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As two dozen senators attempt to carve out a short-term compromise on the Affordable Care Act, President Donald Trump is sending mixed signals. At the heart of the deal are payments to insurance companies that sell certain policies on the Obamacare exchanges.
In tweets and remarks, Trump both praised the compromise effort championed by Sen. Lamar Alexander, R-Tenn., and flagged his displeasure.
"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," Trump tweeted Oct. 18.
The bailout, as Trump calls it, is no bailout; the money actually ends up with doctors, hospitals and other health care providers.
But here we zero in on Trump’s statement that insurers "have made a fortune with Obamacare."
There’s no question that the companies’ profits have been enormous. The question is, was Obamacare the cash cow?
Based on the filings of the companies, and the analysis of people on Wall Street, at universities and a respected neutral health policy group, the answer is, no.
The White House press office pointed to a news article that reported booming profits for the top five for-profit insurance companies, Aetna, Anthem, Cigna, Humana and UnitedHealth Group. Collectively, they had $4.5 billion in net earnings in the first three months of 2017.
That cash was"the biggest first-quarter haul for the group since the Affordable Care Act exchanges went live in 2014," the article said.
But the article doesn’t actually tie those profits to Obamacare.
The fact is, Obamacare does not just include the exchanges where people buy private insurance. The exchanges themselves are a small slice of the overall insurance business.
Despite the enormous attention paid to the exchanges, they make up less than 4 percent of the insurance market for people under 65. And contrary to Trump’s assertion, they have dragged profits down, not boosted them up, experts say.
Returns from the exchanges have been so bad, three out of five of the companies listed in the article have fled.
Aetna reported that it lost $650 million in 2016 and 2017 from the policies it sold in the individual market. For 2018, Aetna pulled out of every state exchange.
Cigna trimmed its participation from seven states to six. Cigna CEO David Cordani told CNBC in August that the market is "challenging," and that "we are losing money, but we are losing a little less than we expected."
For 2018, Anthem also remains, but withdrew from Ohio, Indiana and Wisconsin, and trimmed back the number of counties it serves in Kentucky, Georgia and California. It was going to leave Virginia completely, but then struck a deal with the state to sell in counties that would otherwise have no carrier.
Moody’s Investor Service ranked it as a positive development for companies that exited the exchanges, saying it "lowered exposure to this challenging business."
The overall individual market, which includes plans sold on and off the exchanges, brought an estimated $4.7 billion in underwriting losses in 2016, according to the consulting group Oliver Wyman.
The news has not been all bad for the companies. Premium hikes in 2016 and 2017 began to balance things out. The Kaiser Family Foundation, a neutral source of health sector statistics, found that insurers who stayed in the exchanges had figured out how to come out ahead, but it took a couple of years for them to get there.
So Trump missed the target completely when he linked the exchanges and the multi-billion dollar profits of five big insurance companies. But Obamacare is much more than the exchanges and parts of the program have both helped and hindered company profits.
On the negative side of the ledger, the Affordable Care Act imposed limits on the spread between premiums collected and medical services paid out. For individual and small group plans, companies must spend at least 80 percent of premiums on providing care. For the large-group plans, the percent is 85 percent.
"This provision has likely had a modest downward effect on profits," said Larry Levitt with the Kaiser Family Foundation.
In 2015, companies that fell below those minimums rebated about $400 million to customers, government numbers show.
A tax on insurance companies helps finance Obamacare. Congress lifted it for 2017, but it is slated to return in 2018 with an estimated value of nearly $13 billion.
Sheryl R. Skolnick, director of U.S. equity research at Mizuho Securities, tracks UnitedHealth Group specifically.
"That health insurance industry fee in 2018 is projected to cost the company $.75 a share on just about 1 billion shares," Skolnik said.
On the positive side of the ledger, the one clear bright spot for insurers in Obamacare was the expansion of Medicaid. In the 32 states that extended the program to adults making as much as 138 percent of federal poverty, coverage is mainly handled through private insurers.
"Mostly as a result of expansion programs under the ACA, health plans and service providers experienced strong Medicaid growth over the early years of ACA," according to a report from Mark Farrah and Associates.
Health care analysts at Milliman, an actuarial consulting firm, estimated that insurers had underwriting gains of $1.5 billion in 2016. That was a year when exchange losses topped $4 billion.
A study in Michigan found that operating margins for the companies that managed Medicaid in that state improved four-fold between 2013 and 2015.
