Will Republicans Repeal ObamaCare’s Risk Corridors?
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.
On January 9, Humana, a large insurer, reported in a filing to the Securities and Exchange Commission (SEC) that the “risk mix of members enrolling through the health insurance exchanges to be more adverse than previously expected.” Corporations cannot spin filings with the SEC: The CEO and CFO can go to jail if they mislead investors. So, they have to tell us more about what is going on in the exchanges than the Administration does.
Republican politicians believe that shutting down the risk corridors will force health plans to withdraw from exchanges in 2015, contributing to ObamaCare’s ignominious end. Buzzfeed laid its hands on a leaked “talking-points” memo from the Blue Cross Blue Shield Association, a major health-insurance trade association, designed to protect the risk corridors from repeal.
Interestingly, the trade association’s memo brought up the notion that driving the health insurers from the exchanges would unleash momentum to drive ObamaCare further towards a single-payer, government-monopoly system.
Likely? Not according to Senator Marco Rubio and many other Republicans, who see discouraging health insurers from participating in ObamaCare’s exchanges as a good way to finally chip away important industry support for ObamaCare.
Will a Republican bill that promises “no bailouts for insurers” get President Obama’s signature? Some political tacticians say it is possible, especially if it is tied to “must-pass” legislation.
One consequence of introducing such legislation is that it would cause the Congressional Budget Office (CBO) to re-score its analysis of the cost of the risk corridors. In its original analysis, the CBO assumed that the risk corridors would be budget neutral (as noted on pages 10 and 39 of this analysis).
However, budget neutrality is not mandated in the legislation. At least, CBO scoring legislation that would eliminate risk corridors would give taxpayers a more accurate estimate of their liability, based on actual enrollment data of ObamaCare’s first few months.
There is literally zero chance of Obama even having to veto such a measure (Reid will simply stymie such a bill in the Senate), and Obama would veto it if he had to- the administration is all-in on the ACA.
As for the House, sure Republicans may pass such a “No Bailouts for Insurance Companies” bill, and every vulnerable Democrat in Congress will vote “Yea”.
I don’t have an answer to the question. But the question will become a much bigger issue if the bailout due to adverse selection grows unmanageable.
“…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”
The government passing vague regulations? I’m shocked.
If they get specific, then they actually have to do things. Nobody likes that.
It’s amazing how much of this law is determined by regulatory language.
Every new law is more complicated than the last one. Government is doing this “obscure blurring” because it is on their best interest to confuse people. If only a few people understand the law, only few people will oppose or support it, with arguments. The rest of the population will listen to what they want to hear and react accordingly.
If adverse selection persists and the three R’s disappear, premiums will increase sharply next year and there will likely be fewer insurance plan offerings. If premiums go up significantly, so will the cost of subsidies as out-of-pocket premiums are capped at a maximum of 9.5% of income for those who qualify for subsidies. In the meantime, more people than expected are signing up for Medicaid which will also increase costs to taxpayers beyond the CBO estimate. On the positive side, total healthcare costs across the system increased more slowly than expected for the 4th consecutive year as discussed in the most recent issue of Health Affairs.
The ACA is not going away as long as Obama is in office. The three R’s are a reasonable approach, I think, to backstop insurers for the first three years until they gain enough experience under the community rating model to more accurately forecast their claims and price their insurance plans. It’s disappointing to me to hear this approach referred to as a “bailout” for insurers especially when their potential profits are capped by the minimum medical loss ratio rules. Moreover, low income people can’t generally afford even a high deductible comprehensive insurance plan without a subsidy. In business friendly Switzerland, 45% of the population qualifies for a subsidy and there is no such thing as Medicare or Medicaid. Everyone 26 and older pays the same premium for the same coverage in a given canton.
Very well put, Mr. Carol, with respect to Switzerland.
The term bailout is subjective, but I believe they use it in this case because it is funded by the general taxpayer.
The outcome you describe is exactly what opponents are trying to achieve. Their best case scenario is that insurers cannot stand the pain and abandon the exchanges in 2015. Clearly, that would make PPACA easier to repeal in 2017.
Even if the bill does not pass, Republicans believe that it would be very good to have voted on it in the House and campaign this November on it. Some libertarian-conservative commentators disagree.
I believe that the total amounts available to the insurers in the risk corridors comes to about $25 billion.
This is pretty small potatoes in federal health spending, and it is even small potatoes in the insurers’ total cash flow across all their products.
Hard to believe that either Repubs or Dems would fight the ACA to the death over $25 billion.
But with this Congress, who knows? Look at the shutdowns.
In addition, my first impression is that no single insurer has a huge exposure to ACA exchange business.
The exchanges will not drive them to default.
Bob –
You’re right and the $25 billion is over three years, not one year. The largest health insurer by revenue, UnitedHealth Group, is only participating in four individual state exchanges this year and seven SHOP exchanges for small businesses. The Blues generally have a larger presence on the exchanges along with some of the traditional Medicaid insurers and some new entrants.
Walgreen is moving to a defined contribution approach through a private exchange for its employees starting this year. I think we could see explosive growth in private exchanges, especially for retirees who previously had access to employer subsidized coverage but also for active employees as well. Personally, I think this would be a positive development because it would crystallize and clarify the true cost of health insurance for employees and retirees, they will be price sensitive than before and they will be able to choose a plan that best meets their needs. At the same time, they will also bear more of the risk of future premium growth if the defined contribution doesn’t grow as fast as premiums.
No! The $25 billion is for “reinsurance” for three years and is funded by premium taxes (which insurers are trying to repeal). The “risk adjustment” is perpetual and internally funded by transfer payments from winning to losing insurers.
The reason the “risk corridors” are a tempting political target is that they are funded by general revenues. Further, the CBO assumed that they will be revenue neutral, but it is not clear how CBO came to this conclusion. The corridors are asymmetrical and the mean of the distribution is not defined by the actual distribution but the actuarial assumptions in the 2014 premiums, which we now think are too low.