Health insurers profited under Obamacare last year thanks to charging higher prices to customers and receiving more government funding after years of incurring losses, according to a report by the White House’s Council of Economic Advisers.
In prior years insurers charged lower premiums and more sicker, costly enrollees signed up for coverage while the proportion of healthier enrollees to balance out the expenses was not as high as expected. After seeing millions in losses because of this unbalance, many large insurers dropped out. But those who stayed charged more for premiums and held monopolies on their markets.
People continued to enroll in Obamacare particularly if they received premium subsidies, which capped the amount of money they paid for coverage, while the federal government increased the amount of money it spent on plans.
“The fact that low-income individuals are enrolling at high rates, while at the same time premiums are rising dramatically, is a clear sign of a distorted market that involves larger transfers from taxpayers to insurers,” members of the council wrote.
Adding to the profits were partnerships that insurers had with Medicaid programs, known as managed care. Through these plans, insurers receive a specific amount of funding per enrollee to offer coverage to people who are low-income. The enrollees pay little or no cost for their coverage, and insurers get to keep a portion of what they don’t spend. More than 30 states have expanded Medicaid under Obamacare since 2014, adding millions more people onto these insurance rolls.
The report concluded that, as a result, Medicaid enrollment more than doubled among the largest health insurance companies and that “spending soared.”
Since 2014, when federal subsidies became available for private coverage and Medicaid expansion began, health insurance stocks have outperformed the S&P 500 by 106 percent, according to the report.
Kristine Grow, the spokeswoman for America’s Health Insurance Plans, which represents insurers, noted that the partnerships allowed more people to get access to healthcare services.
She also noted that under federal law insurers must spend at least 80 to 85 cents of every dollar that a consumer spends on medical claims and on improving health quality.
“On average, insurance provider net profits are in the low- to mid-single digits for their commercial products — and trend lower for government program products such as … Medicaid managed care,” she said.
The White House report adds another area that it believes will profit insurers: The Republican-backed tax plan that was signed into law late last year by President Trump because it lowers the corporate tax rate. As a result, insurers can expect their net income in 2018 to increase by 8.7 to 19.6 percent.
“All health insurers can expect to become more profitable this coming year due to the recent tax reform,” authors of the report wrote.
Grow said insurers’ stance is that problems still persist with Obamacare without changes by Congress. She noted as well that premium increases were partially a result of payments that the Trump administration ended, known as cost-sharing reduction subsidies, that help insurers offer lower out-of-pocket costs to insurers, which they are still required to offer under Obamacare. They also are a result of other government funding programs that were ended under Obamacare’s statute, such as reinsurance.
“We want lower premiums for Americans, which is why our advocacy has been focused on supporting measures that would reduce premiums for everyone who buys their own coverage,” she said.
Despite those advocacy efforts, Congress does not appear to be poised to pass the spending provisions as part of their long-term spending deal due Friday. The White House report comes as Congress had proposed providing billions more money to health insurers that participate in Obamacare. Republicans announced a proposal that would offer a combination of mechanisms that would bring premiums down for people who do not receive subsidies and give states more flexibility. The funding included cost-sharing reduction subsidies and reinsurance for three years.
Though many of the options previously had bipartisan consensus, Democrats have noticed many low-income people are already receiving less expensive health insurance through Obamacare without any additional money. They also have balked at the bill’s inclusion of the Hyde Amendment prohibiting funds from going toward abortions.
Asked in light of the report whether the White House supports the Republican bill to lower premiums for Obamacare plans, White House deputy press secretary Hogan Gidley said the administration had provided guidance about making sure funds didn’t go toward abortions and that the White House had communicated its expectations regarding options for people who don’t receive Obamacare subsidies.
“We have provided technical guidance to lawmakers that will ensure no taxpayer money goes to funding abortion,” he said. “In addition, we have transmitted policy options to provide relief to middle-class families struggling under Obamacare. That’s so important when you consider today’s CEA report shows Obamacare has harmed middle-class families and businesses, while insurers have reaped a windfall from the increased government spending and regulation. Any funding to stabilize Obamacare markets should include these important policies.”
The provision was not included in the long-term spending deal announced Wednesday, as Republican leaders had hoped.
