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There’s been a lot of discussion about whether the risk adjustment tools embedded in Obamacare amount to a bailout for the insurance companies, or are a reasonable feature of the law. There’s been far less information about how much money the insurers stand to gain from these measures, to offset their expected losses.
Now we have some hard numbers. Humana announced that it expects to tap the three risk adjustment mechanisms in Obamacare for between $250 and $450 million in 2014. This amounts to about 25 percent of the insurer’s expected exchange revenue. This money is needed to offset losses that the insurer will take as a result of slower enrollment in its Obamacare plans, and a skewed risk pool that weighs more heavily toward older and less healthy members than it originally budgeted.
More than half of the money will come from the $25 billion reinsurance pool that Obamacare provides (collected through a tax on employer-sponsored health plans). The other half will come mostly from the risk corridors. Humana is expected to book the money as revenue to offset shortfalls between what it collects in exchange premiums and pays out in medical claims.
The company blamed the Obama Administration’s decision late last year to extend grandfathering of individual market plans for the overall deterioration in the risk pool. That means that Humana (like other insurers) was counting on people from the individual market being forced to transition into Obamacare plans. It’s widely perceived that the Obama Administration counted on that migration as well. But Humana’s statement was a very clear expression of this expectation.
Humana said that it had enrolled 202,000 people on its exchange-based health plans as of January 31st, of which 82 percent were eligible for subsidies.
Among the other nuggets that Humana offered: Most people are selecting silver plans, but not as many as the insurer originally anticipated. Cost sharing subsidies only attach to silver plans. These are extra subsidies designed to offset out of pocket costs for consumers who fall between 150% and 250% of the Federal poverty level. The tilt toward silver plans suggests that the exchanges are still drawing heavily from this income demographic — but not as heavily as expected.
Humana management told the UBS managed care analyst team, in a follow up call, that this was a concern for the insurer. Humana is seeing more people enrolling in platinum plans than it expected. These are most likely higher cost members who are paying the higher premiums to buy down their anticipated co-pays and deductibles. In other words, they plan to tap their health coverage for medical claims.
Finally, the mix of people enrolling in Humana plans still skews toward older individuals. Only 20 percent of enrollees are below the age of 30,while 42 percent are aged 50-64. This is consistent with earlier estimates put out by the Federal government, which suggests that the demographic mix is largely unchanged.
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