Obamacare: A bailout for insurer? Not really.

Will insurers of PPACA get a bailout?  I’ve seen articles that say they got a lot of sick, older people and will lose money.  Will that come out of my pocket too?


Dear Cynic,

Here is a terrific Washington Post article.  As it describes, there is a mechanism for insurers to essentially buffer the losses.  The money comes from other insurers who ended up with lower risk (healthier) people from the exchanges.  

There is a big difference between the bank and insurer bailouts and this program, which really shouldn’t be described as a “bailout”.  This program is pre-funded and limited.  The funds will not be coming out of tax revenues, and it won’t be a controversy or a surprise if a particular insurer receives funds from it.
Insurers are motivated to avoid receiving these funds.  In order to get some of this money, the insurer has to lose some of it own money.  It’s not fully paid for by the fund.  In other words, the insurer cannot under-price the plans and then just turn to the government and be made “whole”.  Thus, the insurer has less money on hand to pay claims and weather ups and downs in the following year; this weighs in to their rates which have to be approved by a state regulator.   The insurer will have to charge more, in short, because of the previous year’s losses.  This could lead to losing customers, while the basic overhead of the company stays the same; more losses, and so forth.
Linda Riddell

About Linda Riddell

A published author and health policy analyst with 25 years’ experience, Linda Riddell's goal is to alleviate the widespread ailment of not knowing what your health plan can do for you.