How Obamacare Made Health Insurance Industry 'Villains' Into White House Partners



Recall, for a moment, how health insurers were treated by Democrats in the Obamacare debate. They were the bad guys, in no uncertain terms. "They've been immoral all along,Rep. Nancy Pelosi (D-CA), then the House Majority Leader said in July 2009, as the debate over the government-run public option raged. "They [insurers] are the villains in this. They have been part of the problem in a major way." 

Democrats found some success in casting insurers as the antagonists, and made a show of targeting health insurers. "It is well known to the public that the health insurance companies are the problem," Pelosi said in October as she warned insurers how much the health law would cost them.

So, how did Obamacare end up punishing the big, bad insurance company villains? By creating a federal program to help cover their costs in the event of higher than anticipated spending—and then expanding that program at the request of the insurers following the launch of the health law's exchanges last year.

A report released this week by the House Oversight Committee highlights how, in the months since the exchanges went online, the Obama administration has worked closely with the insurance industry, looking for policy options to assuage insurers' financial woes and feeding talking points to insurance industry officials prior to major media appearances. And even though the administration has stated an intention to run the program in a revenue-neutral manner, the report finds it's likely to cost taxpayers around $1 billion this year. 

American Academy of Actuaries

The focus of the White House/ health insurer relationship is Obamacare's "risk corridor" program. Frequently described as a bailout of insurers, it is a symmetrical risk sharing program set to run through 2016: Participating insurance carriers set a target for health spending each year, and if the total amount comes in at 103 percent of the target or more, the federal government kicks in a share of the overage; between 103 and 108 percent, the federal government pays half. Above 108 percent, the federal government pays 80 percent. If spending comes in lower, insurers pay the government.

The thinking when the law was passed was that the program would be revenue neutral; some insurers would pay in, and others would be paid. The payments would even out. But there's no requirement in the law that it be revenue neutral, which means that it's possible for the federal government to pay out a lot more than it takes in.

Earlier this year, the Obama administration indicated that it expected the program to be revenue neutral. But the Oversight Committee report surveyed 80 percent of participating insurers and found that, on net, insurers expect payouts of about $725 million this year. Add in the other insurers who weren't surveyed, and it's possible that risk corridor payouts will end up totaling $1 billion.

Now, it's of course possible the balance could always shift over time, leaving a program that is revenue neutral for its entire three year run. But the early signs aren't promising.

And insurers sure aren't excited about the possibility that the administration might actually decide to operate the program in a revenue-neutral manner. Insurers, who had already expressed concern about Republican opposition to the risk corridors, lobbied against the possibility. At least one even contacted the White House directly. 

In early April of this year, the Committee report says, Care First Blue Cross Blue Shield CEO Chet Burrell wrote to Senior Adviser Valerie Jarrett warning that "a brewing issue" could "negatively impact upcoming ACA premium rates" and requesting a conversation. The two spoke on the phone that day, and Burrell followed up with an email warning that a revenue-neutral implementation of the risk corridor rule could push insurers "to increase rates substantially (i.e., as much as 20% or more…)." The letter described Burrell's worries as urgent, and thanked her for understanding. "I am only trying to give a 'heads-up' notice on an issue that could produce an unwelcome surprise."

Jarrett was eager to assuage his concerns. According to the report, Jarrett wrote back saying that the White House "policy team is aggressively pursuing options." Later that month the administration published a memo, titled Risk Corridors and Budget Neutrality, which said that if the program does not take in enough funds to match the required payouts, payments would be reduced accordingly the following year.

Burrell wrote back, still concerned about the policy and warning, again, premium increases would likely appear because the risk corridors program was no longer reliable. 

Jarrett's response: "After speaking at length today with Jeanne [Lambrew, Deputy Director of the White House Office of Health Reform] and our other policy folks, I do not think I have any more to add. They seem to have given you 80 percent of what you requested and I am not in a position to second guess there [sic] analysis."

Eventually, though, the administration did second guess the analysis. Insurers pressed on, with increasingly adamant lobbying that the risk corridors program not be operated with "the constraint of budget neutrality," as America's Health Insurance Plans (AHIP), the top insurance lobby group, put it.

