One of the costliest parts of the Affordable Care Act (ACA) to run amok is a feature supposed to make the law more palatable to health insurers. To attract insurers to offer ACA-compliant insurance plans in the Obamacare exchanges, ACA’s “risk corridor” program is supposed to redistribute a portion of the profits of some insurers in the exchanges to insurers losing money on their plans. ACA originally permitted the Centers for Medicare and Medicaid Services (CMS), which administers the risk corridor program, to use funds unassociated with the program to make insurers whole in the event the program failed to collect enough profits to function.
CMS lost its legal authority to use non-risk corridor funds to pay for the program when Congress, at the urging of Sen. Marco Rubio (R-FL), required the program to be revenue-neutral, in a spending bill passed in 2014. Although Congress’s decision is commonly referred to as the “defunding” of the risk corridor program, Congress merely required the program to do what it was designed to do: pay for itself.
In this the program has failed. The losses of participating insurers far outweighed the profits paid into the program in 2014. Consequently, when unprofitable insurers applied for almost $2.9 billion in reimbursement from CMS, the agency paid them only $362 million – 12 percent of what they expected. Now these insurers are suing the Department of Health and Human Services, which oversees CMS, for the unpaid $2.5 billion, an amount that has likely grown to between $5 billion and $15 billion during 2015 and 2016.
Instead of enforcing the law prohibiting CMS from reaching outside of the bankrupt risk corridor program to pay off insurers, CMS Acting Administrator Andy Slavitt wrote in a September 9 memo, “HHS will record risk-corridors payments due as an obligation of the United States Government for which full payment is required.” CMS will pay the balance using surpluses from the 2015 and 2016 risk corridor program years, Slavitt wrote. This is a hollow promise, considering the program’s multi-billion-dollar failure in 2014.
Slavitt’s memo informed insurers HHS is willing to settle the multi-billion-dollar lawsuits, implying HHS intends to make up its risk corridor deficit using the Department of Justice’s “Judgment Fund.” The Judgment Fund is an essentially bottomless well, reserved for resolving financial disputes involving the federal government. Writing in the National Review, Michael Hamilton and Justin Haskins of The Heartland Institute argue the payments would represent an illegal bailout of the risk corridor program and its participants who banked on the federal government’s profligacy: “Paying off ACA insurers with the Judgment Fund would amount to a covert, multibillion-dollar taxpayer bailout of the health-insurance industry. That bailout would circumvent Congress in order to pay for an ACA program that federal law requires to pay for itself,” wrote Hamilton and Haskins.
Skyrocketing ACA premiums and the exit of mega-insurers such as Aetna, Humana, and UnitedHealth Group from marketplaces across the prove the artificial market ACA created a complete failure. The proposed multi-billion-dollar bailout from the Judgment Fund could keep portions of ACA and its participating insurers alive long enough to set up a public option and move towards a single-payer model in the next decade.
Instead of flouting the law and wasting millions of dollars propping up exchanges that do not work, Congress should focus on repealing and replacing the ACA with health care policies that lower costs and empower individuals to control their own health care.
The following articles examine the state of Obamacare exchanges, implementation costs, and expenses related to exchange failures.
To Save Obamacare, the President Plots a Massive Bailout of Health Insurers
Writing in the National Review, Michael Hamilton and Justin Haskins of The Heartland Institute examine a proposed bailout of insurers operating in the Obamacare exchanges using taxpayer dollars from the Department of Justice’s Judgement Fund.
HHS Floats Move to Tap Lawsuit Fund to Bail Out Obamacare Insurers
Jordan Finney writes in Health Care News about the federal government’s plan to pay off risk corridor losses using the Justice Department’s Judgment Fund.
Obamacare Could Live or Die by Two Pending Lawsuits
In this November 17, 2016, issue of the Consumer Power Report, Michael Hamilton explains why President-elect Donald Trump should refuse to settle risk corridor losses with insurers and should drop HHS’ appeal of a May 2016 ruling finding HHS “reinsurance” payments to insurers unconstitutional.
Research & Commentary: State ACA Exchanges Are an Expensive Failure
In this Research & Commentary, Matthew Glans examines the state of Obamacare exchanges, implementation costs, and expenses related to exchange failures.
Ten Principles of Health Care Policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.
Obamacare’s Failed State Exchanges
Peter Suderman of the Reason Foundation reports the federal government spent more than $1.2 billion on state-based online Obamacare-exchange insurance portals that remain broken.
Policy Tip Sheet – State Health Insurance Exchanges
Heartland Institute Legislative Specialist Kendall Antekeier outlines the arguments against state health insurance exchange implementation and provides facts about previously attempted exchanges. Antekeier writes, “If a state moves forward with implementing an exchange, it could invest valuable time and taxpayer dollars in developing a system only to discover it does not comply with final federal regulations.”
Failed State Exchanges Have Returned Just $1 Million to Taxpayers
Mireille Olivo of Americans for Tax Reform discusses a new report by the Government Accountability Office that found the Centers for Medicare and Medicaid Services has failed to conduct sufficient oversight over state-based Obamacare exchanges.
Obamacare: Rewarding States for ACA Exchange Failures?
Veronique de Rugy writes for the Reason Foundation about the millions of dollars that have been wasted on state ACA exchanges, as well as the lack of federal oversight and the absence of consequences for the state-based exchanges’ failures. “We will most likely continue to pick through the smoldering rubble of the Affordable Care Act for many years to come in search of lessons for future policymaking. One such lesson clearly should be that funneling large sums of federal money to state governments with limited oversight provides fertile ground for waste and political graft,” writes de Rugy.
Obamacare’s Impact on Doctors – An Update
In this Heritage Foundation Issue Brief, Alyene Senger outlines several effects of Obamacare on doctors: “Specifically, physicians will be subject to more government regulation and oversight, and will be increasingly dependent on unreliable government reimbursement for medical services. Doctors, already under tremendous pressure, will only see their jobs become more difficult.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at http://news.heartland.org/health, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
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