By Eric Boehm | Watchdog.org
Insurance companies made out pretty well with the passage of Obamacare.
For starters, they got guaranteed customers forever — thanks to the law’s mandate that every American buy health insurance, either through their job or through one of the new exchanges.
Even if they ended up losing money because of all the new coverage the Affordable Care Act required them to provide, the insurance companies had a nifty little back-up plan: a provision in the ACA that allows the government to bail out any insurer that finds itself in the red before 2016.
PLUMMETING: Approval rating for Obamacare have fallen during the law’s first year, but insurance companies have a handy protection against their own profits plummeting – a provision in the ACA that allows the federal government to bail them out if they lose money.
The sweet deal for insurance companies is a sour one for taxpayers: forced to buy insurance companies’ services up front (and paying higher premiums to do it), forced to bail out failing insurance companies on the back-end.
Luckily, taxpayers might get a break from the second part of that equation if Congress doesn’t grant permission for the Obama administration to follow-through with the promise — known in Obamacare parlance as the “risk corridors” program — to bail out insurers over the next two years if they end up losing money.
“Language appropriating funds for ‘other responsibilities of the Centers for Medicare and Medicaid Services’ would need to be included in the (Center for Medicaid and Medicare Services’ Program Management) appropriation for FY 2015 in order for it to be available for payments to qualified health plans,” wrote Susan A. Poling, general counsel for the Government Accountability Office, in a memo to members of Congress this month.
That’s a lot of jargon, but what Poling concluded is Congress has to specifically appropriate funds for the “risk corridor” program starting in 2015 as part of the annual budget bill for CMS.
“This is a very positive development towards protecting taxpayers from the unlimited liability to which Obamacare exposes us,” concludes John R. Graham, a senior fellow with the National Center for Policy Analysis, who has closely followed the debate over the risk corridor program.
Here’s why it matters.
While the crashing exchange websites, the cancellation of existing health insurance plans and the American public’s sinking opinion of the ACA have received most of the headlines, the risk corridors program has been the subject of much behind-the-scenes debate during Obamacare’s fitful first year.
Specifically, Congress has been interested in two questions: Does the risk corridor program have to be cost-neutral? And, if it is not, does it require a congressional appropriation.
Let’s take the first question first.
EXCHANGE RATES: Premium costs for ACA-compliant plans will increase by double-digits next year. Then, taxpayers might have to bail out insurance companies too.
According to Edmund Haislmairer, a senior research fellow at the Heritage Foundation, there are three major provisions of the ACA designed to protect insurance companies from losing money.
First, there is a re-insurance program — think about re-insurance as insurance for insurance companies, or meta-insurance — funded by a temporary tax on all health insurance policies. It’s expected to collect and redistribute about $20 billion during the ACA’s first three years.
Second, there is a “risk adjustment program” that basically allows insurers to share funds based on how many high-cost enrollees they get. It is a permanent provision of the ACA.
Third, there is the tricky “risk corridor” program that allows to government to take money from insurance companies that make higher profits and pay insurance companies that fall into the red.
It’s important to note that the first two programs, despite the fact one is temporary and one is permanent, simply re-allocate money already within the insurance system. They are zero-sum games that don’t require any new funds.
To understand why the third program is different, consider the following hypothetical situation: assume no insurance company makes a profit determined by the government to be excessive — indeed, the existence of a provision allowing the government to seize excessive profits gives them a pretty good incentive to avoid doing so — but some companies end up with what the government terms “excessive losses.”
Where does the government get the money to refund those insurance companies for their losses?
Graham points out the Obama administration promised, during the Obamacare debates in 2010, the risk corridors would be cost-neutral, but there’s nothing written into the law requiring them to be that way.
That brings us to the second question: if the risk corridors are not cost-neutral, where does the government get the extra dollars?
That’s where the GAO’s report from last week enters the picture. Responding to a request from members of Congress, the GAO said the dollars to fill that gap would have to come from congressional appropriations. In other words, if there’s going to be an Obamacare insurance company bailout, Congress would have to approve.
“Agencies may incur obligations and make expenditures only as permitted by an appropriation,” wrote Poling in the GAO analysis.
During the spring, the Obama administration finalized a rulemaking that actually increases taxpayers’ exposure to the “risk corridors” bailout scenario, essentially by widening the range of profit losses that could be recouped through the program, according to Graham.
That rule, he says, “takes a small but significant step toward abandoning the fantasy of budget neutrality,” when it comes to the risk corridors. It makes it all the more important Congress does its best to “ensure our liabilities in the risk corridors are limited and precisely quantified.”
So, Congress might be able to stop the ACA bailout from happening, or at least limit the damage. Here’s the catch: health insurers have lots of lobbyists — and they also have a powerful interest in making sure they don’t lose millions of dollars because of Obamacare.
It’s also possible — though unlikely, given the incentive to avoid excessive profits — that many companies will generate high profits and none will have losses. Then, Haislmairer points out, the program would have a surplus of funds and no where to spend them.
Of course, that’s a much better problem to have.
Boehm can be reached at EBoehm@Watchdog.org and follow @EricBoehm87 on Twitter for more.