Government Forecasters Significantly Overestimated Obamacare Plan Profitability

The CEO of UnitedHealth Group Inc. recently announced that the company was losing hundreds of millions of dollars by offering qualified health plans (QHPs) in the Obamacare exchanges. As 2015 comes to a close, the insurer will have lost $350 million, and it expects to lose another $500 million by offering health plans on the exchanges next year. This statement by one of America’s largest health insurers follows reports about how more than half of the Obamacare health insurance co-ops have failed.

The fact that Obamacare plans are turning out not to be profitable seems to have taken Washington’s bean counters by surprise. This is best illustrated by estimates produced by the Congressional Budget Office (CBO) and the administration on the Obamacare risk corridor program. As a little background, the risk corridor program is designed to collect payments from insurers who made excess profits—as determined by the federal government—and make payments to insurers with excess losses. If the government didn’t collect enough from profitable insurers to cover the compensatory payments, taxpayers would be stuck paying for the shortfall.

However, according to CBO and the administration, taxpayers would have nothing to fear, as the payments made by profitable insurers would cover any claims made by unprofitable insurers. Specifically, CBO estimated last year that the Obamacare risk corridor program would receive about $1.7 billion in payments from profitable insurers in 2015 (source: CBO’s 2014 August baseline), while the administration estimated that profitable insurers would remit $5.5 billion (source: the president’s fiscal year 2016 budget).

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