Obamacare repeal would cost insurers $1 trillion

at 03:53 PM ET, 05/15/2012

Next month, America’s health insurance plans may lose $1 trillion in revenue.

It won’t have anything to do with a business deal gone awry, or
No Obamacare? That would cost health insurers $1 trillion. (Alex Wong - Getty Images)
Americans dropping health coverage during the recession. Instead, $1 trillion is the amount of revenue that health insurance plans can expect to lose if the Supreme Court overturns the Affordable Care Act. The Court is expected to issue its opinion in late June

The figure comes from Bloomberg Government, where number crunchers have taken a look at what happens if the Supreme Court strikes down the Affordable Care Act and its expected expansion of health care coverage to 32 million Americans. They find that, should the Affordable Care Act be found unconstititional, insurance companies will lose $1 trillion in revenue between 2013 and 2020.

To put that in perspective, $1 trillion accounts for about 9 percent of all revenue that health insurers are expected to earn in the same period. It’s one-half of a percent of the country’s Gross Domestic Product. Add up the annual revenues of America’s five largest banks - Bank of America, J.P. Morgan, Wells Fargo, Wachovia and U.S. Bancorp- and you’re still about $500 billion short of what health plans can expect to lose if the Supreme Court decides against Obamacare.

“It’s the sheer size of the number that was startling,” says Bloomberg Government health care analyst Matt Barry. “I don’t know if people fully appreciate the stakes involved here. It’s not just politics - there’s a lot of money, and a lot to lose.”

The majority of that loss - $880 billion - would be from the 16 million Americans expected to purchase coverage on the individual market. Two-thirds of that revenue would be in the form of federal subsidies, for low- and middle-income Americans to purchase coverage. The rest would come from individuals, responsible for whatever part of the premium subsidies do not cover.

Another $220 billion would be lost from the Medicaid expansion, where states have often turned to insurers to manage the entitlement program.

Much of the revenue, expected from the health reform law, would have gone out the door to other parts of the health care sector. Covering more subscribers, after all, means paying for more medical costs - and Obamacare requires health insurers to spend at least 80 percent of each premium dollar on health care costs. Barry is working on follow-up research to look at how repeal would impact other industries.

But even with most money headed elsewhere, the law still leaves decent space for insurers to profit: The Bloomberg Government study estimates that, of the $1 trillion in revenue, health plans would keep $174 billion.

“That’s a significant amount of revenue,” says Barry. “It kind of makes you scratch your head a bit to wonder why insurers initially opposed this. But maybe after it passed, they finally ran the numbers and realized what was at stake.”

 
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