As the troubled rollout of President Obama’s health care law has threatened to wreak havoc with the individual insurance market, more analysts are focusing on a program buried within Obamacare that compensates insurers for excessive losses.
Last Thursday, Department of Health and Human Services officials revealed that they were looking into ways of expanding the program to funnel more money to the industry.
Yet even though it exposes American taxpayers to potentially massive financial liabilities, the Congressional Budget Office never calculated the potential costs of this program as part of its original Obamacare cost estimate, let alone an expanded version of it.
The “risk corridor” program is one of several within Obamacare that were designed protect insurers against the threat of excessive losses stemming from the new requirement that they must cover individuals with pre-existing conditions.
Under Obamacare, before each year from 2014 to 2016, insurers have to estimate to HHS how much they expect to pay out in medical claims relative to premiums. If an insurer has lower-than-expected claims, it has to pay HHS. If an insurer’s losses exceed a certain amount, HHS pays that insurer.
A 2012 HHS report that explained the program noted that “CBO did not score the impact of risk corridors and assumed collections would equal payments to plans and would therefore be budget neutral.”
The purpose of the program was to redistribute money within the insurance industry so that no insurers got stuck with a disproportionate number of very sick beneficiaries with high medical costs.
The program did not contemplate a scenario under which there were major losses throughout the insurance industry that the federal government had to help absorb. But that scenario now seems more possible.
Leading up to the Oct. 1 launch of Obamacare’s health insurance exchanges, administration officials had been saying that to be viable, about 40 percent of the expected 7 million enrollees had to be young and healthy to offset the cost of covering older and sicker Americans.
With technology problems still plaguing the health care rollout, this has become an even more daunting challenge. Though HHS officials have not released a demographic breakdown of those who they say picked health care plans through the exchanges, it’s been widely suggested by health care experts that those with high medical costs are the ones most likely to endure the arduous sign-up process. This creates the potential for a much more expensive risk pool than anticipated.
And under the risk corridor program, if an insurer’s losses are 103 percent to 108 percent over the target amount, the federal government would absorb half of those losses — and for losses that exceed 108 percent, the government would cover 80 percent.
If Obamacare’s problems continue to mount, this could translate into a significant taxpayer bailout for insurers.
On top of this, HHS is trying to sweeten the deal.
In describing a proposed “administrative fix” to calm the backlash stemming from millions of Americans receiving letters canceling their insurance policies for not complying with Obamacare, HHS also noted, “We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.”
It's unclear how the program could be modified without Congressional action, as the risk corridor payment formula is spelled out in Section 1342 of the text of the Obamacare bill.
But with or without modification, taxpayers could be on the hook for big losses if the risk corridor program needs to be used as a backstop to prevent the cratering of the individual insurance market.
Sen. Marco Rubio, R-Fla., has proposed legislation that would repeal the risk corridor program.
In conjunction with the proposal, his office is drafting a letter to the CBO requesting an updated assessment of the deficit implications of the program, according to spokesman Alex Conant.