Industry sources tell the Washington Examiner's Susan Ferrechio that the Barack Obama administration is thinking of extending the Affordable Care Act's "risk corridors," the federal reimbursement program for health-insurance companies that lose money by participating in the newly created health-care exchanges. This is not the first time we've seen this idea floated, and frankly, believing that the administration is considering it is all too easy.
If you're not familiar with the risk-corridor program, read what I've written in the past. Basically, there are three temporary risk-adjustment programs to help insurers transition into the new marketplaces. One of them -- a sort of reinsurance program, called the risk corridors, that offsets losses when claims are greater than 103 percent of projections and collects money from insurers whose claims are less than 97 percent of what they expected -- is not designed to be revenue-neutral. That means that if the insurance pool is a lot sicker than initially expected, the federal government could end up transferring a bunch of money to the insurance industry.
Because a lot of insurers seem to be saying that they're going to lose money on their exchange policies this year, that's a little worrying for the U.S. taxpayer.
But not that worrying, because the corridors are supposed to expire in three years. If it's true that the administration is seriously considering extending them, that raises some disturbing possibilities:
- Most obviously, the administration (and insurers) believes the market for individual exchange policies is likely to be still having serious problems in 2017.
- The insurers have clearly been willing to lose money on these policies for a couple of years in order to help the exchanges get established. But with the rollout difficulties and the somewhat underwhelming enrollment numbers, they may be threatening to bolt unless they get some guarantee that they can sell policies people will actually be willing to buy.
- A risk-corridor extension would help keep the price of policies down by funneling a backdoor subsidy to the insurers. However, it would not keep the cost down -- indeed, it could have the opposite effect. With the administration subsidizing the lion's share of any losses, the incentives to control costs would be dramatically weakened.
- With health-care cost growth already running well above inflation in most years, this could be quite expensive. Basically, the administration would be violating all the promises that were made about deficit reduction and cost control in a desperate bid to keep insurers on the exchanges.
It's hard to see how they can do this legally, as the text of the statute seems quite clear: "IN GENERAL.—The Secretary shall establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016 under which a qualified health plan offered in the individual or small group market shall participate in a payment adjustment system based on the ratio of the allowable costs of the plan to the plan's aggregate premiums." This doesn't seem to leave much room for the Department of Health and Human Services to issue a rule extending the program unless it declares that for the purposes of the law, 2017 and years beyond will be considered to actually be happening in 2016.
Of course, the administration has gotten creative before, so don't count it out. But if it does extend the program, it is basically confessing two things: It thinks the law is whatever it says it is, and it never really cared how much the program cost.
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Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.
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