Bowing to an aggressive lobbying effort by insurers, the Obama administration announced Friday it would use "other sources of funding," if needed, to finance a bailout for insurance companies if the industry racks up excessive losses through President Obama's health care law.
The regulation centers around the risk corridors program, which was created to stabilize premiums in the early years of the implementation of Obamacare by compensating insurers for larger than expected losses with money the Department of Health and Human Services collects from insurers who do better than expected.
Republicans Sen. Marco Rubio, R-Fla., and Rep. Tim Griffin, R-Ark. both introduced bills that would repeal the risk corridors, likening the program to a bailout that could put taxpayers on the hook for massive liabilities in the event of industry-wide losses.
In response, CMS had previously issued guidance asserting 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, 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.
But as I reported last week, insurers were lobbying the administration to back off, arguing that the budget neutrality rule would create too much uncertainty, potentially causing insurers to hike premiums to account for the increased risk.
“Risk corridors should be operated without the constraint of budget neutrality,” America's Health Insurance Plans, the industry lobby, urged CMS in a letter.
In revised final guidance, CMS reiterates the intention for the program to be budget-neutral. However, the regulations provide added reassurance to insurers.
"As we stated in the bulletin, we anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments," the CMS document reads. "That said, we appreciate that some commenters believe that there are uncertainties associated with rate setting, given their concerns that risk corridors collections may not be sufficient to fully fund risk corridors payments. In the unlikely event of a shortfall for the 2015 program year, HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers. In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations."
HHS is hoping that the late surge of people signing up for insurance on the exchanges makes it unlikely that industry losses will be widespread enough for this to be an issue. If that assumption is wrong, the latest nod to the insurance lobby could set up a fierce funding battle with Congress next year.