Publicly, President Obama loves to demonize insurance companies. But behind the scenes, Big Government and Big Insurance maintain a cozy alliance that the Obama administration actively nourishes, often at taxpayer expense. Indeed, as emails recently obtained by the House Oversight Committee show, Big Government and Big Insurance have worked together to promote Obamacare. They’ve also worked together to make sure taxpayers will help bail out insurance companies who lose money selling insurance under Obamacare — that is, unless Republicans stop this from happening. Moreover, Obama senior advisor Valerie Jarrett is among the prominent White House officials who’ve been in the middle of this collaboration between insurers and the administration — between those driven by the profit motive and those driven by the power motive.
Well, there’s a way for congressional Republicans to go after Obamacare, cronyism, and the Democrats’ assertion that the GOP is in league with health insurers, all at once: by repealing Obamacare’s risk-corridor bailout. And after overcoming some internal resistance from don’t-rock-the-corporate-boat Beltway Republicans, it looks as if the House GOP is going to move in this direction. If they do—and if they were also to refuse to reauthorize the Export-Import Bank and were to move to reverse President Obama’s failed amnesty policies—Republicans could legitimately make the case this fall that they stand with Main Street America.
Obamacare’s risk-corridor program is a way of shifting risk from insurance companies to taxpayers—of putting the latter on the hook if the former lose money. The risk corridors’ existence incentivizes insurers to lowball their prices, since they know taxpayers will help cover their losses. It’s bad policy, and it’s unpopular. Recent polling by McLaughlin & Associates, commissioned by the 2017 Project, asked, “If private insurance companies lose money selling health insurance under Obamacare, should taxpayers help cover their losses?” Only 10 percent of respondents said yes; 81 percent said no. Yet, absent congressional action, that is exactly what’s poised to happen.
Hidden in the midst of a 436 page regulatory update, and written in pure bureaucratese, the Department of Health and Human Services asked that insurance companies limit the looming premium increases for 2015 health plans. But don’t worry, HHS hinted: we’ll bail you out on the taxpayer’s dime if you lose money.No wonder there wasn’t a press release. The White House is playing politics with Americans’ health care—and they’re bribing health insurance companies to play along.The administration’s intention is clear: Salvage the 2014 midterm elections. Typically, insurance companies release their premium rates between summer and early fall—i.e., right before voters cast their ballots in November. If premiums skyrocket—which looks increasingly likely—then voters won’t look too kindly on Senators and Representatives who voted for Obamacare and created this problem.
The data portend a vigorous debate over the “risk corridors” program, which is one of three mechanisms in the law designed to give insurers incentives to continue to participate in its exchanges even if they are at risk of significant financial losses. Some Republicans, particularly Senator Marco Rubio of Florida, Senator Jeff Sessions of Alabama and Representative Fred Upton of Michigan, have decried this program as an insurer bailout.The premise behind the risk corridors is that the financial winners in the Obamacare exchanges would compensate the financial losers such that the flow of money would make the system self-sustaining. What may not have been anticipated was what would occur if the financial losers the sicker enrollees far outpaced the financial winners the healthier ones.
The success of Obamacare always rested on getting enough “young invincibles” to enroll on the exchanges. Since the scheme bars health plans from pricing their insurance policies to the actual risk, Washington needs a lopsided share of cheaper young people paying too much in order to subsidize older people who are paying too little.
As many people expected, not enough young folks are signing up to pay the high premiums. But the structural problem could run much deeper. The young people who are enrolling also tend to have more serious and costly medical problems.
In short, Obamacare’s young enrollees aren’t invincible enough to underwrite the law’s delicate scheme.
Obamacare’s risk-corridor program is serving as a slush fund for President Obama. He is using that fund to placate his insurance company allies whom he double-crossed. After Obama declared last fall that insurance policies banned by Obamacare would be unbanned by presidential proclamation, insurers were understandably alarmed. Obama’s lawless decree meant that millions of people who already had insurance—and who were likely to be healthier on the whole than those who didn’t—would not be forced into the Obamacare exchanges after all. His decree, therefore, likely made the exchanges’ risk pools even worse.Insurers registered their concern, and Obama responded by changing the rules on the risk-corridor program so that more money would flow insurers’ way. The Congressional Budget Office estimates that the administration’s rule change was worth $8 billion to insurance companies. The risk corridors that were once projected to generate $8 billion in revenue for the government are now projected to be budget-neutral. But that revenue was being counted on to help offset the cost of Obamacare, which means that according to CBO scoring the insurers have now effectively received an $8 billion tax break for which the general taxpayer is on the hook.
David A. Hyman is the H. Ross & Helen Workman Chair in Law and director of the Epstein Program in Health Law and Policy at the University of Illinois Urbana-Champaign, as well as an adjunct scholar at the Cato Institute. Earlier this month, Hyman gave the following erudite presentation on the implementation of the Patient Protection and Affordable Care Act – which he calls PPACA, not “ObamaCare” or “the Affordable Care Act” – at a faculty seminar hosted by the University of Chicago’s MacLean Center for Clinical Medical Ethics.
Health insurance companies can count on funds from the government if ObamaCare’s risk corridor program does not sufficiently cover losses that are higher than expected this year.
This news was published in regulations Friday outlining how the law’s health insurance exchanges will operate in 2015.
The risk corridors are designed to stave off premium increases by transferring money from insurers that see better-than-expected results to those that see worse-than-expected results.
The Obama administration had previously said the temporary program would be implemented in a budget-neutral way, without separate government funding. But federal health officials appeared to step back Friday from that promise, which was made under heavy criticism from Republicans who call the risk corridors a “bailout” for insurance companies.
UnitedHealth Group Inc, the largest U.S. health insurer, said on Thursday that first-quarter profit fell due to costs and taxes related to the national healthcare reform law as well as government cuts to private Medicare funding.
The company said the costs related to the Affordable Care Act and the effects of budget sequestration last year on payments from the government negatively affected earnings by about 35 cents per share. Its Optum technology-related division, which has worked on the online insurance exchanges created by that reform law, continued to grow.
It is in the realm of actuarial value (AV) requirements where the law demands pointless standardization. AV measures the extent to which a policy covers the average enrollee’s medical expenses. On average, for example, a plan with an AV of 63 percent covers 63 percent of enrollees’ medical costs.
All ACA-compliant plans must fit within four “metallic” bands. A platinum plan covers around 90 percent of an enrollee’s costs, with a 2 percent tolerance in either direction. Thus, a platinum plan covers between 88 and 92 percent of costs. A less expensive gold plan covers between 78 and 82 percent of expenses. A silver plan’s AV falls between 68 and 72 percent. Finally, bronze plans cover between 58 and 62 percent.
A plan offered in 2013 can have any AV, but come January 1, 2014, all plans must fall within those four narrow metallic bands. Therefore, a plan that covers 59 percent of medical expenses is okay, because it’s within the bronze band. But a plan that covers 96 percent of expenses is unacceptable because its coverage is too generous; it is, by official rhetoric, subpar, substandard, bad insurance.