Tag Archives: risk corridors

New Health Care Law

ObamaCare’s Risk Corridor “Bailout” Just Got Bigger — Much Bigger

13 Comments

Last Friday, the Administration quietly released 280 pages of rules that, among other things, increased ObamaCare’s risk corridors:

We propose to implement an adjustment to the risk corridors formula…Such an adjustment could increase a QHP issuer’s risk corridors ratio if administrative expenses are unexpectedly high or claims costs are unexpectedly low, thereby increasing risk corridors payments or decreasing risk corridors charges. We propose to raise the administrative cost ceiling by 2 percentage points, from 20 percent to 22 percent. We also propose to increase the profit margin floor in the risk corridors formula (currently set at 3 percent, plus the adjustment percentage, of after-tax premiums). Such an adjustment could increase a QHP issuer’s risk corridors ratio if claims costs are unexpectedly high, thereby increasing risk corridors payments or decreasing risk corridors charges. We propose to raise the profit margin floor by 2 percentage points, from 3 percent to 5 percent. (p. 56)

The table below shows an insurance plan with $10 million cost target versus $11 million of allowable costs. Actual medical claims are $8.8 million. Using the formula for calculating its payout from the risk corridor, allowing 20 percent of administrative costs, the plan gets a $410,000 “bailout” (panel A). If it can add administrative costs up to 22 percent of allowable costs, the payout increases to $635,641 — an increase of 55 percent (panel B).

erf

Related Posts:

ObamaCare Risk  Adjustment: Moving the Goalposts.

The “3 Rs”: Understanding the Death Spiral in the ObamaCare Exchanges.

New Health Care Law

Will Republicans Repeal ObamaCare’s Risk Corridors?

12 Comments

This blog’s readers are better informed than most about the (somewhat complicated) question of how health insurers will be compensated for bearing risk in ObamaCare’s health insurance exchanges.

A previous entry explained the basics of two of the three programs that protect health insurers from losing to much money on ObamaCare’s exchanges. These are called “reinsurance” and “risk corridors”. Both of these exist only for three years, 2014 through 2016, and were put in the legislation because health insurers were not confident that they could accurately price premiums in ObamaCare’s early years.

Opening for enrolment in the beginning of October, the exchanges have been a complete disaster. A subsequent post noted obscure regulatory language, whereby the Administration appeared to blur the rules governing the risk corridors as much as possible, to ensure that health insurers would not lose faith in the exchanges. A third post noted the Administration’s amending a rule to increase taxpayers’ liability for the risk corridors that protect insurers from losing too much money.

Continue reading Will Republicans Repeal ObamaCare’s Risk Corridors? →