I've written at least a dozen explainers about what I've termed the Risk Corridor Massacre over the past five years, starting with this one from 2015, and I pray to God that this is the last time I have to do so. Here we go:
The Affordable Care Act made massive changes to many parts of the U.S. healthcare system, but by far the most radical changes were made to the individual, or "non-group" market. This is health insurance for people who aren't covered by Medicare or Medicaid but who also don't have coverage through their employer (or who are self-employed, as I am).
Before the ACA, individual market carriers could cherry-pick their enrollees, either denying coverage to those with pre-existing conditions, covering them but charging massively higher rates for doing so, or covering them but exempting themselves from coverage of the very conditions which were most in need of treatment.
As I've explained many times over the years, the idea behind the ACA's Risk Corridor program was that the launch of the major ACA regulations starting in 2014 involved such a radical reworking of requirements for private health insurance policies (especially on the individual market) that it was unreasonable to expect insurance companies to be able to accurately predict how well or poorly they would fare under the new rules. While the "free market" is supposed to be a "sink or swim" environment, it was agreed that this was so dramatic a change that the carriers should be given "training wheels" of sorts to smooth out the bumpy ride for the first three years.
Well, sure enough, this morning the U.S. Supreme Court issued their ruling, and it wasn't even close:
A big Obamacare decision from SCOTUS this morning: The court rules 8–1 that insurers who lost money under the Risk Corridors program have a right to payment from the government AND damages for unpaid amounts. https://t.co/PjODO35oKe
This was an easy case. Only Justice Alito dissented, complaining that the court mandates "a massive bailout for insurance companies that took a calculated risk and lost." Dude really hates the ACA! https://t.co/PjODO35oKe
Like Jack Twist in Brokeback Mountain, I can't seem to quit playing around with the jaw-dropping possibilities which could impact future Medical Loss Ratio rebate payments in response to the ghosts of Open Enrollment Periods past.
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.
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.
The simplest explanation of how Risk Corridors worked is this:
The ACA made dramatic changes to how the individual insurance policy market worked.
Since it was so disruptive, it included several provisions to help stabilize the market.
One of these programs, called "Risk Corridors", was a temporary (3 year) program which acted as sort of an insurance policy for insurance carriers.
In a nutshell: Carriers which earned excessive profits on ACA policies had to place a chunk of those profits into a pool of money. Carriers which took excessive losses on ACA policies were supposed to be reimbursed for a chunk of those losses.
If the profits exceeded the losses, the government got to keep the difference, so it was theoretically possible they'd actually profit off the system.
If, however, the losses exceeded the profits, the government was supposed to pay out the difference.
(As an aside: For those claiming "government bailout! picking winners and losers!" etc etc, the ACA's risk corridor program is actually very similar in many ways to the permanent Medicare Part D risk corridor program, although there are some key differences between the two).
Health insurers and the Trump administration face a court decision shortly that will determine whether the government must pay insurers billions of dollars despite Republican efforts to block payments they view as an industry bailout.
Insurers have filed roughly two-dozen lawsuits claiming the federal government reneged on promises it made to pay them under the Affordable Care Act.
...It could also shape the outcome of other insurer lawsuits that would leave the government potentially owing as much as roughly $20 billion in past and future payments. Those cases, legal experts say, amount to the largest civil lawsuits ever.
IF the amount of excessive profit going into the kitty was greater than the amount of excessive losses, the federal government would have paid out what was owed and keep the difference, in which case it was conceivable that the feds would actually profit off of the program.
IF, instead, the profit was less than the loss, the government would have to pay out the difference.
Unfortunately, as it happens, the second scenario is how things played out in 2014...as well as in 2015, and, most likely, 2016 as well.
As noted by Nicholas Bagley, Richard Mayhew and myself several times over the past year, Marco Rubio's Risk Corridor Massacre, which cut the ACA's risk corridor program off at the knees back in December 2014, has caused a tremendous amount of damage to the country in the form of helping kick 800,000 people off their healthcare policies, putting several hundred people out of work and could potentially cost taxpayers several billion dollars more than it would have cost if the program hadn't been interfered with in the first place...for no reason whatsoever. Rubio can't even argue that it was worth it for his own personal gain, since his stunt didn't even gain him the Republican Presidential nomination.
