This op ed originally ran in Morning Consult on December 17, 2015.
Far from an Insurance Bailout, Risk Corridors Critical to Affordable Health Care
By Martin Hickey and Kelly Crowe
December 17, 2015
In recent weeks, a little-known provision of the Affordable Care Act – risk corridors – has received the attention it rightly deserves as a key component of the landmark health law. Much of this stemmed from comments from a leading candidate for the Republican nomination for President characterizing the program as a “$2.5 billion bailout of insurance companies.”
In reality, the risk corridors program is vital to ensure Americans have access to affordable health care. If Congress once again fails to fully fund this program, as it appears prepared to do, the American people will be forced to pick up the bill.
The risk corridors program is designed to provide a temporary backstop to insurance companies offering plans in the early years of the ACA should they incur higher-than-expected losses – a high likelihood given the many unknowns about the initial makeup of the marketplaces. Risk corridors is sound, and frankly well-accepted public policy; Medicare Part D, passed under President George W. Bush and a Republican Congress, contained a similar provision.
Led by Senator Marco Rubio in last minute budget negotiations in late 2014, the risk corridors were made budget-neutral for FY2015, which ultimately prevented insurance companies both large and small from receiving funds promised to them when they agreed to offer ACA plans. While slashing support for insurance companies is a ready-made soundbite, in reality, this “quiet legislative sabotage” is driving up insurance rates, creating instability in the marketplaces, and taking away the health insurance hundreds of thousands of Americans have come to enjoy. In fact, it’s likely Americans will pay far more than $2.5 billion as a result of premium increases and other disruptions related to these changes.
This year’s shortfall in the risk corridors program was most immediately felt by health insurance CO-OPs. Despite many being on the path to financial success in the not-so-distant future, 8 of 19 remaining CO-OPs closed their doors in October, within weeks of being informed that only 12.6% of promised risk corridor payments would be available. These CO-OPs simply did not have the necessary reserves to confidently enter the marketplaces in 2016.
Far from saving taxpayers money, hundreds of thousands of Americans who had signed up for CO-OPs were forced to change health insurance, likely purchasing it at higher rates than they were previously paying. The premature closing of CO-OPs also means it will be much more difficult for the government to recoup the loans that helped them get up and running.
Even in the immediate term, slashing funding for risk corridors appears to be penny-wise and pound-foolish. Recent studies confirm CO-OPs and other new entrants, by virtue of their added competition, brought down average premium rates by as much as 1.4% per additional entrant. As business columnist Michael Hiltzik noted, “the disappearance of co-ops will reduce competition in their old markets, raising premiums and requiring the government to spend more in premium subsidies for the buyers eligible for them–more than 80% of the buyers.”
The long term impact could be much worse. Insurers set their 2015 and 2016 rates with the assumption risk corridors would fully funded; 2017 rates, which will be formulated in the early half of 2016, will reflect the losses incurred by many insurers in the past year and could therefore be much higher than current levels.
This is not just a CO-OP problem. A spokesperson for America’s Health Insurance Plans (AHIP) encapsulated this issue well: “When health plans cannot rely on the government to meet its obligations, individuals and families are harmed.”
While opinions differ widely on the Affordable Care Act, everyone should agree it is neither sound government nor business policy to change the rules mid-game. Curbing the efficacy of the risk corridors program does just that, and creates an untenable situation for insurers, the federal government, and most importantly, the American people.
Similar to this time last year when changes to the risk corridors program were signed into law, Congress is about to pass another omnibus appropriations bill under a fast-approaching deadline. Unfortunately, the spending bill released this week once again restricts this important risk-spreading measure.
Though it’s too late to resurrect the CO-OPs and other health plans closing their doors this year, it would be a grave error to repeat a past and consequential mistake with respect to risk corridors. With Congress prepared to close shop for the year, it’s now up to Administration to find solutions to ensure Americans will still be able to access affordable and high-quality health insurance.
Dr. Martin Hickey is Board Chair of the National Alliance of State Health CO-OPs (NASHCO), and CEO of the CO-OP in New Mexico – New Mexico Health Connections. Kelly Crowe is CEO of NASHCO.