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Good news for insurers, bad news for taxpayers.
Industry sources tell the Washington Examiner’s Susan Ferrechio
that the Barack Obama administration is thinking of extending the
Affordable Care Act's "risk corridors," the federal reimbursement
program for health-insurance companies that lose money by participating
in the newly created health-care exchanges. This is not the first time
we’ve seen this idea floated, and frankly, believing that the
administration is considering it is all too easy.
If you’re not familiar with the risk-corridor program, read what I’ve written in the past. Basically, there are three temporary risk-adjustment programs to help insurers transition into the new marketplaces. One of them -- a sort of reinsurance program, called the risk corridors, that offsets losses when claims are greater than 103 percent of projections and collects money from insurers whose claims are less than 97 percent of what they expected -- is not designed to be revenue-neutral. That means that if the insurance pool is a lot sicker than initially expected, the federal government could end up transferring a bunch of money to the insurance industry.
Because a lot of insurers seem to be saying that they’re going to lose money on their exchange policies this year, that’s a little worrying for the U.S. taxpayer.
But not that worrying, because the corridors are supposed to expire in three years. If it’s true that the administration is seriously considering extending them, that raises some disturbing possibilities:
Of course, the administration has gotten creative before, so don’t count it out. But if it does extend the program, it is basically confessing two things: It thinks the law is whatever it says it is, and it never really cared how much the program cost.
To contact the writer of this article:
Megan McArdle at mmcardle3@bloomberg.net.
To contact the editor responsible for this article:
James Gibney at +1-202-624-1863 or jgibney5@bloomberg.net.
If you’re not familiar with the risk-corridor program, read what I’ve written in the past. Basically, there are three temporary risk-adjustment programs to help insurers transition into the new marketplaces. One of them -- a sort of reinsurance program, called the risk corridors, that offsets losses when claims are greater than 103 percent of projections and collects money from insurers whose claims are less than 97 percent of what they expected -- is not designed to be revenue-neutral. That means that if the insurance pool is a lot sicker than initially expected, the federal government could end up transferring a bunch of money to the insurance industry.
Because a lot of insurers seem to be saying that they’re going to lose money on their exchange policies this year, that’s a little worrying for the U.S. taxpayer.
But not that worrying, because the corridors are supposed to expire in three years. If it’s true that the administration is seriously considering extending them, that raises some disturbing possibilities:
- Most obviously, the administration (and insurers) believes the
market for individual exchange policies is likely to be still having
serious problems in 2017.
- The insurers have clearly been willing to lose money on these
policies for a couple of years in order to help the exchanges get
established. But with the rollout difficulties and the somewhat
underwhelming enrollment numbers, they may be threatening to bolt unless
they get some guarantee that they can sell policies people will
actually be willing to buy.
- A risk-corridor extension would help keep the price of
policies down by funneling a backdoor subsidy to the insurers. However,
it would not keep the cost down -- indeed, it could have the opposite
effect. With the administration subsidizing the lion’s share of any
losses, the incentives to control costs would be dramatically weakened.
- With health-care cost growth already running well above
inflation in most years, this could be quite expensive. Basically, the
administration would be violating all the promises that were made about
deficit reduction and cost control in a desperate bid to keep insurers
on the exchanges.
Of course, the administration has gotten creative before, so don’t count it out. But if it does extend the program, it is basically confessing two things: It thinks the law is whatever it says it is, and it never really cared how much the program cost.
To contact the writer of this article:
Megan McArdle at mmcardle3@bloomberg.net.
To contact the editor responsible for this article:
James Gibney at +1-202-624-1863 or jgibney5@bloomberg.net.
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