Obamacare

Why Health Insurance Shareholders Are Loving Obamacare

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Whitehouse.gov

Obamacare continues to struggle in the court of public opinion, but it's good news for some health insurance industry stockholders, specifically the folks who have invested in WellPoint, which owns multiple insurers, including Blue Cross. Via The Washington Examiner's Tim Carney, here's a research note from Seeking Alpha titled: "WellPoint Inc.: Loving Obamacare?"

WellPoint, the note says, has become a "big beneficiary of the Affordable Care Act." It's doing well overall, and part of the reason is the "company's Obamacare-derived good fortune." The company was doing fine before the law's coverage expansion went into effect, but now it's performing even better, the note says—and the "'special sauce' that has made the stock soar further could in fact be Obamacare."

As Carney notes, this is not exactly the oppositional law that President Obama and other Democrats promised when the law was being debated. Rep. Nancy Pelosi (D-Ca.) described the insurance industry as "immoral" and "villains." In fact, some big insurers have turned out to be the law's beneficiaries. 

It's not just that Obamacare includes a mandate to buy their product, and subsidies to help people do so. It's that the law prevents insurers from taking outsize losses should claims costs within Obamacare plans come in higher than expected. The law includes a "risk corridors" program that pays 50 percent of excess expenses for costs in any plan that exceeds 103 percent of a predetermined target, and 80 percent of the excess for costs above 108 percent, between 2014 and 2017.

In theory, it could all balance out, if enough insurers undershoot their targets, which would require them to pay into the system. In practice, this is unlikely; information gathered from health insurers indicates that the insurance industry will receive about $1 billion in payments this year.

That extra billion, paid for by taxpayers, creates a considerable cushion for health insurers in the early years of Obamacare's coverage expansion. It means that insurers will do well regardless of whether they are actually doing well. And it means that parts of the law, like premium hikes, won't be set based on actual market conditions so much as on the assumption that the risk corridors will cover any problems. That's especially true this year, because there is so little data to go on. There was a huge sign-up boom at the end of March, and yet insurers needed to start setting rates for the coming year just a few months later—meaning claims data which would normally be the basis for updated rates was fairly scarce.

As Robert Laszewski, a health policy consultant with close ties to the insurance industry, recently explained:

With almost no valid claims data yet and the "3Rs" Obamacare reinsurance program, insurers have little if any useful information yet on which to base 2015 rates and the reinsurance program virtually protects the carrier from losing any money through 2016. I've actually had reports of actuarial consultants going around to the plans that failed to gain substantial market share suggesting they lower their rates in order to grab market share because they have nothing to lose with the now unlimited (the administration took the lid on payments off this summer) Obamacare reinsurance program covering their losses.

We won't know what the real Obamacare rates will be until we see the 2017 rates––when there will be plenty of valid claim data and the Obamacare reinsurance program, now propping the rates up, will have ended. 

With this sort of quasi-bailout in place, of course insurance industry shareholders are going to be thrilled. The law sets up a requirement that the public buys the product, heavily subsidizes its purchase, and then protects the industry from excess losses—all at taxpayer expense. Some villains. 

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