Congress Blocks ACA Insurer Bailouts

Published December 22, 2014

In Section 227 of the recently enacted “Cromnibus” spending measure, Congress added critical but little-noticed language that prohibits the use of funds appropriated to the Centers for Medicare and Medicaid Services (CMS) to pay for insurance company bailouts. In addition, Congress did not appropriate any separate funding for “bailouts.”

The subsidies were built into the Affordable Care Act (ACA) but require a specific appropriation from Congress, according to the Congressional Research Service (CRS).

Accordingly, in 2015 and thereafter, some insurers are likely to raise premiums to avoid losses, or they will simply stop offering policies on the exchanges altogether. Without the possibility of taxpayer bailouts for the exchange policies, each participating insurer will need to consider leaving the exchange program.

For the future, “… not only Republicans, but insurers themselves, should give up on risk corridor payments,” said John R. Graham, a senior fellow in health care studies at the National Center for Policy Analysis. “Giving them up will show voters that Republicans are serious about repealing and replacing Obamacare, while insurers will show they are also ready to move on to be a good partner in real reform.”

Subsidy Funding Left Out

ACA, more popularly known as Obamacare, established three programs designed to ensure participating health insurers have a guaranteed profit on the policies they write on the exchanges: reinsurance, risk adjustment, and risk corridors.

Each is structured differently, but they all are designed to limit or prevent losses for the insurance companies on policies sold through the exchanges. According to a CMS document, the goal of the programs is to “provide certainty and protect against adverse selection in the market while stabilizing premiums in the individual and small group markets as market reforms and Exchange begin in 2014.”

The reinsurance and risk corridor programs are set to expire after 2016, whereas risk adjustment is written into law as a permanent feature. In light of the language in the Cromnibus it is possible the risk corridor program will never be funded before it expires completely

Payments Not Authorized

Under the risk corridor program, any insurer who pays out more than 108 percent of its original projected claims is to be reimbursed approximately 75 percent of those additional costs. In crafting that provision, the drafters failed to create an authorization for funding this program, and CRS has determined without additional legislation the federal government is not authorized to pay claims under the risk corridor program.

While giving testimony in the U.S. House of Representatives earlier this year, Edmund F. Haislmaier, a senior research fellow at The Heritage Foundation, explained the risk corridor program has no “appropriate and sufficient rationale” and could create additional taxpayer liabilities of an unknown amount.

James Capretta of the Cato Institute has long maintained, “Moving to strike or limit the risk corridor payments would be an important step” towards protecting taxpayers.

Republicans Have Stopped the Subsidies

Despite the lack of language authorizing funds to be paid to insurance companies through the risk corridor program, the Obama administration had previously signaled it would make the payments, claiming it has enough flexibility under the law to authorize payments.

That sparked a protest from congressional Republicans, leading to the ban on the use of federal funds for this program in the language of Section 227 of the Cromnibus.

President Barack Obama signed the spending measure on December 17. The first affirmative step has been taken to dismantle the Obamacare program.