ACA not exactly a cash cow
As two dozen senators attempt to carve out a short-term compromise on the Affordable Care Act, President Donald Trump is sending mixed signals. At the heart of the deal are payments to insurance companies that sell certain policies on the Obamacare exchanges.
In tweets and remarks, Trump both praised the compromise effort championed by Sen. Lamar Alexander (R-Tenn.) and flagged his displeasure.
“I am supportive of Lamar as a person & also of the process, but I can never support bailing out ins co’s who have made a fortune w/ O’Care,” Trump tweeted Oct. 18.
The bailout, as Trump calls it, is no bailout; the money actually ends up with doctors, hospitals and other health care providers.
But here we zero in on Trump’s statement that insurers “have made a fortune with Obamacare.”
There’s no question that the companies’ profits have been enormous. The question is, was Obamacare the cash cow?
Based on the filings of the companies, and the analysis of people on Wall Street, at universities and a respected neutral health policy group, the answer is, no.
The White House press office pointed to a news article that reported booming profits for the top five for-profit insurance companies, Aetna, Anthem, Cigna, Humana and UnitedHealth Group. Collectively, they had $4.5 billion in net earnings in the first three months of 2017.
But the article doesn’t actually tie those profits to Obamacare.
The fact is, Obamacare does not just include the exchanges
where people buy private insurance. The exchanges themselves
are a small slice of the overall insurance business.
Despite the enormous attention paid to the exchanges, they make up less than 4% of the insurance market for people under 65. And contrary to Trump’s assertion, they have dragged profits down, not boosted them up, experts say.
Returns from the exchanges have been so bad, three out of five of the companies listed in the article have fled.
The overall individual market, which includes plans sold on and off the exchanges, brought an estimated $4.7 billion in underwriting losses in 2016, according to the consulting group Oliver Wyman.
Obamacare beyond the exchanges
Obamacare is much more than the exchanges, and parts of the program have both helped and hindered company profits.
On the negative side of the ledger, the Affordable Care Act imposed limits on the spread between premiums collected and medical services paid out. For individual and small group plans, companies must spend at least 80% of premiums on providing care. For the large-group plans, the percent is 85%.
“This provision has likely had a modest downward effect on profits,” said Larry Levitt with the Kaiser Family Foundation.
In 2015, companies that fell below those minimums rebated about $400 million to customers, government numbers show.
A tax on insurance companies helps finance Obamacare. Congress lifted it for 2017, but it is slated to return in 2018 with an estimated value of nearly $13 billion.
On the positive side of the ledger, the one clear bright spot for insurers in Obamacare was the expansion of Medicaid. In the 32 states that extended the program to adults making as much as 138% of federal poverty, coverage is mainly handled through private insurers.
Health care analysts at Milliman, an actuarial consulting firm, estimated that insurers had underwriting gains of $1.5 billion in 2016. That was a year when exchange losses topped $4 billion.
How does this all add up for each of the five big insurance companies?
Precision is difficult, but between the losses tied to the exchanges, regulations and taxes on one hand, and profits on Medicaid on the other, Sheryl R. Skolnick, director of U.S. equity research at Mizuho Securities, said it’s a wash.
“I think it’s fair to say that the health insurance industry has probably lost close to as much as they’ve gotten under the ACA,” Skolnik said.
Which raises the question, where did those hefty profits
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The bulk of the business lies in employer-based coverage, which makes sense since that accounts for nearly 60% of the under-65 insurance market. Over the years, companies have benefited by shifting more of the costs onto customers through higher deductibles and other out-of-pocket expenses.
And mergers in the industry have also helped.
Our rating
Trump said insurance companies have made a fortune with Obamacare. The White House cited the companies’ surging profits as proof.
But just because insurers made billions since the time when the Affordable Care Act took effect, doesn’t mean that the ACA delivered those profits. Most of the companies had steep losses on the Obamacare exchanges and got out.
Every report we saw and every expert we reached said insurers made their huge profits elsewhere, largely through their work in the large group or employer-based market or through the Medicare Advantage program. The expansion of Medicaid, another part of Obamacare also helped, but to a smaller degree.
The fortune that Trump cited didn’t come from Obamacare.
We rate this claim False.