When the final rule came out in May, the administration had made a number of changes. Even in the event of a shortfall, it said, the administration would make "full payments" to insurance carriers. If necessary, "HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations." The May rule also made additional changes to the payment formula making the risk corridor more generous and increasing the likelihood that insurers would receive payments through the program.

In short, insurers warned that premium hikes were likely under Obamacare, and begged the administration for money. The administration was eager to respond, eventually gave in to the insurance industry's demands, and decided to expand and existing program to minimize insurer losses under the law. The Obama administration isn't treating health insurers like villains. It's treating them like partners.

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19 responses to “How Obamacare Made Health Insurance Industry 'Villains' Into White House Partners

  1. Shorter answer: Don’t worry insurance companies, if you make money you get to keep it. If you lose money, we’ve got your back. Privatize the profits, socialize the losses. It’s worked great for the banking industry.

    1. Yeah, didn’t we just do a recession based on this? Can’t they come up with something else for the next one? Mix it up a little. They’re as bad as Hollywood.

  2. I am waiting for Gruber to tell us that this also was a typo.

  3. So, how did Obamacare end up punishing the big, bad insurance company villains? By creating a federal program to help cover their costs in the event of higher than anticipated spending…

    I assume the insurance companies knew the drill going in. They were going to be publicly demonized but privately taken care of. Obviously there’s too much money to be thrown around in the insurance industry for any politician to actually alienate them.

  4. So it’s insurance for the insurance company? *head explodes*

    1. There’s insurance for insurance for insurance companies?.

      1. And the leftmost “insurance” is known as a “taxpayer-funded bailout”.

      2. It’s insurance all the way down.

    2. So it’s insurance for the insurance company? *head explodes*

      It’s called reinsurance, standard practice for at least a century. Imagine 3 small insurers. Neither can handle the costly risk of, say, cancer, so they form a pool of insurers and share THAT risk (cancer) among companies not individuals. VERY common.

      Here, insurance companies were forced to set prices BEFORE knowing their costs (of pre-existing conditions). In a smaller scenario, they’d reinsure with a larger insurer. Here, that leaves only the government.

      If Obamacare guessed correctly on the percentage of pre-existing conditions, then the higher-profit insurers share their gains with the low-profit insurers and it all breaks even. (rearranges the same risk)

      But Obamacare guessed wrong on how many “sick peopele” would enroll … which most of us have known for at least six months. If Suderman understood insurance he’d know how this works.

      I’ll save you the math. If taxpayers take a loss on this, that will be offset by the gains of paying for smaller subsidies. The subsidies will be smaller because the ENTIRE insurance industry under-priced their premiums … which we’ve also known for over 6 months.

      So there is no cause for hysteria, enflamed by reporters who don’t know how insurance works. It’s more proof that Obamacare failed to assume that mostly sick people would be enrolling. Also assumed for over months.

      But it still caused your head to explode. 😉

  5. The Obama administration was simply using a technique used in marketing over time whereby the company targets so-called ‘centers of influence’ as they are on board in order to build public trust of their product/service.

    Unfortunately, no amount of clever marketing techniques can overcome the cacophony of negative yet all too true experiences so many American businesses and individuals have experienced. Heck, we just found out that our employee health insurance premiums are rising 19% and I have no doubt that Obamacare is partially to blame for This staggering increase.

  6. My question is, how do liberals not see the cognitive dissonance in simultaneously holding their contempt of insurance companies and holding all citizens at gunpoint to force them to give money to insurance companies? It puzzles me.

  7. It would help if Suderman undetstood how insurance works.

    Risk corridors arose because insurance companies are forced accept pre-existing conditions at no price. Here in Idaho we call that forcing suppliers to sell at a loss, which forced premiums up on all the rest of us.

    Imagine YOU are setting premiums for ObamaCare. There are tens of millions of VERY high risk who must be covered. Nobody know WHERE those risks will be insured. Do you set your premiums high, best-case scenario, low for best-case ot in the middle assuming average risk?

