Obamacare Insurer Bailout: Budget Neutrality Would Lead to 20 Percent Rate Hikes
Last month, I had the privilege of testifying in person at a hearing of the House Oversight Committee on Obamacare’s risk corridors, an unlimited taxpayer liability that protects health insurers’ profits in Obamacare’s health insurance exchanges. The Administration has suggested that the risk-corridor payments will be budget neutral, a claim which I and others find unconvincing. I advised that budget neutrality of risk-corridor payments can be insured by amending Obamacare to make budget neutrality statutory.
The Committee has investigated the Administration’s claims of budget neutrality further, and found that they are bunk. In a recently released staff report, the Committee noted that:
At least one insurance company appealed directly to Valerie Jarrett, Senior Advisor to President Obama and Assistant to the President for Public Engagement and Intergovernmental Affairs, after the Administration signaled its intent in March 2014 to implement the Risk Corridor program in a budget neutral manner. Chet Burrell, the President and CEO of Care First Blue Cross Blue Shield, wrote to Ms. Jarrett that insurers would likely require Risk Corridor payments on net and that budget neutrality would lead insurers “to increase rates substantially (i.e., as much as 20% or more…)”
Ms. Jarrett intervened and wrote to Mr. Burrell that “the policy team is aggressively pursuing options.” After the Administration explained how it would implement the Risk Corridor program in April 11, 2014 guidance, Ms. Jarrett wrote to Mr. Burrell that the Administration had given insurance companies 80 percent of what they sought.
If the Administration really believes that the risk corridors will be budget neutral, it should welcome legislative efforts to put that into the law.
We all know that these risk-corridors will not be revenue neutral. In fact, nothing the government runs is typically revenue neutral.
“If the Administration really believes that the risk corridors will be budget neutral, it should welcome legislative efforts to put that into the law.”
Yes, they should, but even they are fully aware that the corridors will force insurers to raise rates. I dare say that the 20 percent may even be a low estimate at that. Let’s face it, insurers are going to lose money if sick people keep enrolling faster than healthy people, and the government will indeed try to bailout the insurers to keep them afloat.
It is too bad also. There should be zero government help and let the insurers compete to cover the sick and poor. Why bailout insurers and banks when the government should bailout its taxpayers.
The Exchange regulations were tried years ago. The results were always the same. Premiums skyrocketed and healthy individuals dropped out — causing a new round of rate hikes. Adverse selection is the natural tendency. The risk corridors are designed to fight that tendency — with subsidies. Why did anyone assume the subsidies wouldn’t be costly?
Probably for multiple reasons Devon. The first is that HHS believed that nearly everyone that was previously uninsured would flock to be enrolled and that not many people would want to pay the fine (or tax) of not complying.
Another reason could be that bureaucrats simply underestimated the true costs. They always do.
A third possibility is that they don’t mind taxing wealthier people in order to support lower income people. Income/wealth redistribution is one of this administration’s first priorities.
There are probably several more possibilities as well.
Nothing about Obamacare has ever been revenue neutral. From the beginning, in order to get the CBO score below the magically $1 Trillion number, the administration had to play Houdini with the numbers: counting ten years of tax revenue against 6 years of spending. However, anyone who actually knew better knew that the CBO price tag was not to be believed.
Likewise, risk corridors stood no chance of ever being revenue neutral.
Government will never be revenue neutral. Perverse incentives in government spending ensures this.
I wonder exactly what options the policy team at the WH was aggressively pursuing. Maybe changing or selectively enforcing parts of the law to make it more politically expedient for the administration?
So the next time we hear from our politicians that insurance rate hikes are being driven by their greedy insurance companies can we cut through the nonsense and blame the real culprits – the bureaucrats who have implemented this law?
Insurers are merely puppets for the bureaucrats at this point.
“Ms. Jarrett wrote to Mr. Burrell that the Administration had given insurance companies 80 percent of what they sought.”
It would be interesting to find out exactly how the administration was colluding with insurance companies.