Before the rollout of Obamacare, administration officials repeatedly defined success as making sure that about 39 percent of the projected seven million enrollees on the new exchanges would be composed of young adults. Attracting a critical mass of young and healthy individuals was viewed as necessary to offset the costs associated with forcing insurers to cover older and sicker Americans with pre-existing conditions.
Yet on Jan. 13, the Department of Health and Human Services released preliminary data showing that just 24 percent of Americans signing up for insurance through the exchanges were in the key age group of 18- to 34-year-olds. The news followed a Jan. 9 warning to investors from insurer Humana Inc. that the risk pool of its enrollees on Obamacare's exchanges was worse than expected. But insurers facing potential losses have one thing going for them: federal taxpayers.
A provision of the law known as the "risk corridors" program guarantees a taxpayer bailout to insurers who lose money through their participation in Obamacare. Here’s how it works: Each year, insurers have to estimate their expected losses. If an insurer does better than expected, the company has to pay HHS, and HHS will, in turn, compensate insurers who do worse than expected.
How much could this cost federal taxpayers? Unfortunately, that remains a mystery. In its original cost estimate of Obamacare, the Congressional Budget Office essentially ignored the program by assuming that the payments among insurers and HHS would be a wash. Insurers won't have an idea of the final risk pool on the exchanges until open enrollment ends on March 31. Beyond that, under regulations issued by HHS, insurers aren't required to submit all the information related to the risk corridors program until “July 31 of the year following the applicable benefit year.” That would mean July 31, 2015.
It’s worth keeping in mind, however, that the risk corridors program was intended to help any given insurer that was stuck with a disproportionate percentage of individuals with high medical claims. It wasn’t meant for a scenario in which there are massive industrywide losses.
In such a case, the taxpayer exposure could be huge. Under the 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.
Seeing the potential danger of this program, Sen. Marco Rubio, R-Fla., in November introduced legislation to repeal it before it puts taxpayers on the hook. Rep. Tim Griffin, R-Ark., proposed companion legislation in the House. Industry lobbyists are already gearing up for a fight. Buzzfeed obtained talking points from Blue Cross Blue Shield Association CEO Scott Serota sent to the company's members, warning that repealing the program “jeopardizes the entire private health insurance market and will ultimately lead to a single-payer system.”
But Republicans shouldn’t be cowed by such transparently self-serving industry scare tactics. Pursuing repeal is a win-win for conservatives and for the country.