While Republicans spent years going for Obama- care's jugular, insurance companies kept calm and carried on. Through dozens of repeal votes in the House, including several that would have undone parts of the law the industry depends on, the largest firms stood on the sidelines. Throughout the nearly four years of post-Obamacare political maelstrom, their powerful lobbying operations let politics run their course. So why now—just as Republicans are changing their tack to take on a wonky, low-profile part of the law—is the industry alarmed?
Because this wonky, low-profile part of the law, perhaps more than any other, provides a safety net that insurance companies consider essential. And the attack on it has some large carriers on the verge of apoplexy, in part because Republicans have supported nearly identical programs in the past.
At issue are the Affordable Care Act's "risk corridors"—part of a three-pronged safety net designed to stabilize the insurance market in case ACA enrollment works out differently than expected. Through risk corridors, the government helps soften unexpected losses and shares in unexpected gains.
Republicans, however, contend the program is an "insurer bailout" because it puts the government on the hook for some of insurers' losses—and Republicans insist that losses are inevitable. Certain conservatives, led by Sen. Marco Rubio, want to repeal the Affordable Care Act's risk corridors, perhaps as part of a deal to raise the debt ceiling.
Repealing the risk corridors would be terrible for insurance companies—and for Obama- care. Premiums would rise, and some plans might decide to leave the law's new marketplaces altogether. But the same could be said about plenty of anti-Obamacare bills. Had Republicans succeeded in their push to repeal the law's individual mandate, insurers would have become custodians of an impossible industry. Proposals to un-cancel certain insurance policies threatened Obamacare's markets. Eliminating subsidies to buy insurance would drain insurers' new customer base.
Insurers made their arguments against those measures, sure, but they didn't get especially riled up over them. They declined to openly break with their Republican allies, and they could count on the Democratic Senate and the White House to kill anything that would actually destabilize the law. Given that the same political dynamic applies to risk corridors, why the sudden panic? (A sample: The Blue Cross Blue Shield Association, in talking points, recently said repealing risk corridors could be a gateway to a single-payer system.)
For starters, some health care experts said, the charge of a "bailout for insurance companies" sounds a lot more like an attack on insurers than an attack on Obamacare. Second, this debate is new. By the time the House voted to repeal the individual mandate, the merits of that issue had been litigated for years. But hardly anyone understands the economics behind the corridors, so industry officials say they have to make sure the "bailout" label doesn't stick. "There's a fair amount of misunderstanding about what these programs are.… These are really arcane programs," says one industry official who asked for anonymity to comment on proposals from the GOP, which is normally an ally.
Third, insurers know they need risk corridors—and they know Republicans have recognized that need in the past. "Because we are not sure that the private sector will get enough money in the government reimbursements to the plan," Republican Sen. Jon Kyl said in 2003, talking about creating Medicare Part D, "we'll need to create some risk corridors. We need to create a stabilization fund." Mark McClellan, serving at the time as President Bush's Medicare administrator, said in 2004 that "risk corridors will allow the government to share in any unexpected gains or losses that the plans incur and help plans in the early years of the regional plan program while they gain experience."
Obamacare's risk corridors work a lot like Medicare Part D's. When insurance companies' costs are higher than expected, the government helps cover some of the unanticipated spending. When insurers' real-world costs are lower than expected, they pay into the same fund. It's possible, therefore, for the government to pay out tax dollars to insurance companies if their experience is especially bad.
But the Congressional Budget Office said this week that it doesn't expect that to happen. It estimated that the Affordable Care Act's risk corridors will actually save the government money. Insurers will pay in about $8 billion more than they take out, CBO said. Rubio's office calls this an incomplete analysis. CBO didn't base its estimate on who has enrolled so far in Affordable Care Act plans, and, based on current demographics, "it's all but guaranteed that taxpayers will be bailing out the insurance companies for Obamacare, which is what we're trying to stop," a Rubio spokesman says.
The goal was to coax insurers into new marketplaces, where they would, by definition, have to make their best guess about who their new customers would be. Risk corridors, along with risk adjustment and reinsurance, are designed to smooth that transition. "The same programs [have been] used for over 20 years in government to encourage private insurers to partner in federal-private partnerships when you don't know the risk you're taking on in the early years of a program," the industry official says.
This article appears in the February 8, 2014 edition of National Journal Magazine as Unleashing the Furies.
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