Under the risk corridor program, if an insurer's medical costs for its exchange plan enrollees exceeds 103% of actuarial expectations, the insurer is eligible for federal subsidies to offset its financial losses. Conversely, if an insurer's medical costs are less than 97% of projections, it is required to make a payment to the federal government.
The risk corridor program is part of what's known as the three R's” (PDF) that were set up to make the new insurance marketplaces attractive for insurance companies. The other pieces are the risk adjustment and reinsurance programs. The goal is to reduce financial incentives for insurers to try to cherry-pick healthier subscribers by compensating them if they end up getting a disproportionately sicker risk pool.
The Congressional Budget Office assumed that the risk corridor program would be revenue neutral. But given the troubled rollout of the exchanges—producing what insurers fear may be a disproportionately sicker and more costly pool of enrollees than projected—that seems unlikely. The program is slated to sunset after three years.
Timothy Jost, a law professor at Washington and Lee University School of Law and a healthcare expert, questions whether it would be constitutional to repeal the risk corridor program after enticing insurers into the marketplace with the promise of that protection. “It's a federal law on which the insurers relied in entering into contracts with the federal government to offer qualified health plans,” he said. “If the federal government reneges on that agreement, I think that raises some constitutional questions.”
Jost further points out that a similar program was put in place when the Medicare Part D prescription drug program was established in 2006 by a Republican president and Republican-controlled Congress. “It was done for exactly the same reason,” Jost said. “It wasn't clear how this was going to work and how big a risk the insurers were taking on. So (the government) said we will backstop you.”
On Thursday, President Barack Obama announced that insurers would be allowed to renew existing plans in 2014 for current subscribers in the individual and small group markets that don't meet the coverage requirements of the Patient Protection and Affordable Care Act. That change immediately set off warnings from insurers and state regulators that it could result in higher premiums and destabilize the risk pool.
Obama met with insurers at the White House late last week in an effort to keep them on board with the law despite the shaky rollout. In that meeting, he reportedly promised to expand the risk corridor program.
That vow was repeated in a fact sheet about the change distributed by the White House. “To protect against the potential impacts this change will have on premiums, HHS will adjust the temporary risk corridor program which is designed to stabilize premiums as changes are implemented,” the fact sheet reads.
The CMS officials would not provide any additional details about how the program will be changed.
Rubio, a staunch opponent of the ACA, indicated that he will introduce legislation Tuesday to repeal the risk corridor program.
Jost pointed out that the federal government often offers protections to private companies in order to entice their cooperation. Farm subsidies and weapons contracts are two areas that he points to where private companies have built-in financial protections.
“If they repeal this program we're going to see some insurer insolvencies,” Jost warned. “I think that's very likely. Then the question is who ends up holding the bag?”
Follow Paul Demko on Twitter: @MHpdemko
