We’ve heard of ObamaCare’s “Reinsurance Program” and “Risk Corridors” and inherently knew that neither meant anything good for the average American. Both provide a bailout written by Congress, put right within the ObamaCare law. Every single Democrat in Congress voted for taxpayers to reimburse losses insurance company’s bear due to ObamaCare. An insurer’s risk of loss is approximately 2 percent, but insurance company’s are not in business to bear losses. It’s my opinion that regardless of what is law, there will be no risk of loss at all.
Obamacare contains a $25 billion federal risk fund set up to benefit health insurance companies selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market. The fund lasts only three years: 2014, 2015, and 2016.
The government’s risk management program for the insurers has three parts:
- A revenue neutral Risk Adjustment System designed to level adverse claim costs between health plans.
- A Reinsurance Program that caps big claim costs for insurers (individual plans only).
- A Risk Corridor Program that limits overall losses for insurers.
Of the $25 billion, $20 billion is earmarked for the Reinsurance Program and $5 billion goes to the U.S. treasury.
First, the Reinsurance Program caps big individual claim costs for insurers––in 2014, 80% of individual costs between $45,000 and $250,000 are paid by the government, [taxpayers] for example.
Then comes the Risk Corridor program. Participating health plans will receive payments from the federal government in any of the following circumstances:
The plan’s costs for any benefit year are more than 103% but not more than 108% of the health plan’s targeted amount. The feds will reimburse 50% of all costs in excess of 103% of the medical cost target.
If the plan’s costs are more than 108% of the annual target, the feds will first pay the health plan a flat 2.5% of the target and then reimburse the plan for 80% of their claim costs above the targeted amount––with no upside limit.
Examples of the risk are provided by author Robert Laszewski:
So, a plan is on the hook for all claim costs up to 102% (2% more) than the target cost.
But, if the health plan has costs at 110% of the medical cost target, it will be responsible for only 102.4% of the target (a 2.4% shortfall)––only about a quarter of its losses.
If the health plan’s medical costs come in at 120% of the expected claim cost target level, the health plan will only be responsible for 104.4% of the target (a 4.4% shortfall)––again only about a quarter of its losses.
My interpretation of the writer’s thoughts on this is that insurers will stay the course for the three years that the Reinsurance and Risk programs are in place, and then all hell will break loose with premiums, maybe as early as 2016, but certainly by 2017. My apologies to Mr. Laszewski if that assessment is overstated. Read it here and form you own opinions. H/T The Weekly Standard
Considering Obama’s history, executive fiat (ignoring law) will likely demand no premium increases until after the 2016 election year.
Insurers are willing to jump through nearly any hoop that Obamacare throws into their paths, because the government controls the purse strings to the risk corridor program. When President Obama announced that plans that had been canceled because of Obamacare’s minimum benefits requirements could be reinstated, one of the first messages put out was that the risk corridor payments would be sweetened.
Of course, even the promise of extra money couldn’t magically evaporate all of the significant issues with the last-minute change. Aetna was one big insurer that balked, stating that there simply wasn’t enough time to clear all of the regulatory hurdles to reinstate the canceled policies.
With this limited downside from the risk corridor subsidies, is the business partnership with Uncle Sam a smart business move that rewards investors? Maybe not.
Senator Marco Rubio (R-FL) introduced S.1726 to prevent this bailout. How do you think that will go? Read the text here and track it here. Interesting article on Rubio at ACA Death Spiral here.
Linked at My Daily Musing’s Article Read – thank you!
If you would like to receive Maggie’s Notebook daily posts direct to your inbox, no ads, no spam, EVER, enter your email address in the box below.