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.
David Williamson and Michael Douglass have no position in any stocks mentioned. The Motley Fool recommends and owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.