When the ACA (“Obamacare”) was passed, it mandated that insurance companies had to insure everyone who signed up regardless of whether they had pre-existing conditions and regardless of their health status. Insurance companies were required to add millions of new insureds to their roles and insurers had no way of actuarially assessing their risk and no way to accurately set policy pricing. Because of this, everybody agreed that insurance companies would probably lose money in the first decade or so until the insurance industry was able to have real numbers to assess their risks and to price insurance policies accurately and to have the newly insureds’ health status stabilize.
The millions of new insureds would would cost more up front to assess their health and to stabilize any pre-existing health problems. Over time, once the newly insureds’ health was stabilized, their healthcare costs would go down. As an example, a new insured may need many health tests upfront (MRI’s, blood tests, etc.) to determine the cause of an illness or just to determine their overall health status. Once all of the testing and health assessments are completed, they are diagnosed, and have a treatment plan (medications etc.), the insureds may only need annual health check ups. So the costs of all of these new insureds with unknown health problems would probably be much higher in the beginning and then lower or stabilize over time.
To get insurance companies on board with the risk, Obamacare included a safety net for insurance companies. Obamacare said that the government would cover insurance losses using a pool of fees collected from the insurance companies under Obamacare. If an insurance company was going to go bankrupt from insuring the risky new individuals, the government would cover their losses out of this insurance company fee pool. The fee charged to insurance companies was to spread the risk among all insurance companies to create a safety net for the insurance industry.
This safety net encouraged the insurance industry to take the huge risk of insuring these millions of new people with unknown health status. This was called the “risk corridor.” The risk corridor payments were to be a safety net until the insurance policy market stabilized. On December 9, 2015, however, Marco Rubio and several other Republicans slipped a little noticed provision into a giant spending bill, gutting the safety net of risk corridor payments to insurance companies.
As a result of the lack of a safety net, insurance companies were thrown into a crisis. This caused a chain reaction of events in mostly poor, red states. First, dozens of non-profit insurance companies that were started under Obamacare to provide low cost insurance policies (with no profit margins) in mostly poor and low income red states went bankrupt. Moreover, because of this huge, new risk Republicans created, many insurance companies began to do either of two things: 1) greatly increase their premium prices to offset their risk or 2) entirely pull out of the markets in mostly poor, low income red states. This left some states with only one insurer. It also left so many small insurance companies in distress that they were easily gobbled up by the insurance giants and the insurance giants have successfully eliminated all competition in many markets. As you know, when there is no competition, there is typically price gouging.
This is why there was an explosion of news stories in 2016 (during the lead up to the Presidential election) about premium costs rising and insurers backing out of the market. The sad truth of the matter is Republicans are so cynical that they would purposely hurt their own constituents to try to get political advantage and create bad news stories about Obamacare. Republicans purposefully broke Obamacare and purposefully hurt their own constituents for political advantage. People are suffering, but it is not from Obamacare. They are suffering because the Republicans purposefully hurt them. The people most hurt by them gutting the risk corridors were their own red state, rural, and poor voters and Trump voters. People need to wake up on what really happened.