Obamacare’s “Bailout” of Insurers Is Still a Live, Moving Target

The Obama administration continues to move the goalposts of the so-called “bailout” of health insurance companies that lose money in the Obamacare exchanges. Formally labelled “risk corridors,” the bailouts are a process by which the administration will take money from insurers that profit more than expected in the exchanges, and transfer that money to insurers that lose more money than expected.

Unfortunately, taxpayers are at risk because the revenue coming into the risk corridors is determined by insurance premiums, whereas the payouts are determined by medical claims. If, overall, the insurers charged premiums that are too low, the risk corridors will suffer deficits. We have covered this topic thoroughly in past blog posts, and we expect significant deficits. Our previous entry on the topic questioned the administration’s assertion that the risk corridors would be budget neutral.

The Department of Health and Human Services (HHS) has just published the final rule for 2015, which includes two things relevant to the “bailout.” First, it confirms that it will increase the payout from the risk corridors, as first proposed in March.

Second, it takes a significant step toward abandoning the fantasy of budget neutrality: “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. In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations.” (pp. 80-81)

This is a very important statement, because it is the first time the Obama administration has admitted that appropriations are required to use general revenues to make the risk corridors whole. Republicans in the House and Senate have asserted this requirement, and the final rule puts them in the driver’s seat if the risk corridors suffer a shortfall.

How will Republicans use this newly admitted power if the shortfall appears, and the health insurers ramp up their lobbying efforts to ensure they get their risk-corridor payments? Obamacare’s opponents will be watching closely.

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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.

John R. Graham is a former Senior Fellow at the Independent Institute.
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