Obamacare: Risk Corridors, Postponements, and More Harmful Side Effects

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Among the billions of dollars in fresh spending aimed at spurring economic growth, the $3.9-trillion budget for the 2015 fiscal year that President Barack Obama delivered to Congress on Tuesday, which has been labeled a populist wishlist primed for election year politics, included $5.5 billion in potential payments to insurance companies that suffer losses as result of the Affordable Care Act. When the healthcare reform was drafted, a temporary feature was created to reimburse insurers in the event that fewer than expected healthy individuals enrolled. This was intended to serve a cost buffer during the experimental early years of the health care reform by limiting the risk they will face by entering the new insurance market. But Republican Senator Marco Rubio of Florida branded the risk corridors, as they are called, as a “bailout” for the insurance industry.

The request for $5.5 billion to fund those risk corridors reignited the debate over the motivations behind including the potential payments in the budget, and this controversy came in the midst of what was a difficult week for the Affordable Care Act — although it was far from the worse week in the reform’s life. The White House found it necessary to hold a conference call with reporters Wednesday afternoon to reiterate that there would be no taxpayer-funded bailout of Obamacare.

In simple terms, the authors of the Affordable Care Act provided insurers risk corridors by crafting rules that would allow the Department of Health and Human Services to compensate insurance companies if their costs surpass more than 103 percent of a pre-arranged target amount, which could happen if insurance risked pools are not properly balanced. Premiums in the new federally-facilitated and state-run insurance exchanges were calculated based on the assumption that young, healthy, and therefore cheap-to-insure individuals would be moved into the new marketplaces because the cheaper plans they were currently enrolled in would not comply with Obamacare’s new requirements, or they would have previously been without insurance. If those healthier individuals chose not to purchase Obamacare insurance policies, the risk pools of the insurance exchanges will be dominated by older, sicker people, who are more like to find more affordable policies through the exchanges. Exchange risk pools must be broad enough to balance out the proportionally higher medical costs of the sicker and older individuals who will likely be among the first to sign up. But, if an unprecedented number of young and healthy health insurance customers enroll, the insurers will pay HHS.

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