Congressional Approval Required for Insurance Company Bailouts

Published November 10, 2014

Insurance companies made out well with passage of the Affordable Care Act, getting a major expansion in the size of the market thanks to the law’s mandate that most Americans buy health insurance, either through their job or through one of the new exchanges.

On top of that were provisions in the Affordable Care Act, better known as Obamacare, allowing the government to bail out any insurer that finds itself in the red before 2016.

But taxpayers may get a break from having to subsidize insurers directly for losses if Congress doesn’t go along with funding the “risk corridors” program that bails out insurers over the next two years if they end up losing money.

“Language appropriating funds for ‘other responsibilities of the Centers for Medicare and Medicaid Services’ would need to be included in the [Center for Medicaid and Medicare Services’ Program Management] appropriation for FY 2015 in order for it to be available for payments to qualified health plans,” wrote Susan A. Poling, general counsel for the Government Accountability Office, in a memo to members of Congress on September 30.

In plain language, Poling concluded Congress any funding for the risk corridor program must be specifically appropriated by Congress starting in 2015 as part of the annual budget bill for CMS. Given Republican control of both the House and the Senate, such an appropriation is likely to face serious obstacles.

“The law requires appropriations for risk-corridor payments. As a result of the election, Republican majorities in both chambers can ensure that no further appropriations are made for risk corridors,” said John R. Graham, a senior fellow with the National Center for Policy Analysis, who has closely followed the debate over the risk corridor program.

Bailout Funding Debated

The risk corridors program has been the subject of behind-the-scenes debate over the past year, with Congress trying to find out whether the risk corridor program has to be cost-neutral and, if not, whether it requires a congressional appropriation to fund payments to insurance companies.

The risk corridor program allows the government to take money from insurance companies that make “excessive” profits and pay insurance companies that fall into the red. But it is possible there will be no excessive profits, or at least not enough revenue from it to cover the losses of unprofitable insurers.

Although the Obama administration originally claimed the risk corridors would be self-funding and not require taxpayer dollars, there’s nothing in the law requiring this. Instead, it seems the administration simply assumed there would be enough excess profits to fund the program’s payments to insurers with excess losses.

The Government Accountability Office said the dollars to fill any gap between revenue and costs for the risk corridor program would have to come from congressional appropriations. “Agencies may incur obligations and make expenditures only as permitted by an appropriation,” wrote Poling in the GAO analysis.

Potential Taxpayer Losses Increase

Taxpayers may be on the hook for even greater losses than the law originally envisioned, Graham says. During the spring, the Obama administration finalized a rulemaking that widened the range of profit losses that companies could recoup through the program.

The rule moves toward “abandoning the fantasy of budget neutrality” regarding the risk corridors, Graham concluded earlier this year in a blog post. The Obama administration still does not have an estimate of how much the risk corridors will cost taxpayers, Graham told Health Care News, adding, “It is important that Congress stop this unlimited taxpayer liability.”

In addition to refusing to appropriate funds for the risk corridor program, Congress can repeal it outright. Rep. Leonard Lance (R–NJ) has submitted legislation, H.R. 5175, that would do just that.

“Does the law allow the [Obama] administration to cover insurance company losses, and are taxpayers going to have to foot the bill?” Lance asked at a July 28 hearing discussing the issue. “Taxpayers need to be protected from more bailouts, and we need to ensure that the administration is following the letter of the law.”

Eric Boehm ([email protected]) writes for, where an earlier version of this article first appeared. Reprinted with permission.