By John C. Goodman
Originally posted on Forbes, December 2015
When Barack Obama was campaigning for the presidency in 2008 and when he was selling ObamaCare to the public in 2010, he made insurance companies the villains. In fact, on the eve of the passage of the Affordable Care Act, every Democratic spokesperson who appeared on TV to support the health reform legislation had one and only one argument to make: We needed ObamaCare to protect ordinary people from ruthless, profit mongering insurance companies.
They said almost nothing about insuring the uninsured or controlling costs or making health care delivery more efficient. Instead, every advocate produced at least one example of what they claimed was insurance company abuse –usually from their home state or district.
How things have changed. Today, Democrats in Congress and the Obama administration are desperate to do something you may find surprising: give the insurance companies more than about $2.5 billion in bail out money.
That’s not a misprint. They want to take tax money from people who already think their premiums are too high and their coverage too skimpy and give it to the very “villains” they were excoriating only a few years ago.
Here’s the back story. Under a program called “risk corridor” insurance, the federal government pledged to redistribute money from insurers who made profits to insurers who incurred losses for a period of several years. The reason: the insurance industry was so uncertain about the outcome of the (Obamacare) health insurance exchanges that they insisted on a backup mechanism to protect themselves.
Yet last year’s appropriations bill, largely at the insistence of Sen. Marco Rubio, requires that the risk corridor payments be revenue neutral. In other words, any payment of funds to an insurance company suffering from a deficit must come from insurance companies who earned a profit. There can be no net transfer of taxpayer funds to the industry.
The problem is that in 2014 most of the carriers lost, and lost big. Blue Cross Blue Shield of Texas, for example, lost almost $400 million. United Healthcare, the nation’s largest private insurer announced the other day that it may pull out of the individual insurance company market altogether in 2017. For the coming year United Healthcare has announced that in most states it is ending all advertising and ceasing all broker commissions for plans sold in the Obamacare exchanges. Cigna just announced that it may leave the market as well.
Writing in The New York Times, Robert Pear notes that the Rubio provision:
sent tremors through health insurance markets and rattled confidence in the durability of President Obama’s signature health law. So for all the Republican talk about dismantling the Affordable Care Act, one Republican presidential hopeful has actually done something toward achieving that goal….[B]ecause of Mr. Rubio’s efforts, the administration says it will pay only 13 percent of what insurance companies were expecting to receive this year…. Losses were so steep that insurance-company requests for risk corridor payments were $2.9 billion, compared with only $362 million paid into the program by profitable plans.
Now here is the rest of the story. As Heather Higgins and Hadley Heath Manning explain at National Review, the Rubio provision expires at the end of this year. If the federal government is to continue to be constrained, it must be renewed in this year’s Omnibus spending bill. And in negotiating with Congressional Republicans, the White House has made it clear that being able to bail out insurers is its top priority.
Doug Badger of the Galen Institute explains what is at stake:
If the risk corridor language is stripped from the Omnibus, insurers who are implementing Obamacare will feast on roughly $5 billion or more of corporate welfare ($2.5 billion for the 2014 plan year and probably at least that much for the 2015 plan year), and they will go into the spring bidding process confident that the government will slip them billions if they continue to play ball with the Administration.
For individual companies, a lot is at stake. If the White House gets its way Texas Blue Cross stands to get more than $257 million for 2014 alone, according to Badger. Other beneficiaries include Humana ($213 million), BCBS Illinois ($172 million) and Coventry ($101 million).
Further health policy analyst Chris Jacobs has raised the possibility that the administration could try to pay the insurers anyway — even without congressional approval:
Acting Centers for Medicare and Medicaid Services (CMS) Administrator Andy Slavitt … released an unsigned memo just before Thanksgiving pledging eventually to hand over the $2.5 billion in 2014 risk corridor payments insurers requested, but did not receive Now, the Administration “is recording those amounts that remain unpaid…as fiscal year 2015 [sic] obligation of the United States Government for which full payment is required.”