A simmering dispute over the risk corridor program has broken into the presidential campaign, with Senator Rubio crowing that an arcane budget move has “kill[ed] Obamacare” and “saved the American taxpayer $2.5 billion.” On account of that move, health plans are set to receive only pennies on the dollar from the risk corridor program, which was supposed to cushion them from big losses.
...The administration has vaguely said that it will “use other sources of funding for the risk corridors payments, subject to the availability of appropriations.” But the budget bill limits the administration’s power to dip into other funds, and a Republican-controlled Congress isn’t likely to appropriate money for a program that’s been decried as an insurer bailout.
About 800,000 people nationally lost their insurance coverage, on very short notice, and were forced to scramble to find alternate coverage
The new coverage they ended up with was generally more expensive, and in many cases has worse networks
The federal government has to pay out more in premium subsidies to cover the increased costs as benchmark plans were increased
Over a dozen insurance carriers went out of business, meaning hundreds of people lost their jobs
Less competition in those markets, therefore higher premiums, therefore even more cost to the federal government in subsidies to make up the difference
Since all of the carriers which went out of business were little guys, this also means the big kahunas suck up even more market share
The original $2.5 billion which Rubio was supposedly trying to "save" taxpayers ends up being paid out anyway; and
Assuming the government decides to just concede the point (which, by all rights, they should), it's conceivable that Marco Rubio's "genius" stunt from December 2014could also very well end up costing taxpayers $2.5 billion MORE than it would have to just let the government make the payments they were supposed to in the first place.
...all of this just so that Marco Rubio could earn a couple of political brownie points to help him win the GOP nomination for President...which he ended up failing at miserably.
Well, there's two more rather interesting developments to the Risk Corridor mess.
...This fall, more than a dozen health insurers representing 800,000 people have dropped out of the ObamaCare exchanges, many out of fear that the administration no longer has the cash to cushion their losses in the costly early years of the marketplace.
ObamaCare is on life support and we have one senator who we can thank for planning years ahead a way to cripple the fraudulent program: Marco Rubio.
In 2013, Joshua Green, a liberal, recognized the role Marco Rubio played in his so-called “devious plan to kill Obamacare”:
Republican Senator Marco Rubio of Florida will introduce a bill today that represents a new and potentially crippling line of attack against the Affordable Care Act, aka Obamacare.
...Rubio’s bill takes a new tack by seeking to abolish “risk corridors,” one of several mechanisms in the law meant to hold down premium costs and entice insurers to participate in the exchanges by ensuring they won’t lose a lot of money if they draw a costlier applicant pool than anticipated. Risk corridors function like Major League Baseball profit-sharing: Insurers who wind up with unexpectedly healthy applicants and lower costs will “pay in” money to the government, which in turn “pays out” to insurers with costlier applicants, thereby stabilizing the nascent market. (snip)
...Once Republicans took over Congress Rubio’s bill passed into law. There would be no bailouts of health insurers. There would be no bailouts for health insurers. Rubio predicted the problems years before others (as he has with all the foreign policy crises) and figured out a way to deal with them. He laid out his plans in his op-ed in the Wall Street Journal years ago.
Date: November 19, 2015
From: Center for Consumer Information & Insurance Oversight (CCIIO), Centers for Medicare & Medicaid Services (CMS)
Subject: Risk Corridors Payments for the 2014 Benefit Year
On October 1, 2015, the Centers for Medicare & Medicaid Services (CMS) announced that for the first year of the three year risk corridors program, qualified health plan (QHP) issuers will pay charges of approximately $362 million, and QHP issuers have requested $2.87 billion of 2014 payments, based on current data for the 2014 benefit year. 1 Consistent with prior guidance, assuming full collections of risk corridors charges for the 2014 benefit year, insurers will be paid an amount that reflects a proration rate of 12.6% of their 2014 benefit year risk corridors payment requests.2 The remaining 2014 risk corridors payments will be made from 2015 risk corridors collections, and if necessary, 2016 collections.
In late September, the handful of CEOs leading Affordable Care Act-funded consumer operated and oriented plans traveled to Denver in search of answers.
The past year had been a difficult one. Their companies were struggling, awash in red ink and facing a mounting list of operational challenges. A few co-ops had already shut down, and regulators were circling several more. The fledgling health insurers needed more support from the Centers for Medicare & Medicaid Services if they were going to survive. Most importantly, they needed a lot more money.
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".
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.