Risk Corridor Massacre

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.

One of the biggest non-COVID19 related healthcare policy stories in the news this week was the Monday ruling by the U.S. Supreme Court stating that yes, the federal government does, in fact, have to keep its contractual obligation to make $12 billion in payments legally owed to a bunch of health insurance carriers.

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.

NOTE: BEFORE reading below, read my explainer from last November on the Risk Corridor Massacre lawsuit and potential Medical Loss Ratio implications.

OK, got all that? Good.

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

— Mark Joseph Stern (@mjs_DC) April 27, 2020

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.

Back in June, I reported that the Supreme Court of the United States had agreed to take up the long-simmering (4 years!) Risk Corridor Massacre class action lawsuit:

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

*(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.

Well this is rather unexpected.

Let's fire up the Wayback Machine, Sherman, and go back to 3 years ago, when the Risk Corridor Massacre first reared its ugly head.

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).

OK, first take a few minutes to read all of this.

I'll wait.

OK, done? Good. Now read this (via Stephanie Armour of the Wall St. Journal):

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.

Healthcare reporter extraordinaire Margot Sanger-Katz has been picking through the horror show known as Donald Trump's proposed annual federal budget, and it's every bit as awful as you might expect:

The first one I already wrote about this morning...

The White House’s preferred Obamacare replacement now appears to be Graham-Cassidy.
https://t.co/stjZMYSeMO pic.twitter.com/wS62MkbgVp

— Margot Sanger-Katz (@sangerkatz) February 12, 2018

In a surprise to no one, Planned Parenthood would appear to be defunded...

This would be a big policy change. pic.twitter.com/1UoylIyHRJ

NOTE: I've toned down the title a wee bit.

Read this (12/01/15):

Hey, remember the Risk Corridor Massacre? The one which is at least partly responsible (and in some cases, mostly responsible) for a dozen ACA-created Co-Ops (as well as at least one private insurance carrier in Wyoming) going out of business?

Well, there's two more rather interesting developments to the Risk Corridor mess.

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