Risk Corridors

*(OK, probably not, but...well, read on...)

Regular readers may have noticed that I didn't post a single blog entry on Tuesday even though there's been a ton of healthcare policy stuff going on. No, I didn't take the day off; I started poring over a spreadsheet at around 10am and was working on it almost nonstop all day.

On Monday, along with posting their decisions on several important federal cases, the U.S. Supreme Court announced that, much to the surprise of many healthcare wonks, they will take up the long-gestating (and presumed dead) Risk Corridor Massacre lawsuit:

Big news: SCOTUS is taking up the ACA risk corridors case. GOP's decision to stymie that program arguably did the most damage to the ACA marketplaces. https://t.co/VeMRcd5MYn

— Bob Herman (@bobjherman) June 24, 2019


Long-time readers of this site may recall the infamous Risk Corridor Massacre of 2014-2015. Here's a very simplified backstory:

  • When the ACA was first developed and voted on, lawmakers knew that the disruption to the individual health insurance market was going to be pretty rocky for the first few years, so they put three types of market stabilization programs into place. They were known as the "Three 'R's"...Risk Adjustment, Reinsurance and Risk Corridors:

...Risk adjustment interrupts these cycles by doing exactly what its name implies. It adjusts for differences in the health of plans’ enrollees by redistributing funds from companies with healthier-than-average customers to plans with sicker-than-average customers. Such transfers could occur within or across health plan tiers in the exchanges (bronze, silver, gold, platinum). All the redistributed monies come from insurance companies in the marketplaces. No taxpayer bailout here.

I've said before that there are a few areas of the ACA which I simply don't consider myself knowledgable enough about to try and explain to others in depth. One of these is the so-called "Cadillac Tax" on high-end employer sponsored insurance policies. The other (well 3 others, really) are the "3R" programs which were set up to try and smooth out the transition period for insurance carriers for the first few years. The "3 R's" are "Risk Adjustment", "Reinsurrance" and "Risk Corridors".

Since I don't know much about them, here's a quick explainer from the Commonwealth Fund. A summary version is below:

Risk adjustment is a process that deters insurance plans from trying to attract healthy enrollees (“cherry picking”), and protects companies that may—by chance or because of their particular benefits—attract sicker than average customers (“adverse risk selection”). Though the Affordable Care Act bans carriers from turning people down or charging them more based on their health, the incentive to attract healthier enrollees remains because healthier customers increase profits by reducing companies’ payouts.