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The ACA Is Making Health Insurers Much Richer

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https://paragoninstitute.org/newsletter/the-aca-is-making-health-insurers-
much-richer/

As we approach the 14-year anniversary of the Affordable Care Act, the law 
is quite different from what Congress originally enacted and has turned 
out to be enormously profitable to the health care industry, particularly 
insurers. Major subsidies to insurers, such as the law’s Medicaid 
expansion and premium tax credits for exchange plans, are significantly 
growing while the major provisions that they disliked—the Cadillac tax, 
the health insurance tax, and the Independent Payment Advisory Board—have 
been repealed.

In fiscal year 2023, federal subsidies through the ACA Medicaid expansion 
and the exchanges, which almost all flowed to insurers, totaled $218 
billion. About half of all health care spending and the majority of health 
insurer revenue now comes directly from the government. While private 
health insurance can provide financial protection and manage risk, the 
design of the ACA has led to inflationary premiums and spending, often 
with little value to patients, and has led the industry to be even more 
reliant on government.

As the Paragon Pic below shows, the weighted average of health insurer 
stock prices are up 1,032 percent from 2010, when the ACA was enacted, and 
448 percent from 2013, the year before implementation of the ACA’s key 
provisions. By comparison, the average respective growth of the most 
popular S&P 500 exchange-traded fund (ETF) was 251 percent and 139 
percent. ETFs are actively-traded funds that own a basket of securities. 
They often try to track the financial performance of an index, such as the 
S&P 500 or a specific sector of the economy.

Insurance Stock Prices Soaring After Giant ACA Subsidies
The figure shows the trends over time for the S&P 500 ETF (navy blue), a 
general health care ETF (light blue), a general insurance ETF (gray), and 
a market value-weighted group of health insurer stocks compiled by Paragon 
(orange). Generally, the four industry categories tracked each other 
closely prior to the ACA taking effect. However, a large divergence 
appeared once the ACA was implemented, with the health care fund, and 
particularly the group of health insurer stocks, surging.
Insurers getting windfalls from the ACA’s Medicaid expansion
The ACA’s Medicaid expansion has produced a windfall for health insurers, 
with federal spending on expansion enrollees equal to $126 billion in 2023 
per CBO (the state share would add about another $13 billion). Through the 
ACA, the federal government pays nearly the entire cost of Medicaid 
expansion enrollees, and most enrollees are covered by Medicaid managed 
care, where insurers provide coverage. Since states are almost entirely 
using federal dollars, they set very high payment rates to insurers for 
Medicaid expansion enrollees. In inflation-adjusted dollars, Medicaid 
spending on insurers more than quadrupled from 2010 to 2021. Insurers have 
also benefited from porous state eligibility determinations that have led 
to millions of people being placed in a Medicaid managed care plan who are 
not eligible or without proper eligibility reviews.

Here’s how the Los Angeles Times put it: “Medicaid is rarely associated 
with getting rich….But some insurance companies are reaping spectacular 
profits off the taxpayer-funded program in California, even when the state 
finds that patient care is subpar.”

The main insurers that participate in Medicaid managed care—Molina and 
Centene—have experienced very large upswings in their stock prices between 
January 2013 and 2024. Molina is up more than 1,000 percent, and Centene 
is up more than 425 percent.

Insurers reaping benefits of massive subsidies through the ACA exchanges
The ACA created large subsidies that insurers receive on behalf of most 
people who enroll in an exchange plan. In essence, the ACA turned the 
unsubsidized individual market into a market with much higher premiums 
that people typically need massive subsidies to afford. These subsidies 
give insurers significant pricing power as the burden of premium increases 
over time is almost entirely borne by taxpayers. CBO estimates these 
subsidies equaled $92 billion in 2023. President Biden signed legislation 
that significantly expanded these subsidies, essentially creating zero-
premium plans for many enrollees and making the subsidies available to 
some households that earn in the top 5 percent of all household income.

Government will continue to subsidize health care for lower-income 
Americans, but the ACA subsidies need reforms that limit open-ended 
government commitments and reduce insurers’ substantial pricing power. 
Reforms, such as Paragon’s HSA option proposal, should also aim to 
directly assist the individual to enable them to purchase the care that 
best meets their needs and so providers better meet the demands of 
patients, rather than those of third-parties. If you are interested in a 
more thorough review of the ACA and how the law is working, including how 
it has significantly increased federal budget deficits, I participated in 
a panel on March 1st at the American Enterprise Institute on the subject 
and I posted my remarks at Forbes.


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The ACA Is Making Health Insurers Much Richer "Leroy N. Soetoro" <leroysoetoro@americans-first.com> - 2025-11-22 21:52 +0000

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