a costly mess of its own creation. In theory, the risk-corridor program is meant to protect customers: the federal government’s guarantee that big loses will be made up means the insurance companies won’t charge expensive premiums to secure against risk. The risk-corridor program may be the only thing staving off a death spiral. What’s more, the CBO said last month that overall the federal government is likely to gain money through the risk-corridor program, because insurance companies have to pay the government if they make 3 percent more from premiums than they pay out in claims.

But things have changed since that CBO report. Douglas Holtz-Eakin notes that just last week the government expanded the profit margin allowable to insurers from 3 to 5 percent, in addition to taking other measures. This is a sign that the government expects insurers to lost more money than it first thought. Defenders are quick to point out that the risk-corridor program technically isn’t a bailout. But those arguments have the same plausibility to the general public as the arguments defending policy cancellations: They may be correct, but people won’t care.

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