How does this all add up for each of the five big insurance companies?
Precision is difficult, but between the losses tied to the exchanges, regulations and taxes on one hand, and profits on Medicaid on the other, Skolnik said it’s a wash.
"I think it's fair to say that the health insurance industry has probably lost close to as much as they've gotten under the ACA," Skolnik said.
Which raises the question, where did those hefty profits come from?
The bulk of the business lies in employer-based coverage, which makes sense since that accounts for nearly 60 percent of the under-65 insurance market. Over the years, companies have benefited by shifting more of the costs onto customers through higher deductibles and other out-of-pocket expenses.
And mergers in the industry have also helped.
"Consolidation among insurers has led to higher margins," said economist Amanda Starc at Northwestern University’s Kellogg School of Management.
Medicare Advantage, a quasi-private version of traditional Medicare, has also been a key profit center for insurers. Under the program, the government contracts with insurance companies to deliver health care to seniors. The rising number of retirements among baby boomers has fueled that market. Enrollments are up, and the insurance companies have worked hard to keep their costs down.
"They are very aggressive there which gives them the clout to get better provider contracts," said J.B. Silvers, a professor of health finance at Case Western Reserve University.
Trump said insurance companies have made a fortune with Obamacare. The White House cited the companies’ surging profits as proof.
But just because insurers made billions since the time when the Affordable Care Act took effect, doesn’t mean that the ACA delivered those profits. Most of the companies had steep losses on the Obamacare exchanges and got out.
Every report we saw and every expert we reached said insurers made their huge profits elsewhere, largely through their work in the large group or employer-based market or through the Medicare Advantage program. The expansion of Medicaid, another part of Obamacare also helped, but to a smaller degree.
The fortune that Trump cited didn’t come from Obamacare.
We rate this claim False.
Donald Trump, tweet, Oct. 18, 2017
Modern Healthcare, Humana will exit ACA exchanges in 2018, Feb. 14, 2017
Centers for Medicare and Medicaid Services, 2015 MLR Rebates by State, October 2016
Aetna, Aetna Reports Second-Quarter 2017 Results, Aug. 3, 2017
UnitedHealth Group, UnitedHealth Group Third Quarter Highlights, Oct. 17, 2017
Humana, Humana Reports Second Quarter 2017 Financial Results; Raises Full Year 2017 Guidance, Aug. 2, 2017
Anthem, Anthem Reports Second Quarter 2017 Results, July 26, 2017
CNBC, Cigna CEO: Obamacare marketplace remains 'challenging' for 2017, 2018, Aug. 4, 2017
Oliver Wyman, Stabilizing the individual health insurance market, Aug. 23, 2017
Los Angeles Times, Dirty little secret: Insurers actually are making a mint from Obamacare, Feb. 16, 2016
UnitedHealth Group, 2016 report, Jan. 17, 2017
Altarum Institute, Financial impact of Medicaid expansion for health plans, December 2016
Congressional Budget Office, Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2017 to 2027, September 2017
Axios, Profits are booming at health insurance companies, May 24, 2017
Integrated Healthcare Executive, UnitedHealth Group Forecasts Health Exchange Pullback, April 21, 2016
New York Times, Gripes About Obamacare Aside, Health Insurers Are in a Profit Spiral, March 18, 2017
Mark Farrah Associates, Improved Profitability for the Individual Health Insurance Sector and Other Segment Insights, Sept. 27, 2017
Washington Post, Aetna exiting all ACA insurance marketplaces in 2018, May 10, 2017
Financial Times, US health insurers give notice on Obamacare marketplace, Feb. 2017
A.M. Best, U.S. Health Insurance Industry Earnings Up 46% in 2016, June 15, 2017
Moody’s, US healthcare insurers' outlook is stable amid solid fundamentals, Sept. 19, 2017
Milliman, Medicaid risk-based managed care: Analysis of financial results for 2016, June 2017
Email interview, Sheryl R. Skolnick, managing director, Mizuho Securities USA, Oct. 20, 2017
Interview, Amanda Starc, associate professor, Kellogg School of Management, Northwestern University, Oct. 20, 2017
Email interview, J.B. Silvers, professor of health finance, Case Western Reserve University, Oct. 20, 2017
Email interview, Larry Levitt, senior vice president, Kaiser Family Foundation, Oct. 20, 2017
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