The risk corridors program was designed to stabilize premiums in the early years of Obamacare's implementation by compensating insurers who rack up larger-than-expected losses with funds from insurers who do better than expected. The program has come under fire from Republicans as a “bailout” to insurers, because there's nothing in the text of Obamacare that requires it to be cost-free -- meaning taxpayers could be on the hook in the event of industry-wide losses.
After months of Republican criticism led by Sen. Marco Rubio, R-Fla., and Rep. Tim Griffin, R-Ark. (who both introduced bills that would repeal the risk corridors), the Centers for Medicare and Medicaid Services issued proposed guidance aimed at guaranteeing that the program would be budget-neutral. CMS said that if there weren't enough money flowing into the risk corridors program to cover the payments due to insurers, then the payments would be reduced. Any shortfall would be made up in the following year if there were a surplus of money flowing into the program.
In an April 21 letter to regulators, flagged by Inside Health Policy, insurance industry lobbying group America's Health Insurance Plans, said the new “budget neutrality” pledge will mean more risk for insurers, and thus, higher rates.
“Risk corridors should be operated without the constraint of budget neutrality,” AHIP urged CMS.
The letter explained that, “we continue to have significant concerns with the impact that such a policy would have on the risk corridors program’s statutory goal of stabilizing premiums in the reformed marketplace.”
AHIP also questioned whether CMS had the legal authority to adjust the program to ensure it doesn’t cost money. “We believe requiring budget neutrality is contrary to the statutory requirements for risk corridors under the" Affordable Care Act, the letter read.
According to AHIP, “Changing the rules of the risk corridors program after premiums for 2014 have been set will increase the potential for market disruption and may result in higher premiums for 2015 — as plans will have no guarantee that sufficient funding is available to lower their pricing risk and ensure more affordable options for consumers.”
AHIP's argument was echoed in a separate letter from BlueCross BlueShield Association, which read that, “If issuers cannot rely on the availability of funding under the risk corridors program, then they will need to be more conservative in their pricing of (qualified health plans).”
The American Academy of Actuaries weighed in similarly, noting, “the new budget neutrality policy … would change the basic nature of the risk corridor program retroactively and will factor into issuers' decisions to offer (qualified health plans) for 2015 and 2016.”
The group said that “premium rates may be set more conservatively under the new structure of the risk corridor program. The funds might not be available to compensate issuers with losses, so issuers may build in additional risk margin.”
Its letter also suggested that imposing budget neutrality on the risk corridors could reduce the number of insurers offering insurance on the exchanges.