Obamacare’s Risk Corridors Protect Profits, Not Patients
On June 18, I testified to the House Committee on Oversight and Government Reform on Obamacare’s risk corridors. I was honored to join a panel alongside Edmund Haislmaier of the Heritage Foundation, which has just published his testimony. Mr. Haislmaier defined Obamacare’s three risk-mitigation provisions — reinsurance, risk adjustment, and risk corridors with unique clarity:
The first is what can be termed “market selection risk.” This risk arises when customers have a choice between two or more markets with different characteristics. In the case of the PPACA, the most obvious examples are decisions by employers about offering coverage. The PPACA now makes it possible for employers to discontinue group plans (without penalty in the case of firms with 50 or fewer workers) and instead send their employees to the exchanges to obtain new, subsidized coverage as individuals.
Thus, the PPACA’s reinsurance program can be seen as principally designed to address market selection risks by taxing the much larger employer group coverage market to provide additional subsidies to the individual market.
In contrast, the risk adjustment program is designed to compensate for what can be called “individual selection risk.” For any group of individuals who have already made the decision to buy coverage, there is still uncertainty surrounding which insurer and which plan each individual will pick when presented with a range of choices.
What that leaves is the most contentious of the three: the risk corridor program. Essentially, the risk corridor program is designed to address potential “profit or loss risk”.
Mr. Haislmaier concludes that Congress should eliminate the latter. I fully agree.
“the risk corridor program is designed to address potential “profit or loss risk”.”
Risk corridors are most definitely put in place to ensure that insurers aren’t losing money. Nothing about ObamaCare is pro-patient. It is all in the interests of the insurer.
I think everyone should agree that this should be eliminated. If your preparing for failure in your policies, then perhaps it is a bad policy that should never have been enacted.
I agree Buddy! But it’s also about increasing government control over individual decision-making as well. In fact, I don’t really think Obamacare favors health insurance companies. I think the architects of the law actually despise insurance companies, but they need them to survive in the short-run in order to at least claim the ACA is working.
The risk corridors are temporary. As someone who prices health insurance policies the conglomeration of new rules and regulations and markplace – we have little ability to price with accuracy. The choice is to let insurers price conservatively to account for this (and the medical loss ratios prevent any excessive profits) or the risk corridors. You have to allow one or the other. So, any regulations aimed at removing the risk corridors have to permit actuaries to build margin in until we have enough data to make a reasonable projection.
There are all of these avenues in ObamaCare to protect insurers from risk, but who is protecting the patients from risk?
No one really. If individuals try to skip out of signing up for ObamaCare, they have to pay a fine. There is no safety net for individuals.
Insurance in general is about risk pooling. That is: the transfer of absolute risk from one individual to a group. In this regard, the individual is trading the small possibility for a catastrophic loss for a large risk of a small loss.
To boost profits, or reduce premiums, insurance underwriters generally want to screen the risks allowed to enter the risk pool. By eliminating the incentive to police the risk pool, the incentive to efficiently manage the risk pool also is diminished.
Eliminating the Risk Corridor program is nuts, in view of the fact that the purpose of Obamacare was to secure the future of the medical-pharmaceutical-hospital-insurance complex. Patients are only a means to that end.
Beware the coming Obamafood!
Devon is right on about insurers need to manage the risk
On the Exchanges the insurer has no clue who is coming on board
To complicate matters they are assuming risk one family or individual at a time
With the self funded groups we will insure in the next few months we will be getting their claims history so we will have a good idea what we are getting in to
Probably the only way National Prosperity Life and Health will enter the Exchanges is to partner with insurers by taking on the risk from
Dollar one and assuming more risk as their Health Matching Insurance benefits build
Insurers can actually earn compensation for the increasing risk they no longer have!
Don Levit
Treasurer of NPLH
Yes, insurers will be protected, even though some of the main provisions of Obamacare actually will tend to hurt the bottom line for insurers and cause them to lose money. These are the “preconditions” and “kids stay on their parents plan until 24” provisions. However, all the government has to do is bailout the insurers to ensure they don’t go out of business. This will thus prop up the ACA by providing much needed political support.
I am a little puzzled by the ‘endgame’ of the position of Mr Haislmeier.
If insurers are not allowed to underwrite, in the ACA, and are not protected against antiselection, then they will gradually (or maybe suddenly) drop out of the ACA.
That is what happened in every single state that banned underwriting over the last 25 years.
I guess that does defeat the ACA, but it seems like the individual market will then be a much worse shambles than before.
In addition- and this is an old complaint of mine — I have not heard a single complaint from Republicans about the substantial risk adjustments in Medicare part D.
Is it somehow good to protect the insurers when they deal with seniors, but not good to protect insurers when they deal with working age persons?
What am I missing?
The comment by Susan above actually proves my point, in more actuarial language.
If they are unable to underwrite, and take on large risk themselves, insurers will raise prices drastically.
So agsin I ask, what is the goal of those who protest
the corridors?
If insurers are driven out of the ACA, I assume that a public option will have to take their place.
The tax increases required to do that will absolutely dwarf the peanut amounts required thus far to fund the corridors.
I also note (or at least think I note) some resentment by Mr Graham that employers are being taxed to fund the corridors.
This raises a few points:
a. The tax is $63 per head. Not pleasant, but far, far less than making all employer paid health insurance into taxable income — which many have proposed, including some conservatives.
b. Employers that do provide health insurance, and employees that receive it tax-free, are on the whole more affluent than the part timers and self employeds and early retirees who are being helped by the ACA.
So the $63 tax is crude but it is still overall progressive.
c. No one can deny that insurance buyers in the individual market have had a bad deal for years. (at least no one who has actually been in that market will deny it)
The ACA does helo a large subsection of this group. It takes money to provide that help. Where is that money to come from?
Personally I would not be opposed to a small increase in income taxes. But that has been blocked in Congress for some years now. Both parties are competing to reduce income taxes.
So my question is, what better way to fund the risk corridors?