That Obamacare ‘Bailout’ Saves Taxpayers $8 Billion

The Congressional Budget Office expects insurance companies to pay in more than they take out.

Marco Rubio listens to Senator Max Baucus as he testifies before the Senate Foreign Relations Committee for his confirmation to become the next US ambassdor to China on Capitol Hill in Washington,DC on January 28, 2014.
National Journal
Sam Baker
Feb. 4, 2014, 8:24 a.m.

The Obama­care pro­gram Re­pub­lic­ans have cri­ti­cized as a “bail­out for in­sur­ance com­pan­ies” will ac­tu­ally save the fed­er­al gov­ern­ment about $8 bil­lion, the Con­gres­sion­al Budget Of­fice said Tues­day.

The pro­gram in ques­tion, known as risk cor­ridors, was de­signed to sta­bil­ize in­sur­ance premi­ums if the pool of people who sign up for cov­er­age is dif­fer­ent than ex­pec­ted.

Many Re­pub­lic­ans, led by Sen. Marco Ru­bio, want to re­peal the pro­gram — per­haps as part of an agree­ment to raise the debt ceil­ing. But the pro­gram will prob­ably save the gov­ern­ment money, CBO said in its re­vised budget fig­ures.

Here’s how risk cor­ridors work: When in­surers’ real-life costs are high­er than what they ex­pec­ted when they set their premi­ums, the gov­ern­ment ab­sorbs some of the losses. When in­surers’ costs are lower than ex­pec­ted, they pay in­to the pro­gram.

In ef­fect, the gov­ern­ment shares in un­ex­pec­ted costs as well as un­ex­pec­ted sav­ings. And the sav­ings will likely be big­ger, CBO said.

In­surers will prob­ably re­ceive about $8 bil­lion in risk-cor­ridor pay­ments, CBO said, but will pay in roughly $16 bil­lion — for a net sav­ings to the gov­ern­ment of about $8 bil­lion.

CBO Dir­ect­or Doug El­men­d­orf said that doesn’t mean re­peal­ing the risk cor­ridors would add $8 bil­lion to the de­fi­cit — in­surers change their be­ha­vi­or be­cause they’re count­ing on these pay­ments, he noted, so re­peal would need to be scored on its own.

Still, today’s es­tim­ate cer­tainly makes it easi­er for vul­ner­able Demo­crats to res­ist any polit­ic­al pres­sure to re­peal risk cor­ridors. It might also re­flect some un­der­ly­ing op­tim­ism about Obama­care en­roll­ment.

Every­one knows over­all en­roll­ment will be some­what lower than ex­pec­ted — CBO says about 1 mil­lion lower — be­cause of the botched rol­lout of Health­Care.gov. That un­cer­tainty has stoked fears that in­surers will end up with sick­er, more ex­pens­ive pa­tients than they planned, caus­ing them to raise premi­ums next year.

But by pro­ject­ing that risk cor­ridors would save the gov­ern­ment money, CBO is say­ing it ex­pects in­surers’ costs, over­all, to be lower than ex­pec­ted — not high­er.

“Des­pite the tech­nic­al prob­lems that have im­peded en­roll­ment in ex­changes “¦ CBO ex­pects that premi­um bids will still ex­ceed costs,” the budget of­fice said.

Risk cor­ridors wouldn’t save the gov­ern­ment money if in­sur­ance mar­kets na­tion­wide were flooded with sick, ex­pens­ive pa­tients. In a worst-case scen­ario, in­surers would have to pay out far more claims than they an­ti­cip­ated when they set their premi­ums, trig­ger­ing risk-cor­ridor pay­ments from the gov­ern­ment and then premi­um in­creases next year.

By pre­dict­ing sav­ings from the risk-cor­ridor pro­gram, CBO isn’t ne­ces­sar­ily pre­dict­ing that Obama­care’s ex­changes will be health­i­er than ex­pec­ted; there are oth­er reas­ons for spend­ing to be low. But the pro­jec­tion is a sign that CBO doesn’t ex­pect the kind of ex­cep­tion­ally bad risk pool that could threaten the ex­changes’ ba­sic solvency.

El­men­d­orf noted that there is con­sid­er­able un­cer­tainty in CBO’s ana­lys­is of how the health care law will af­fect in­surers and said the $8 bil­lion fig­ure was in the middle of a wide range of pos­sib­il­it­ies. It could save the gov­ern­ment more, he said, or it could end up cost­ing tax­pay­ers.

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