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Obamacare protects insurers from high medical costs

Since the early days of the Affordable Care Act, the federal government has said that the young and healthy need to sign up for the insurance plan to balance out higher medical bills incurred by older, sicker Americans who tend to drive up health care costs.

The latest enrollment figures show a disproportionate number — of the nearly 2.2 million Americans who have enrolled in health plans through the ACA’s health care marketplaces created by the ACA — were middle-aged or older, raising concerns that insurers may have to raise premiums next year to keep up with medical claims.

But the health care law, President Barack Obama’s signature legislation, has built-in safeguards to offset the risk of high-cost enrollees, including a little-known provision of the health care law known as the Transitional Reinsurance Program.

The program requires individual health insurers and self-funded group health plans to pay a fee on most policies that will go back to insurers to help cover losses from higher-than-expected medical claims.

Under the program, health insurers inside and outside of the marketplaces will be required to pay an estimated $25 billion over the next three years to the U.S. Department of Health and Human Services, which will use the money to help pay claims from insurers who don’t sign enough young people to stabilize their risk pools.

So far, trending below goal

About 24 percent of those signing up for coverage through December were the target 18- to 34-year-olds needed to offset high-risk enrollees, according to data release Monday by HHS. In Ohio, only 19 percent of the nearly 40,000 residents who signed up for coverage were 18-34 — well below White House’s goal of about 40 percent enrolment from that age group.

Greg Lawson, an analyst at the The Buckeye Institute of Public Policy Solutions, described the reinsurance program as a “backdoor bailout” for insurance companies that could ultimately come back to haunt their customers if the government doesn’t reach its goals.

“This is a situation where the Obama administration is saying if the program starts to flail, we’ll just throw more money back into it to forestall the death spiral,” Lawson said. “But that only works if you don’t mind subsidizing the program continually.”

If too few young people enroll and insurance companies become dependent on the reinsurance program, the cost of the fees will eventually be passed on to consumers in the form of higher premiums, Lawson predicted.

The ACA also includes a provision for so-called “risk corridors,” which require taxpayers to more directly assume part of the risk to marketplace insurers. Risk corridors allow the government to set performance goals for each marketplace plan. If the plans miss those goals, the government will step in with taxpayer money to help offset losses. However, if a plan exceeds its goal, the insurer will have to share the extra revenue with the government.

“With either program, the taxpayer is potentially on the hook,” Lawson said. “It’s no surprise these programs weren’t widely publicized because the architects (of the health care law) were fully aware they might have a hard time passing the smell test.”

The need for the reinsurance program and risk corridors will ultimately depend on the health status of the people enrolling in marketplace plans, not necessarily their age, said Kev Coleman, head of research and data for, a website site that analyzes health care costs.

But the health profile of marketplace enrollees is hard to determine, because the ACA prohibits discrimination based on pre-existing health conditions, and the only health question on the application for marketplace coverage is whether the applicant is a smoker.

“We have really good information on age and gender, but we don’t have that information on health status,” Coleman said. “It’s really a blind spot now that medical underwriting is gone. We won’t know what their health status is until the medical claims start rolling in.”

Still, some assumptions can be made based on the pace of enrollment in the marketplaces and the overall numbers, according to Coleman, who said it’s not surprising that older Americans were the first to sign up for coverage because they were most likely to be denied health insurance in the past.

Demand seen in 40 and up

But if enrollment continues to grow at the pace that it has been, the mix of enrollees is likely to change, he said.

“When you start getting into the higher numbers of enrollment, you have a better chance of getting a more representative group of enrollees who look like the rest of America,” Coleman said.

Nationwide enrollment surged last month as the uninsured flooded the marketplaces to meet the deadline for coverage beginning on the first of the year. HHS officials said more than 80 percent of total enrollment, or nearly 1.8 million Americans, signed up for coverage from the end of November last year through Dec. 28.

And demand for coverage continues to grow, according to Dave Hickman, director of the Helping Hands Community Outreach Center’s ComCare program, which was    established to help local residents navigate Ohio’s health marketplace and facilitate enrollment.

So far, most of marketplace applicants have been older than 40, Hickman said. But he attributes the trend mostly to a lack of awareness and procrastination on the part of younger residents.

“A lot of young people just don’t realize how important this benefit could be for them, so it’s not an urgent situation for them,” Hickman said. “We’re having to go after the younger people because a lot of them just don’t have a clue.”

ComCare’s outreach includes holding informational seminars and sign-up events at public libraries, community centers and college campuses.

“Most college students have access to clinics on campus, and as far as they’re concerned, that’s enough for them,” Hickman said. “But when we start talking to them, we’re always surprised at how engaged they become and how much they want to know about Obamacare.”

Federal health officials are quick to point out that in Massachusetts — whose 2006 health reform law was the model for national health care reform — most young people waited until the last month of enrollment to sign up for coverage.

Gary Cohen of the Centers for Medicare and Medicaid Services — the division of HHS responsible for the marketplaces — told reporters in conference Jan. 13 call that he expects national enrollment, which ends March 31, to be in line with what Massachusetts experienced.

“Many of them may have applied and not chosen a plan because they want to think about it, they want to shop around, they haven’t been insured before,” Cohen said, referring to the 18-34 age group.

The Obama administration has also stepped up its efforts to encourage their participation by sponsoring commercials featuring former NBA players Magic Johnson and Alonzo Mourning and other celebrity sports figures pushing young adults to sign up for coverage.

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