Insurance companies sue the Department of Health and Human Services for $12 billion over Obamacare payments
Health insurance companies appealed to the Supreme Court for the federal government to owe them $12 billion. Health insurance companies claim to have suffered losses under the Affordable Care Act, also known as, Obamacare.
What is ACA?
A brief note on what ACA is: Affordable Care Act plans are sold on or off-exchange, but all new major individual health and medical policies sold after 1 January 2014 are required to be compliant with the Affordable Care Act (ACA). ACA coverage or Obamacare was created for people with existing major conditions such as cancer, heart diseases, stroke, diabetes, HIV, or for people who need in-vitro fertilization or maternity care. It provides health insurance coverage, preventive care, and health care costs.
Risk Mitigations for Affordable Care Act
Affordable Care Act includes three risk mitigation programs for the insurance companies. One of those is for example if the premiums of insurance company A exceeds the claims received from the customers, company A will have to pay into the fund. On the other hand, if insurance company B did not charge much premium for their customers and the claims received by them from their customers is higher than the premiums charged, company B could draw from the funds.
In short, people with more income and fewer claims would compensate for those with less income and more claims. However, this did not happen. People claiming the insurance with low premiums were higher than those contributing to the Affordable Care Act funds.
The three risk mitigation programs were designed to protect the insurance companies from incurring losses for providing low and affordable premiums to people with low income. However, the risk corridor was designed to last only for three years. It should have been modified or taken off after 2017 which clearly did not happen.
Furthermore, another challenge faced by the health insurance companies was to set the right amount for premiums for every individual. As there is no way to know how sick the new customer is or could get. Also, as per the government, preexisting health conditions are not considered in the Affordable Care Act. Customers cannot be charged a higher premium or denied the Affordable Care Act health coverage on that basis. The uncertainty led to miscalculations of the premiums in the beginning years leaving the health insurance companies in heavy debt.
As the program began in 2014 and the premiums were set to go ahead. Government changed the policy for the Affordable Care Act to require to be budget neutral. Thus, the companies only received a partial amount of money they had asked for due to the amount exceeding way too much as compared to what was contributed initially. This debt forced companies to either shut their businesses or stop providing coverage.
Hence, according to the insurance companies, the federal government owes them over $12 billion. However, last year federal court ruled against a couple of carriers who filed their claims. Some of the insurance companies have filed their petition and the case will be heard soon.
Furthermore, in the Federal court defense, congress states that the insurance companies, in the early years of Obamacare, had raised their premiums much higher than what was expected. That was the partial reason for the shortfall. Also, according to the federal government, the program had to be budget neutral and thus they do not have to make any payments.
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