The problem is the health good risks are not signing up since the premiums are too much and the penalty is so small. The only ones who signed up are the worst risks, will hit the plans with claims day one and the claims loss ration will be horrible.
What does that mean? Well say the insurance company collects 12,000 in premiums and pays out 36,000 in claims, the loss ration is 300%. In other words the insurance company just lost 24,000. Bottom line the insurance companies will lose alot of money in these exchanges with these enrollment numbers and will have to increase premiums dramatically in Year 2. The problem is the good risks will say “these premiums are too high” and leave the exchange. Claims ratio will get even worse and rates even increase even more in Year 3 and more good risks leave the exchange. Eventually the rates will spiral out of control and the program is dead.
Or will they? I did not understand very well until now. Obamacare has what is referred to as ”risk corridors” during the first three years. It basically means if the insurance company has bad claims ration and loses money, they will get bailed out during the first three years of Obamacare.
In other words the insurance companies really don’t care if only 100,000 bad risks enroll and they lose tons on money since the government will bail them out. We need to remove these ”risk corridors” or this is going to end up costing the tax-payers alot of money.