Get Ready for Big Bailouts for Insurers under Obamacare

Obamacare by from Washington Examiner, May 18, 2014

During his first run for the presidency in 2008, President Obama blasted the influence of insurance lobbyists and vowed to take on the industry if elected. Yet as president, he passed a health care law that funnels more than $1 trillion in subsidies to insurers, and fines Americans who do not purchase their products. And on Friday, the Obama administration relented to pressure by the insurance industry, vowing to use additional taxpayer dollars to help bail out insurers from losses racked up as part of his health care law.

The issue concerns a provision in Obamacare known as the risk corridors program, which was designed to stabilize insurance premiums in the early years of the law’s implementation. Essentially, the idea was to have insurers who do better than expected pay money into a fund within the Department of Health and Human Services that would then be used to finance payments to other insurers who rack up larger-than-expected losses.

The aim was to encourage insurers to sell plans on the law’s new exchanges by reassuring them that they wouldn’t be stuck with major losses if the risk pool turns out to be sicker and thus more expensive than expected. But in the event of industry-wide losses (in which payments to HHS are swamped by claims from insurers), the program could turn into a costly bailout of insurers by taxpayers.

In the wake of mounting Republican criticism led by Sen. Marco Rubio, R-Fla., and Rep. Tim Griffin, R-Ark., both of whom introduced bills to repeal the program, the Centers for Medicare and Medicaid Services proposed a new rule requiring the program to be budget-neutral. Under the rule, in the event there is an insufficient amount of funding, HHS would cut the payments to insurers to correspond to the amount available, and any shortfall would be made up a year later, if the program ran a surplus.

In response, insurers launched an aggressive lobbying campaign, warning that they would be forced to raise premiums to accommodate the added risk they’d be taking on if they couldn’t count on an open-ended government commitment. “Risk corridors should be operated without the constraint of budget neutrality,” America’s Health Insurance Plans wrote in a letter to the CMS.

On Friday afternoon, buried within 435 pages of regulations dumped by the CMS, officials quietly backed off their assurances that the program would be budget-neutral. Though the CMS still insists that the expectation is that the program will have more than enough money to fund itself, the agency left open the possibility of more funding if it was not.

“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,” the regulation reads. “In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations.”

Obama sought greater latitude to repurpose money from other parts of HHS, if necessary, to help finance the risk corridors. Republicans—rightly—have greeted this coldly.

© 2014 by the Washington Examiner. Reprinted with permission.