Insurers may have lost $4B on Affordable Care Act plans in 2014
Based on an analysis of federal risk corridor program data, insurers lost approximately $4 billion in Affordable Care Act plans in 2014, Forbes contributor Brian Blase estimates.
The federal risk corridor is meant to transfer funds from insurers that are more profitable in their ACA exchange business to insurers with losses in order to reduce the financial burden that is associated with operating on the exchanges. But the program will only pay 12.6 percent of what it owes to certain health insurers for 2014, the Centers for Medicare & Medicaid Services recently announced.
Based on this data, Blase, a senior research fellow with the Spending and Budget Initiative at the Mercatus Center at George Mason University, estimates that insurance companies lost approximately 12 percent on ACA plans in 2014. He attributes this to two potential factors: Insurance companies didn't accurately project the number of elderly and sick people who would enroll; and some insurance companies underpriced their plans in order to draw in more customers and then increase rates in future years.
Blase explains that he arrived at these numbers through a combination of IRS tax information stastistics and reports from the Department of Health and Human Services. By using the number of taxpayers who claimed a tax credit for 2014 to estimate the amount of money collected from subsidized and unsubsidized exchange enrollees and the amount of money that insurers collected, Blase estimated that insurers collected approximately $33.7 billion in total premiums from ACA individual market plans in 2014.
Some insurers have had to adjust their offerings on the health insurance exchanges due to financial losses. For example, Pittsburgh-based Highmark announced recently that it will offer more narrow-network plans to consumers, and Blue Cross Blue Shield of New Mexico decided to pull out of its state exchange completely.
To learn more:
- read the Forbes article
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