Obamacare Bailout or Risk Adjustment? First Insurer Comes Forward Requesting $250 to $450 Million

"There’s been a lot of discussion about whether the risk adjustment tools embedded in ObamaCare amount to a bailout for the insurance companies, or are a reasonable feature of the law. There’s been far less information about how much money the insurers stand to gain from these measures, to offset their expected losses.

Now we have some hard numbers. Humana announced that it expects to tap the three risk adjustment mechanisms in ObamaCare for between $250 and $450 million in 2014. This amounts to about 25 percent of the insurer’s expected exchange revenue. This money is needed to offset losses that the insurer will take as a result of slower enrollment in its ObamaCare plans, and a skewed risk pool that weighs more heavily toward older and less healthy members than it originally budgeted.

More than half of the money will come from the $25 billion reinsurance pool that ObamaCare provides (collected through a tax on employer-sponsored health plans). The other half will come mostly from the risk corridors. Humana is expected to book the money as revenue to offset shortfalls between what it collects in exchange premiums and pays out in medical claims.

The company blamed the Obama Administration’s decision late last year to extend grandfathering of individual market plans for the overall deterioration in the risk pool. That means that Humana (like other insurers) was counting on people from the individual market being forced to transition into ObamaCare plans. It’s widely perceived that the Obama Administration counted on that migration as well. But Humana’s statement was a very clear expression of this expectation." - Obamacare 'Bailout' For One Insurer Will Cost Up To $450 Million In 2014, forbes.com, 02/06/2014

Link to the entire article appears below:

http://www.forbes.com/sites/scottgottlieb/2014/02/06/obamacare-bailout-for-one-insurer-450-million-in-2014/