How Fuzzy Reinsurance Math Will Lead to Future Calls for Bailouts
The Administration released information regarding the first round of applications to the retiree reinsurance program today. According to the release, nearly 2,000 employer applications have been approved; a list by state is available on the HHS website.
Over and above the vast number of union employers – municipalities, school districts, or multi-employer plans maintained by union organizations – included on the list, it’s worth examining the math behind the program and its funding. Specifically, Section 1102 of the health care law appropriates $5 billion between now and January 2014 for the reinsurance program. Assuming 2,000 employers apply for the program, that amounts to a total subsidy of $2,500,000 per employer for the next four years – or $625,000 per employer per calendar year.
Under the law’s provisions, employers can receive a maximum of $60,000 in funding for each retiree – 80% of a worker’s medical claims above $15,000 and below $90,000. But as noted above, the $5 billion in funding, divided evenly among 2,000 employers, provides each employer with an average of $625,000 per year, an amount that is only enough to cover full claims on 10 retired workers. In other words, if the participating employers average more than 10 catastrophically sick employees per year, the reinsurance program will run out of money.
To be fair, not all retirees will be eligible for the full $60,000 in federal subsidies, because they won’t have $90,000 in medical claims per year; if retired workers don’t accumulate $15,000 in claims per year – and some won’t – their employer won’t receive a subsidy for that worker at all. But how many people think that companies like AT&T, General Motors, General Electric, and the hundreds of cities whose applications were accepted really will have fewer than a dozen retirees per year making the full catastrophic claim on the federal program? If that happens – and it seems virtually inevitable – union special interests will advocate for a taxpayer bailout of the under-funded program, just as they advocated for creation of the $5 billion reinsurance fund in the first place.
Based on this fuzzy reinsurance math, it’s clear that once again, Democrats have created another entitlement program – this one directed toward their union friends and allies – that is unsustainable, and one that will face pressure for a federal bailout before the program concludes.