Thursday, October 2, 2014

Unless Congress Agrees in a 2015 Budget Deal, Insurer Bailouts Won't Be Legal

From Stephen Moore at Investor's Business Daily:
It didn't get much attention outside Capitol Hill, but late last week House Republican leaders scuttled a vote to repeal an ObamaCare bailout plan for major health insurance companies if they lose money on new Affordable Care Act policies.

Taxpayers could be on the hook for billions of dollars of payouts for ACA insurance policies that incur losses that exceed premiums collected.

Despite pleas from conservatives to hold a vote to repeal the sham subsidy program to the biggest insurers — like Aetna (NYSE:AET), Cigna (NYSE:CI) and Humana (NYSE:HUM) — our sources tell us the House leadership reportedly said that it "ran out of time to hold a roll call vote." 
Taxpayers could be on the hook for billions of dollars of payouts for ACA insurance policies that incur losses that exceed premiums collected. AP View Enlarged Image

Conservative activists are complaining that the real motive for killing a vote was to avoid ruffling the feathers of the health insurance lobby by ending the ObamaCare insurance industry safety net.

Conservative lawmakers also fear that in the anticipated lame-duck session in December, Republicans will allow the Obama administration a de facto blank check to make payments to insurance companies that lose money on ObamaCare policies without congressional approval.

'Strong Incentive'

The bailout measure is the Affordable Care Act's controversial "risk corridor" program, which provides financial "protection" against losses to insurers that sponsor exchange plans. The idea of this short-term program was to create a pool of funds from the profits of some insurers with ObamaCare plans to offset the losses of others.

A 2013 analysis by the Society of Actuaries says that the risk corridors program "provides a strong incentive for insurers to participate in the health insurance exchanges set up by the Affordable Care Act." Perhaps too strong an incentive, budget experts worry.

Under the program, if "allowable costs" to an insurer top 103% of the "target amount," the feds subsidize half of those excess payments. The subsidy climbs to 80% of allowable costs that exceed 108% of the target amount. The potential liability to taxpayers is "uncapped," so the sky is the limit on losses.
The White House understands the stakes. Without these subsidized risk corridors to backstop the ObamaCare plans, insurance companies will stop issuing ACA plans, and the entire program could be derailed.

ObamaCare's Fannie?

But insurance experts warn that this program creates the same moral hazard problem for health insurance that we saw in the mortgage market with Fannie Mae and Freddie Mac. The guarantee on bad mortgages encouraged bad mortgages. The guarantee against losses on ObamaCare enrollees encourages insurers to toss sound underwriting standards out the window. This didn't turn out so well with Fannie and Freddie, which received a taxpayer-funded bailout of more than $180 billion after issuing subprime mortgages that should have never been issued. ...

Another problem, according to sources at the Senate Budget Committee, is that the millions of new ACA policies are not actuarially sound because of an adverse selection problem. As one tells us, "the sick and the elderly are disproportionately signing up for coverage."

If so, per capita costs will be far higher than expected — and under the risk corridor program, taxpayers get stuck with the tab. ...
The Bailouts Aren't Legal Without Further Congressional Blessing 
The U.S. Government Accountability Office ... rul[ed] Tuesday that the Department of Health and Human Services can't provide funds to insurers for excessive losses on ObamaCare plans without Congress' formal approval.

But again Republicans may duck this fight and provide the bailout funding in a lame-duck session.

"A year-end budget deal will be hard to stop," a top Senate GOP health care staffer said. "If there is Republican resistance, Obama may threaten a government shutdown to get his way. Don't be surprised if we surrender."

Meanwhile, conservatives at organizations such as Heritage Action are denouncing this subsidy plan as "corporate welfare" for the insurance lobby. They worry that Republicans have the policy and politics wrong. A new McLaughlin & Associates poll found that 81% of Americans oppose any health insurance company bailout.

What is especially perplexing is that Republicans may get blamed for a bailout to an industry that sided with the White House in passing ObamaCare in the first place. ...