“I don’t want to make the insurance companies rich. If you look at their stock price over the last number of years — take a look at what’s happened with those insurance companies — they’re making a fortune by getting that kind of money.”
— Trump, remarks on the White House lawn, Oct. 13, 2017
President Trump has defended his decision to end cost-sharing reduction (CSR) subsidies — an element of the Affordable Care Act that helped lower the cost of deductibles and co-pays for people making less than 250 percent of the federal poverty level — by pointing to the gain in stock prices for health-insurance companies.
“The insurance companies have absolutely taken advantage of this country and our people,” Trump told reporter Mike Sacks of E.W. Scripps. “And I stopped it by stopping the CSRs.”
The president has echoed this theme in various tweets, asserting, for instance, that insurance companies “have made a fortune” with Obamacare.
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.— Donald J. Trump (@realDonaldTrump) October 18, 2017
But data on file with the U.S. government shows that the president is flat wrong.
We have explained before that CSRs are not a bailout for insurance companies.
The ACA required insurance companies to offer plans with reduced deductibles and co-pays for lower-income Americans with the understanding that the federal government would make up the difference. Because of a drafting error, the text failed to explicitly say that appropriations for the CSRs would happen automatically.
A federal judge in 2016 ruled that Congress must appropriate the funds, but the ruling was appealed by the Obama administration. When Trump ended the payments, effective in November, that put the ball squarely back in the hands of Congress, which now will have to come up with a solution.
In any case, insurance companies do not make money through the cost-sharing provision, estimated to be worth about $7 billion in fiscal 2017. They’re being paid back for money they’ve already spent. If they do not get repaid for doing what is required under law, companies say they will raise premiums to make up the difference.
That in turn will raise the cost to taxpayers, because whatever savings result from eliminating the CSRs will be exceeded by additional costs for higher tax credits to defray the new premiums. The cost of premiums is capped depending on household income, so many families in the exchanges would not feel the cost of higher premiums; the bill for the increase would simply go to the U.S. government.
So why does the president say the insurance companies are making “a fortune” from Obamacare? A White House official said “the president was talking about insurance companies earning billions in profit since 2014 … while Americans are losing coverage.”
The official pointed to a report in Axios that included a chart of the profits of the big five for-profit insurers, Aetna, Anthem, Cigna, Humana and UnitedHealth Group. (Note: Despite the official’s statement, every estimate shows that millions of Americans gained health-care coverage under the law, either through the exchanges or the expansion of Medicaid.)
Trump, in his interview with Sacks, mentioned the stock prices of four of those companies. Of course, he inflated the gain greatly, using as his starting point when the law was passed in March 2010, rather than when most of the provisions took effect at the start of 2014.
Instead of gains topping 400 percent, as claimed by Trump, the stocks gained about 200 percent (Anthem), 135 percent (Humana), 130 percent (Aetna) and Cigna (120 percent) since 2014. Still, that’s more impressive than the gain in the Standard & Poor’s 500 index in that period — about 40 percent.
But more to the point, these companies are making profits for their shareholders despite Obamacare, not because of it. Contrary to the president’s claims, the insurance companies are not reaping billions off the Obamacare exchanges; they are losing billions.
This simple fact is documented in reports produced by Wall Street analysts and numbers provided by the companies that are on file with the U.S. government.
First, let’s look just at the Obamacare exchanges. Data filed with the Centers for Medicare and Medicaid Services show that in 2015, issuers of qualified health plans — health-insurance plans for the exchanges — lost nearly $6.6 billion, or about $495 per member, in the Obamacare exchanges. This was an increase from $1.8 billion in 2014, or $223 per member. That’s more than $8 billion in insurance-company losses in the first two years of the exchanges. (This information is provided under a provision of the law that, ironically, limits the profits of insurance companies.)
The management consultancy Oliver Wyman in August took a broader look at the entire individual market, including plans that are sold outside the exchanges (and thus do not allow purchasers of insurance to qualify for subsidies). The picture is not much better. In 2014, insurance companies lost $3.6 billion, in 2015 $6 billion and in 2016 $4.7 billion, according to the analysis.
As the Oliver Wyman report documents, insurance companies lost money in part because they originally set premiums too low even as the size of the individual market grew from 11 million to 17 million people after implementation of the law.
The ACA required companies to accept everyone who applied for insurance in the individual market, meaning they could no longer weed out — or charge higher fees to — people with preexisting conditions. The law also said that no one could be charged more than three times anyone else because of age. That might have worked out fine if younger people had flocked to the exchanges, but instead, it was mostly older and sicker people who signed up.
Oliver Wyman judged that these two provisions in the ACA added the most additional cost to insurance plans, even more than requiring a set package of benefits — $744 per covered person in 2016, or a total of $11 billion. That’s more than double the losses suffered by the companies.
The net result is that many of the companies named by Trump have lost their shirts and have already decided to leave the Obamacare exchanges, even as they make money on other insurance products, such as group insurance, federal government health care, Medicare, Medicaid and so forth. (Indeed, the expansion of Medicaid in the law certainly helped the companies’ bottom line.)
Just to be sure, we checked with the insurers named by Trump.
- Aetna is on pace to lose $750 million from its participation in the exchanges — $100 million in 2014, $150 million in 2015, $300 million in 2016 and more than $200 million in 2017. As a result, it is not participating in 2018, a spokesman said.
- Anthem declined to detail whether it lost money but a spokesman noted that for 2018, it has greatly reduced its participation. Whereas it had been in 14 states, in 2018 it will fully participate in only four states.
- A Cigna spokesman said: “We have not made money on the exchanges any year since inception.” The company’s chief executive in August told CNBC that the company earns only 4 percent of its revenue from the exchanges.
- Humana announced it would leave the exchanges, saying it was too risky after losing $45 million in the individual market in 2017.
Meanwhile, United Health Group, the other big-five insurance company, said in 2016 that it would largely pull out of the exchanges because it was finding it difficult to make a profit.
The Pinocchio Test
As a onetime business executive, Trump should realize there are many ways that health insurance companies can earn profits, especially in a good economy. But the one place they are not making money is in the Obamacare exchanges. He says they have earned a fortune, but they have actually lost billions, according to company filings and industry analysts. That’s why some of the companies he named have left the business. He earns Four Pinocchios.
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