An excerpt from my newsletter this week:
Taxpayers will now be of further assistance to the federal health care law.
If the Obamacare exchanges become suffocated with high-risk policyholders, this will cause adverse selection – triggering an insurance company bailout. The bailout kicks in if the cost of providing care for those insured on the exchanges is higher than original estimations. If this scenario occurs, the law’s risk corridor provision will compensate insurers up to 80% of company losses.
The bailout will most likely happen in the next few years, especially since insurers can no longer ask questions concerning an individual’s health status on their policy application. They simply will not know the risk they are dealing with until policyholders start submitting claims.
Reinsurance also acts as another safety net and applies to big businesses that self-insure and insurance carriers. It is a $63 fee assessed on not just every worker or individual, but dependents as well. Because of this, The Wall Street Journal dubs this tax as the “belly-button tax.” The tax will tally up to $20 billion through 2017, and an insurance company can access this fund if they spend over $45,000 on an individual’s health care costs. **Originally, the law set the limit at $60,000. It has been lowered since Obama’s decree that insurers allow customers to keep their plans if they really liked them for one more year – meaning that more low-risk individuals will probably take up this offer to avoid experiencing the forbidden “rate shock.”