    This is where Suderman blew it (and everyone else). Every insurer will show different gains or losses. Buy it all balances out ONLY if Congress guessed right on the TOTAL percentage of pre-exisiting.

    It doesn’t now look to balance, creating a net loss to taxpayers, which can ONLY happen if the entire industry enrolls too too high a percentage of sick people ? < iwhich everyone has known for months, right? (the death spiral)

    So there’s no ripoff, no hysteria and — if losses are too high then premiums are lower than otherwise, right? And if premiums are lower than otherwise … wait for it ? taxpayers pay less in subsidies than otherwise!!

    I’m not defending the setup and I’m also not falsely flames of hysteria. Bottom line, if risk corridors show a net loss to taxpayers, then we simply have MORE proof of what we already thought.

    But apparently, one must know how insurance works to understand it.

    1. Americans not only don’t understand how insurance works, many don’t WANT to understand. “Making a PROFIT on peoples’ healthcare? That’s disgusting!” As if feelings mean insurance companies should somehow function differently from other businesses. Try explaining how insurance works to an imbecile like that.

      Also, I don’t even read Suderman articles anymore before scanning the comments section.

      1. Speaking of imbeciles, you’re the one who doesn’t know the difference between healthcare and health insurance. “People’s healthcare” is provided by doctors, nurses and hospitals. Health insurance is something separate, which is something else in economics that liberals cannot grasp.

        It’s also why the uninsured rate among Medicaid eligibles is HIGHER than among that greedy private market. Shameful.

        If you don’t want other people subsidizing you, and if you can’t even be bothered to write your own checks, then pay cash.

        Originally, in the healthcare designed by AMERICANS, the risk sharing was all nonprofit from then-common ethnic lodges and fraternal organizations, with religious hospitals caring for the uninsured We didn’t have 100% coverage, but we had 100% TREATMENT. Again, insurance is not treatment.

        But liberals never did understand the difference between healthcare and health coverage, so FDR fucked it all up.

        Before FDR, there were NO health insurers, profit or nonprofit. And before LBJ we still had 100% treatment with those charity hospitals.

        How many American die uninsured, because all liberals are as ignorant as you on this? Downright shameful.

  8. I was reading that hospital profits are up due to the decline in the number of uninsured:


    1. Common knowledge. And at the cost of higher premiums for everyone. Just shift the losses.

      Imagine if homeowner insurance was forced to insure “pre-existing conditions.” Your neighbor’s house is on fire, so he buys fire insurance which reimburses his loss of $150,000. He must pay the same premium as everyone else in his pool.

      Now assume his pool is your neighborhood. Where does the $150,000 come from? Higher premiums on everyone else in your neighborhood … forced to subsidize a deadbeat.

      Not all pre-existing conditions are deadbeats, but over 90% of them — those who change jobs (and insurers)– were guaranteed coverage way back in 1996.

    2. I read, when PPACA was debated or shortly thereafter, that PPACA was worth at least 1 trillion more in new revenues.

      1. There’s a lot of bunk associated with PPACA.

        Profits may be up but REVENUES are down in the Medicaid cohort, which nobody knows why people are now LESS likely to get medical care WITH “insurance”

        Medicaid — where the uninsured rate was HIGHER than in the private market, 18.8% to 16.3%. That’s before the expansion of Medicaid when 12 million Americans, 1/4 of our uninsured were eligible for Medicaid or CHIP (children). but never enrolled. Too many doctors cannot afford to treat people AND staff for Medicaid’s immense paperwork, for as little as $17 per visit.

        So price is the problem in healthcare but we can’t give it away.

        The Medicaid expansion is likely to increase the PERCENTAGE of Medicaid uninsured. Consider there’s no increase in the number of doctors who will accept Medicaid.

        We have more people dying uninsured among Medicaid eligibles, than dying in the “greedy” insurance market. Shameful?

  9. . . . which means that it’s possible for the federal government to pay out a lot more than it takes in.

    That never has happened in the history of the world, has it?

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