For Opponents, ObamaCare’s “Bailout” of Insurers is a Richer Target than Ever
The Administration continues to move the goalposts on its so-called “bailout” of insurers which lose money in ObamaCare’s exchanges. Formally, this is labelled “risk corridors”, and describes a process by which the Administration will take money from insurers which profit more than expected in the exchanges, and transfer it to those insurers which lose more money than expected.
Unfortunately, taxpayers are at risk because the revenue coming into the risk corridors is determined by premiums, whereas the payouts are determined by medical claims. If, overall, the insurers charged premium that are too low, the risk corridors will suffer deficits. This blog has covered the risk corridors thoroughly, and we expect that there will be a significant deficit. Our latest entry on the topic questioned the Administration’s assertion that the risk corridors would be budget neutral.
The Administration has just published the final rule for 2015, which includes two things relevant to the “bailout”. First, it confirms that it will increase the payout from the risk corridors, as first proposed in March.
Further, it takes a significant step towards abandoning the fantasy of budget neutrality: “In the unlikely event of a shortfall for the 2015 program year, HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers. In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations” (pp. 80-81).
This is a very important statement, because it is the first time the Administration has admitted that appropriations are required to use general revenues to make the risk corridors whole. Republicans in the House and Senate have asserted this requirement, and the final rule puts them in the driver’s seat if the risk corridors suffer a shortfall.
How will Republicans use this newly admitted power if the shortfall appears, and the health insurers ramp up their lobbying efforts to ensure they get their risk-corridor payments? ObamaCare’s opponents will be watching closely.
“In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations” (pp. 80-81).”
I’m curious to where the other sources of funding will come from. This is a very poorly planned alternative if there is a shortfall from funds.
Let’s hope its possible to block the Administration from this, especially if the plan is to raid other programs to make up for the shortfall.
Risk corridors sounded like a flawed plan from the start.
Any government bailout program usually is.
If there was ever a time to expose the budget flaws in ObamaCare, now is the time.
“First, it confirms that it will increase the payout from the risk corridors, as first proposed in March.”
Funny how they want to increase the payout, but have no legitimate way of funding it, relying on other sources.
Well in their defense, they did see the shortfall has an “unlikely event.” Yet it has been criticized on this blog for some time.
“Formally, this is labelled “risk corridors”, and describes a process by which the Administration will take money from insurers which profit more than expected in the exchanges, and transfer it to those insurers which lose more money than expected.”
The whole thing was a bad idea from the beginning. Obamacare was built on a weak foundation, soon it will all come crashing down.
Republicans have been given the gift. Now lets see how they take it and it all plays out.
They have been very adamant about repealing programs in ObamaCare. Here is a vulnerable program at their disposal.
This is important news.
I am wondering how the “too big to fail” reimbursements can be made without Congress’ approval?
This could be a significant revision, which, what, can be passed by a governmental agency?
The insurers do need protection from adverse selection.
We applied to the Texas Department of Insurance last week.
We are deathly afraid of the public exchanges, for the very fact of adverse selection.
That is why we are starting in the self-funded employer market of 200 employees or more.
Don Levit
John, you use the term “significant deficit’ regarding risk adjustment……..
but in the prior post yesterday the deficits seemed to be under $1 billion.
As we both know, that is not a signficant number to a government whose budget esceeds $3.5 trillion.
But let me make a further point……
According to Linda Gorman in a post a couple of years ago, the prospective risk adjustment in Medicare Adantage adds about $30 billion a year to federal spending.
And this $30 billion is due to insurers gamesmanship, according to most observers.
And let me make the further point that Medicare Advantage is almost the only market where private insurers make a decent profit!
At the risk of sounding a little “catty,’, there was very little anger from Repubs about $30 billion in Medicare risk adjustment…….so why worry about a few billion (at most) in ACA risk adjustment?
And let me pile on with a further point:
Every nation that uses private insurers and bans underwriting uses a lot of risk adjustmentt….
Switzerland, Denmark, Germany, et al.
Why the alarm at what amounts to pennies in the ACA program?
I welcome being corrected if wrong!
Thank you very much. I am trying to expose the fallacious notion that the risk corridors are budget neutral. So, any deficit greater than zero is significant according to my definition!
With respect to risk adjustment in general, we have not specifically criticized the other two “R’s” (risk adjustment and reinsurance) because one is self funded and the other has a fixed-dollar appropriation. It is the open-ended nature of this (albeit only for three years) that concerns us.
In principle, we think that risk adjustment as practiced in the Switzerland, Medicare Advantage, ObamaCare, etc. is necessary because of issuance being guaranteed and community rated.
However, we do not think these methods are very accurate and therefore are not very enthusiastic about retrospective risk adjustment as instituted in these markets.
We much prefer health-status insurance as defined by John Cochrane, because a market so governed results in market-driven prices for reinsurance.
John you are correct to be suspicious of any federal program that is open ended. Medicare itself was supposed to cost $5 billion in 1980 and look what happened.
However, your comment about budget-neutral points out what I think has been a terrible feature of the ACA.
The effort to be ‘budget neutral’ has led to lies, evasions, pathetic and soon abandoned gimmicks, all done by the Obama administration to achieve CBO-approved neutrality.
It would have been far better for Obama to have declared, “We are going to expand Medicaid and we are going to cover pre-existing conditions, and it is going to cost money, and income or payroll taxes are going to go ip 2% (or whatever).”
If the Congress had rejected that honest proposal, then elect a new Congress and try again.