Insurers Up in Arms Over GOP’s New Obamacare Attack

The largest firms sat quietly through umpteen repeal votes — so why are they flipping out now?

Risk corridor: GOP bugaboo. 
National Journal
Sam Baker
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Sam Baker
Feb. 10, 2014, midnight

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.

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