(Bloomberg Business) — Not so long ago, critics of Obamacare were warning of death spirals, the risk that too many sick people and not enough healthy ones would sign up for insurance, triggering a cycle of ever higher costs for insurers and steep premium hikes for consumers.
That didn’t happen. In fact, a $10 billion cushion that the Patient Protection and Affordable Care Act —the ACA — created to protect insurance companies from high-cost patients turned out to be more than needed, the government announced yesterday.
In 2014, the ACA ended the longstanding insurance industry practice of denying health coverage to people with pre-existing conditions and charging the less healthy more for coverage. In exchange for ending such medical underwriting, the law required everyone to get health insurance and provided subsidies for those who couldn’t afford it.
But nobody knew what the risk pool, the balance of healthy and sick, was going to look like. To give insurance companies some confidence, the ACA created a temporary fund to help insulate them from a risk pool skewed by too many sick people signing up. It levied a $63-per-enrollee fee on health plans. That collected about $10 billion.
Private health plans, including those run by big employers, paid into the fund; the reinsurance payouts go only to insurers selling individual health plans. It’s largely a transfer of money from the former to the latter, to help insurers defray the costs of covering very sick patients in the individual market, where they could no longer deny coverage. (Such denials were already forbidden in the group health plans.)