Did you know that the sequester could affect Obamacare?
The Centers for Medicare and Medicaid Services, or CMS, recently released a draft letter indicating that it intends to implement the 7.3% sequester cut to reduce reinsurance fund by $731 million. The reinsurance fund is designed to reimburse insurers who lose more than 8% on their public exchange plans, mitigating the risk of major losses so the insurers have an incentive to participate in Obamacare. This reduction may sound like a lot, but it will only matter if insurers start losing a significant amount of money on the public exchanges.
How likely is that? Well, Aetna (NYSE:AET) and Humana (NYSE:HUM) have both reported that they anticipate losing some money on the exchanges in 2014, but whether it will be enough to trigger payments from CMS is still unknown. WellPoint (NYSE:ANTM) anticipates making a small profit from the public exchanges, so the reinsurance fund would not be used in that case. Nonetheless, if insurers start losing significant money, they may leave the exchanges -- threatening Obamacare's success in the long term.
It wasn't all bad news from CMS this past week: Hospital operators received a welcome reprieve when CMS announced an extension of the Medicare-Dependent Hospital and Low-Volume Hospital programs for an additional six months. This would particularly affect LifePoint Hospitals (NASDAQ:LPNT), which operates primarily in rural areas.
In the following video, Motley Fool health-care analysts David Williamson and Michael Douglass discuss these and the other major Obamacare stories coming out with only eight days left until enrollment closes.