Study: 90% of Obamacare’s Risk-Corridor Costs Would Have Been Born By Taxpayers
Section 1342 of the Patient Protection and Affordable Care Act (ACA) requires the U.S. Department of Health and Human Services to “establish and administer a program of risk corridors for the calendar years 2014, 2015, and 2016.” This temporary risk-corridor program is a payment-adjustment system that will provide for sharing of risk among insurers during the initial years of the ACA.
Standard & Poor’s Ratings Services expects the ACA risk- corridor pool to be significantly underfunded if the government enforces budget neutrality. Budget neutrality requires the pool to be funded by payments insurers make into the pool. No external funding can be allocated to it. Our study of risk-corridor receivables and payables recorded in U.S. health insurance companies’ 2014 annual financial statements found that receivables insurers booked for the ACA corridor far outweigh the payables. In fact, our study indicates that the risk corridor payables are less than 10% of the receivables insurers reported in 2014. (Receivables are the amount an insurer expects to be paid from the risk corridor. Payables are the amount an insurer expects to pay into the corridor pool based on the risk-corridor formula.) (Watch the related CreditMatters TV segment titled, “An Unfunded Affordable Care Act Risk Corridor May Make The U.S. Insurance Market Less Stable, Not More,” dated May 4, 2015.)
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