Insurers got a much-desired reprieve from an unpopular tax in Congress’ $1.9 trillion spending deal and tax break package, but no bailouts for Obamacare.
The measures in the package, released early Wednesday, come at a time when some insurers are debating whether to stay in the Obamacare marketplaces.
Insurers got some bad, but not surprising, news as Congress once again made a safety net program for Obamacare insurers called “risk corridors” budget neutral, meaning the Obama administration can pay insurers only as much as it takes in.
“Budget neutrality is not good news. That was expected,” said Kathy Hempstead, director of insurance programs at the Robert Wood Johnson Foundation.
The risk corridor program was created to help Obamacare insurers if their losses climbed too high and forced insurers to give the program money if they earned too much.
Its intent was to help insurers navigate the new insurance marketplace. But the 2014 cromnibus spending package included a provision that ensured the government couldn’t pony up more money beyond what it took in.
The result was that insurers requested $2.9 billion in risk corridor payments this year but received 12 percent of that. The decision was a big reason more than half of the 23 taxpayer-funded Obamacare coops decided to close this year.
Since the revenue-neutral provision was in the last spending bill, insurers didn’t have high hopes it would be included in this one.
“Knowing that the safety net is not really there, at least not in the short term, carriers will be more careful to protect themselves from losses,” Hempstead said.
Some insurers altered the types of plans they offer, such as shifting toward more plans with narrow networks with fewer providers, Hempstead said.
The risk corridor program was never meant to be permanent and it is set to expire at the end of next year.
“At this point insurers will be making decisions about whether to participate in 2017 and beyond regardless of whether they get their [risk corridor] payments or not,” said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation.
But it wasn’t all bad news for the insurance industry as it received a one-year reprieve for 2017 from a tax on all health insurers.
The tax started in 2014, when $8 billion was collected from insurers. This year, $11 billion is expected to be collected.
“The question is how much does [the moratorium] help plans’ bottom lines versus getting premiums lowered,” said Caroline Pearson, senior vice president at the research firm Avalere Health.
Pearson expects that insurers will not increase premiums in 2017 as much as prior years due to the savings from the tax, but insurers will keep some of the savings to increase their margins, she said.
The insurance industry was pleased with the reprieve.
“The health insurance tax drives up the cost of coverage for millions of Americans,” said Clare Krusing, spokeswoman for insurance trade group America’s Health Insurance Plans. “Repealing or suspending this tax would be a victory for seniors, small business owners and middle-class consumers.”
An industry-commissioned report from the actuarial firm Oliver Wyman agrees that a moratorium could lead to cheaper premiums. Suspending the tax will reduce premiums by more than $200 per member per year in 2017 across all major medical plans, the report said.
In addition to the tax moratorium, a two-year delay in implementation of Obamacare’s “Cadillac” tax on pricey healthcare plans also could help the industry, Pearson said.
The tax, a 40 percent excise tax on expensive plans, will go into effect in 2020 instead of 2018. The delay means that insurers may not lose revenue from the expensive plans, Pearson said.
The spending package doesn’t appear to have an impact on 2016 Obamacare open enrollment, which ends on Jan. 31. Levitt noted that plan offerings and premiums for next year are already locked in.
But whether insurers will stay in the program is another question. Last month UnitedHealthcare, the country’s largest insurer, caused a stir when it said that big losses might prompt it to exit the Obamacare marketplace.
Another major insurer, Cigna, said it hasn’t made any money from its participation in Obamacare but it remained committed to the law. Other insurers such as Anthem offered similar commitments.
Hempstead said exiting Obamacare isn’t “a decision anybody is going to make lightly.”
