A program to refund insurance companies for losses incurred during the implementation of President Obama’s health care law could impose significant costs on American taxpayers, but under regulations issued by the Department of Health and Human Services, those costs won’t be known until the summer of 2015.
Republicans led by Sen. Marco Rubio of Florida and Rep. Tim Griffin of Arkansas have called for repealing what’s known as the risk corridors program, which has also been described as a bailout of the insurance industry. Under the program, insurers have to estimate the amount of money they expect to pay out in medical claims each year along with their premium revenue and administrative costs. Insurers who do significantly better than expected must pay HHS and those who do worse than expected receive money from HHS. But it's remained an open question how much this could potentially cost.
The Congressional Budget Office essentially didn't account for the cost of the program when it evaluated the health care law, as the number-crunchers assumed that the payments between insurers and the federal government would cancel each other out.
Following the botched rollout of the health care law, which has threatened insurers with a risk pool that skews toward older enrollees, it’s increasingly less likely that the provision will remain budget-neutral.
But Republicans are doubtful that the CBO would attempt to re-score the risk corridor program anytime soon.
“My understanding is that the first bit of data that they’d need to do that is not available,” Griffin said in a phone interview.
Insurers won’t know the final composition of the risk pool until open enrollment on the health insurance exchanges ends on March 31.
Furthermore, under regulations issued by HHS, insurers aren't required to submit all the information related to the risk corridors program until “July 31 of the year following the applicable benefit year.” That would mean July 31, 2015.
As initially envisioned, the program was an attempt to stabilize the insurance market as it adjusts to the new rules imposed by the health care law, most notably the requirement that insurers offer coverage to those with pre-existing conditions.
The risk corridors program was designed to prevent insurers from tailoring their policies to cherry-pick the healthiest Americans by eliminating the financial incentive to do so. The idea was to make sure that no one insurer or small group of insurers got disproportionately burdened by the requirement to offer coverage to all comers.
But it wasn’t intended for a scenario in which there are large industry-wide losses.
On Monday, HHS reported that just 24 percent of Americans signing up for coverage on the insurance exchanges through December were part of the young adult demographic, well below the nearly 39 percent the White House had once deemed essential to the law's success.
On Jan. 9, insurer Humana Inc. disclosed in a regulatory filing that the risk pool of applicants for insurance on the exchanges would be worse than previously expected. Humana cited the "administrative fix" announced by the Obama administration and aimed at allowing individuals to remain enrolled in their current plans, which had been cancelled as a result of requirements imposed by the law. Insurers had been depending on those with cancelled plans (who tend to be healthier) to end up obtaining insurance through exchanges.
Under the risk corridor program, if an insurer’s losses are 103 percent to 108 percent over the target amount, the federal government would absorb half of those losses — and for losses that exceed 108 percent, the government would cover 80 percent.
So, major losses by insurers could translate into a large expenditure of taxpayer money. And as HHS wrote in its regulatory filing, “The risk corridors program is not statutorily required to be budget-neutral.”
In November, Rubio introduced a bill to repeal the program and Griffin introduced companion legislation in the House, where it has a better shot at passage because Republicans control the chamber.
Sensing the heat, insurance industry lobbyists are already gearing up to fight any effort to repeal the program.
Last Friday, Buzzfeed's Kate Nocera published talking points issued by Blue Cross Blue Shield Association CEO Scott Serota to the company's members.
“We are becoming increasingly concerned about momentum that is quickly building among some leading conservatives for elimination of the risk corridor and reinsurance programs,” Serota wrote.
He urged members to let members of Congress know that, “eliminating these programs will result in massive premium increases and could cause private insurers to become insolvent” and that “it jeopardizes the entire private health insurance market and will ultimately lead to a single-payer system.”
Griffin said that he hadn’t heard from any insurance lobbyists, but said the industry’s position is understandable.
“I don’t find it surprising that companies who stand to gain lots of money, whatever that amount is — millions or billions — it doesn’t surprise me that they would indicate a desire to take that money,” he said. “These are the same companies that have stood behind the law and said it was going to be a great thing.”
Griffin’s bill currently has 48 co-sponsors. There is currently no timeline for a floor vote, he said, but the timing won’t be dictated by whether CBO issues a cost estimate.
A GOP leadership aide said that, "Leadership has not yet scheduled a vote, but is reviewing the issue and is working with committees on the next best course of action."