Will Republicans Repeal Obamacare’s Risk Corridors?

This blog’s readers are better informed than most about the (somewhat complicated) question of how health insurers will be compensated for bearing risk in Obamacare’s health insurance exchanges.

A previous entry explained the basics of two of the three programs that protect health insurers from losing too much money on Obamacare’s exchanges. These are called “reinsurance” and “risk corridors.” Both programs exist for only three years, 2014 through 2016, and were put in the legislation because health insurers were not confident that they could accurately price premiums in Obamacare’s early years.

Opening for enrollment in the beginning of October, the exchanges have been a complete disaster. A subsequent post noted obscure regulatory language, whereby the administration appeared to blur the rules governing the risk corridors as much as possible, to ensure that health insurers would not lose faith in the exchanges. A third post noted the administration’s amending a rule to increase taxpayers’ liability for the risk corridors that protect insurers from losing too much money.

On January 9, Humana, a large insurer, reported in a filing to the Securities and Exchange Commission (SEC) that it “now expects the risk mix of members enrolling through the health insurance exchanges to be more adverse than previously expected.” Corporations cannot spin filings with the SEC: The CEO and CFO can go to jail if they mislead investors. So, they have to tell us more about what is going on in the exchanges than the administration does.

Republican politicians believe that shutting down the risk corridors will force health plans to withdraw from exchanges in 2015, contributing to Obamacare’s ignominious end. Buzzfeed laid its hands on a leaked “talking-points” memo from the Blue Cross Blue Shield Association, a major health-insurance trade association, designed to protect the risk corridors from repeal.

Interestingly, the trade association’s memo brought up the notion that driving the health insurers from the exchanges would unleash momentum to drive Obamacare further towards a single-payer, government-monopoly system.

Likely? Not according to Senator Marco Rubio and many other Republicans, who see discouraging health insurers from participating in Obamacare’s exchanges as a good way to finally chip away important industry support for Obamacare.

Will a Republican bill that promises “no bailouts for insurers” get President Obama’s signature? Some political tacticians say it is possible, especially if it is tied to “must-pass” legislation.

One consequence of introducing such legislation is that it would cause the Congressional Budget Office (CBO) to re-score its analysis of the cost of the risk corridors. In its original analysis, the CBO assumed that the risk corridors would be budget neutral (as noted on pages 10 and 39 of this analysis).

However, budget neutrality is not mandated in the legislation. CBO’s scoring of legislation that would eliminate risk corridors would at least give taxpayers a more accurate estimate of their liability, based on actual enrollment data of Obamacare’s first few months.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.