14 May 2014 Taxpayers Should Plan for Health Insurance Company Bailouts; WellPoint CEO Suggests ObamaCare Exchanges Attract High-Risk Consumers
In Response to Question from National Center for Public Policy Research, WellPoint CEO Joseph Swedish Says Risk Corridors are Necessary to Protect Companies Like WellPoint from Possible ‘Significant Downside’ of ObamaCare Exchanges
Indianapolis, IN / Washington, D.C. – Responding to a question about ObamaCare’s risk corridors at WellPoint’s shareholder meeting today, WellPoint CEO Joseph Swedish declined to promise that the health insurance industry giant will reject taxpayer bailouts. He also pointed out that very high-risk populations would sign up for the ObamaCare exchanges.
Swedish was responding to a question from David Hogberg, Ph.D. of the National Center for Public Policy Research, who asked, in part:
According to an analysis published in Forbes, “a closer analysis of the rate filing shows that Wellpoint is assuming in its proposed rates that its ObamaCare-compliant health plans will be very unprofitable for 2014, except for the anticipated recoveries from the reinsurance fund. Wellpoint’s projections for non-grandfathered plans includes expected reinsurance recoveries of 10.8% of premium.”
It seems that these less-than-rosy forecasts may mean the company could qualify for a taxpayer bailout through the Affordable Care Act’s risk corridor provisions….
If the situation arises in which WellPoint qualifies for taxpayer money through the risk corridor, can we get your promise that you will reject it?
With respect to risk corridors… risk corridor models are generally developed for offerings such as the Affordable Care Act in order to protect consumers, to create price stability in the marketplace, and finally to offer the opportunity to have products come to market. Generally, if you don’t have that kind of protection, many times organizations taking high risk like us may choose not to enter the market. So risk corridor models, quite frankly, are very effective and are well placed and well positioned in order to protect the consumer at the end of the day.
With respect to our situation, we certainly are mindful of the availability of those funds. I do want to underscore a little something you said to put a little correction to it. That is, we will not purposefully underprice a product to take a loss to then offer it in the marketplace to gain market share. I think that generally was a point you made. Because risk corridor payment simply doesn’t allow you to recover what you’ve lost dollar-for-dollar. We would never position ourselves to purposely take a loss. With respect to the risk corridor itself, the payment, if it were available to us, I think it would be very appropriate for us to take that payment, recognizing it is not a dollar-for-dollar payback for the loss that we would incur. It is a very meaningful model that helps ameliorate some of the risk. By no means does it take care of all of the risk that we have to absorb and so if we do take a loss and a risk corridor payment were available to us, we would take advantage of that. It is a program that has a beginning and an end to it. And again it is set up to protect plans like ours from the significant downside that could occur because of very high-risk populations that take advantage of these new products in the marketplace. The next three years, we’ll see how it plays out. Hopefully we’ll get a chance to chat in the next couple of years. But my sense is that we’ll be able to take advantage of it, but our number one goal is to not put ourselves in the position of having to be the beneficiaries of risk corridor payments.
“While I’m disappointed that Mr. Swedish didn’t commit WellPoint to forgoing taxpayer funds, his answer was still very informative,” Hogberg said. “If risk corridors are necessary to protect against high-risk populations that are attracted to the ObamaCare exchanges, then he’s in effect underscoring what ObamaCare critics have contended for some time. The exchanges won’t attract a typical risk-pool; rather, they are going to attract people who are generally older and less healthy, a population that, risk corridor or not, will lead to a death spiral.”
“I also doubt that the risk corridor will have a beginning and an end,” Hogberg continued. “If the exchange risk pools prove unstable—that is, if the young and healthy people leave after 2014 and 2015 in the face of premium hikes—then insurers will likely be petitioning the Obama Administration to extend the risk corridors beyond three years.”
“Finally, I certainly hope WellPoint isn’t underpricing its products. Nevertheless, it is a little hard to believe that the risk corridors didn’t factor at all into its pricing decisions. As long as the risk corridors are in effect, insurers will be tempted to underprice their products in the knowledge that taxpayers will pick up some of their losses.”
David Hogberg’s full question, as prepared for delivery, is available here.
David Hogberg is one of the nation’s leading health care policy analysts, and a frequent media commentator on health care issues. So far in 2014, he has been a TV or radio guest 85 times, and been cited by newspapers over 100 times. Various publications by Dr. Hogberg are available here, and his March 11 testimony at the U.S. Senate on the problems with government-run health care systems can be viewed here.
David Hogberg appeared at the WellPoint meeting representing National Center President David Ridenour, a WellPoint shareholder.
The National Center’s Free Enterprise Project is a leading free-market corporate activist group. In 2013, Free Enterprise Project representatives attended 33 shareholder meetings advancing free-market ideals in the areas of health care, energy, taxes, subsidies, regulations, religious freedom, media bias, gun rights and many other important public policy issues. Today’s Wellpoint meeting was the National Center’s 33rd attendance at a shareholder meeting so far in 2014.
The National Center for Public Policy Research, founded in 1982, is a non-partisan, free-market, independent conservative think-tank. Ninety-four percent of its support comes from individuals, three percent from foundations, and three percent from corporations. It receives over 350,000 individual contributions a year from over 96,000 active recent contributors.
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