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Will The Government Bail Out Insurers Crippled By Obamacare?

November 25, 2013 by  

Will The Government Bail Out Insurers Crippled By Obamacare?

What happens to the health insurance market if the Department of Health and Human Services doesn’t sign up the 7 million people it targeted for Obamacare between now and March 31, 2014? Insurance companies are in business to turn a profit, aren’t they?

When Obamacare fails to hit its enrollment goal (an inevitability even its supporters aren’t trying to spin), there will be millions of Americans without health insurance and dozens of insurance companies facing massive losses. But buried somewhere in the Affordable Care Act’s more than 10,000 pages is the bailout: risk adjustment, Federal government style.

Obamacare’s “risk corridor” proviso is receiving more attention since President Barack Obama’s “administrative fix” announcement last week, when he called on insurers to accept his invitation to continue offering policies to customers who’d already been dropped under Obamacare’s new rules.

Insurance companies instantly balked at the President’s announcement, because they’d already invested a lot of time and money in negotiating new pricing schemes in each State, while simultaneously waving farewell to lost revenues under their old pricing structure. So HHS stepped in to clarify exactly what the President meant.

“Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue,” HHS wrote to insurance regulators.

“Risk corridors,” writes Bloomberg Businessweek, “are part of an obscure set of Obamacare rules intended to protect insurance companies from deep losses if they sign up too many sick people — an insurance policy for insurance companies. It’s one of the so-called Three Rs — reinsurance, risk adjustment and risk corridors — meant to backstop health plans through byzantine adjustments in the transition to a new marketplace where carriers can’t turn sick people away.

Here’s more from Bloomberg:

The third program, called risk corridors, is a temporary way to limit insurers’ potential losses and profits. It applies only to insurers selling plans on the health exchanges. The mechanics are complex, but the gist is this: If it turns out a health plan set its rates too high — collecting much more in premiums than it paid out — the carrier pays a portion of the excess to the government. On the other hand, if insurers set rates too low, the government will backstop some of their losses.

That in itself doesn’t promise insurers a bailout — let alone a government-money gravy train. But the risk corridors program, like the rest of the pricing regulations set in place by Obamacare, were envisioned as “budget-neutral” rules that function only when the right mix of people sign up for insurance.

But the right mix of people isn’t signing up for Obamacare. There are far too few people in the total pool, and of those few who have signed up, there’s a disproportionate number whose medical needs exceed those of the average customer.

That, wrote Senator Marco Rubio (R-Fla.) last week, leaves the Federal government obligated to essentially bail out insurance companies that won’t see profits under Obamacare’s new coverage mandates.

Here’s a portion of Rubio’s Nov. 18 column in The Wall Street Journal:

Risk corridors are generally used to mitigate an insurer’s pricing risk. Under ObamaCare, risk corridors were established for the law’s first three years as a safety-net for insurers who experience financial losses. While risk corridors can protect taxpayers when they are budget-neutral, ObamaCare’s risk corridors are designed in such an open-ended manner that the president’s action now exposes taxpayers to a bailout of the health-insurance industry if and when the law fails.

Subsequent regulatory rulings have made clear that the administration views this risk-corridor authority as a blank check, requiring no further consultation or approval by Congress. A final rule handed down in March by HHS and the Centers for Medicare and Medicaid Services states: “Regardless of the balance of payments and receipts, HHS will remit payments as required under section 1342 of the Affordable Care Act.”

Rubio has introduced a bill, the “Obamacare Bailout Prevention Act,” to repeal the risk corridor proviso from the Affordable Care Act.

Ben Bullard

Reconciling the concept of individual sovereignty with conscientious participation in the modern American political process is a continuing preoccupation for staff writer Ben Bullard. A former community newspaper writer, Bullard has closely observed the manner in which well-meaning small-town politicians and policy makers often accept, unthinkingly, their increasingly marginal role in shaping the quality of their own lives, as well as those of the people whom they serve. He argues that American public policy is plagued by inscrutable and corrupt motives on a national scale, a fundamental problem which individuals, families and communities must strive to solve. This, he argues, can be achieved only as Americans rediscover the principal role each citizen plays in enriching the welfare of our Republic.

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