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That Obamacare 'Bailout' Saves Taxpayers $8 Billion That Obamacare 'Bailout' Saves Taxpayers $8 Billion

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Health Care

That Obamacare 'Bailout' Saves Taxpayers $8 Billion

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

Sen. Marco Rubio,R-Fla., is leading the effort to repeal Obamacare's risk corridors.(NICHOLAS KAMM/AFP/Getty Images)

photo of Sam Baker
February 4, 2014

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.

Catherine Hollander contributed to this article.

This article appears in the February 5, 2014 edition of NJ Daily.

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