Insurers grapple with big Obamacare funding shortfall

The program works by having insurers whose profits reach past a certain threshold paying into it, and the administration paying out to insurers that have big losses.

Obamacare insurers requested about $2.9 billion in risk corridor payments for the 2014 calendar year, but they only received $362 million, a mere 12 percent of what they asked for. The shortfall happened because insurers requested more than what was paid into the program.

The result has been devastating for some insurers. WinHealth, which provides coverage in Wyoming, went into receivership last week because of a low risk corridor payment.

It will suspend insurance sales in 2016, leaving about 8,200 residents to search for a new plan from the sole remaining insurer in the Obamacare marketplace.

In addition, nine taxpayer-funded insurance co-ops have closed recently, with some blaming the low payments.

The shortfall hit small insurers that don’t have enough reserves to cover them, said Deep Bannerjee, director of ratings at credit ratings agency Standard & Poor’s.

Bannerjee didn’t give an exact number on how many insurers could fall but said the “shakeup will continue.”

Instead of shutting down, insurers most likely will react to the shortfall through raising premiums since they can’t count on the risk corridor money, he said. They also could shift their plans away from offering a more open network to a narrow network such as an HMO.

The dramatic shortfall happened partly because the rules of the game changed for insurers, Bannerjee said.

The program is supposed to pay insurers for 2014, 2015 and 2016. The most recent payments were for the 2014 calendar year.

Insurers set their rates for the 2014 year in late 2013, believing they could charge lower premiums because they thought they would get the risk corridor money.

However, the program experienced an unexpected change.

In late 2014, the “cromnibus” spending package that funded the federal government included a provision from Republicans making the risk corridor program revenue neutral. That meant the program could only pay out what it took in, which slashed the expected payments.

Republicans were essentially calling the Obama administration’s bluff, as officials ensured Congress the program would be revenue neutral.

Insurers will receive risk corridor payments for the 2015 calendar year in fall 2016. Those are also expected to be lower than anticipated, Bannerjee said. That is because they will be based on rates set during fall 2014, before news of the shortfall occurred.

The Centers for Medicare and Medicaid Services, which oversees Obamacare, did not return a request for comment.

The agency has said that it recognized that for some insurers the lower payments could create solvency concerns. The agency contacted states and insurers to work with them.

The risk corridor program expires after 2016. The reason is that by then the Obamacare marketplaces are expected to be stable without government help.

When people get insurance coverage for the first time, they typically use a lot of healthcare services in the first year to satisfy long-term health needs. In later years a more predictable pattern of healthcare use is expected to emerge.

“It takes three years for a market to stabilize,” Bannerjee said.

Bannerjee doubted that the shortfall would cause many insurers to leave the Obamacare marketplace, which is what happened with Winhealth.

He said some nonprofit insurers need the share of Obamacare’s individual insurance market, which is the market for people who don’t get health insurance through their work.

“They have to stay in the game, but it is going to get harder,” he said.

The insurance industry, meanwhile, chided the federal government for not meeting its obligations.

“Congress and the administration must act to ensure these programs work as intended and consumers are protected,” said Clare Kusing, spokeswoman for America’s Health Insurance Plans, an industry group.