Tuesday, May 5, 2015

Obamacare's Insurer Bailout Fund, Curtailed by Congress, Comes Up 90% Short

Congress has temporarily stopped the potential unlimited taxpayer liability of Obamacare’s risk corridors (or "bailouts"). As you will recall these built in bailouts protect profits for health insurers by transferring money from insurers with "extra" (as designed by government formula) profits to those whose do not have profits from Obamacare. Congress applied the brakes in CROmnibus, which funded the government for 2015. It placed a restraint on the risk corridors by requiring that any payments beyond budget neutrality required appropriation. And this congress does not plan to make that appropriation.

Congress did this after Obama Administration bureaucrats commented that they felt they were well within their authority to write regulations requiring taxpayers to fund any shortfalls in the risk corridor program. These statements were, in essence, a sales pitch to leery insurers. I know of at least one insurer who bit so hard on this offer, they've completely swallowed the hook. If congress doesn't reverse this action, they could be in a dire situation.

And now Standard and Poor's Capital IQ is reporting that:
  • The ACA risk-corridor pool will be significantly underfunded for 2014 if the CROmnibus limit remains in place. 
  • The aggregate risk-corridor payables recorded by U.S. insurers for 2014 are less than 10% of the aggregate risk-corridor receivables booked by insurers for the same year: a 90% shortfall. 
  • And, uncertainty of payment due to under-funding created by PPACA will cause volatility in the market for all insureds.
In sum, S&P sates that, "the ACA risk corridor will not receive adequate monies from insurers with profitable exchange business to pay insurers that have unprofitable exchange business. ... When insurers priced their exchange products for 2014 they likely assumed the risk corridors would work effectively. Thus, increased uncertainty only results in incorrect pricing assumptions and operating-performance volatility for insurers that are most involved in the ACA."

Some insurers are far more dependent on Obamacare's planned risk corridor transfers. The insurers with greater receivables as a percent of total reported capital face the greatest risk. See the below chart (Click on it for a larger view):