With the government set to run out of money on Dec. 11, that raises the specter of another government shutdown. Most political observers view that as highly unlikely—Republicans were pilloried for the last shutdown, a futile effort to halt funding for Obamacare—but it tees up the issue for a future standoff. That's particularly true if Republicans win control of the Senate in next month's elections, and most political handicappers believe there's a roughly two-thirds likelihood of that result.
“I really think there's going to be a big showdown over the risk corridors,” said Chris Condeluci, a former top Republican staffer on the Senate Finance Committee who now runs his own law and lobbying firm. “The risk corridors are a big deal for this law. If you were to do something to prevent payments from being made, that's a dagger. It will inflict some harm.”
But Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities, has a different interpretation of the GAO report. He thinks it authorizes the CMS to make the payments unless Congress takes explicit action to stop it from doing so. “Certainly the administration would oppose that and veto that,” Park said. “How far will some congressional opponents of the ACA go to risk shutting down the government?”
The risk-corridor program is not novel. A similar risk-protection scheme was built into the Medicare prescription drug program when it launched in 2006 in order to entice companies to participate in the new market. According to an analysis by Park, the Medicare Part D program has been a net-positive for the federal budget, resulting in $7 billion in payments between 2006 and 2012.
The aim of the corridor program is to mitigate risk: Companies that lose a disproportionate amount of money receive payments from the federal government, and those that earn a disparate share of profits must cut a check to the government. The program is set to expire after 2016.
“Its purpose is to encourage participation in the exchange marketplaces by limiting the insurance risk,” said Barbara Klever, chair of the American Academy of Actuaries' risk-sharing work group. “When they priced 2014, they were basically trying to project what the market experience would be because they had no prior experience.”
America's Health Insurance Plans, the primary industry group, warns that scrapping the risk-corridor program could destabilize the fledgling marketplaces. "Eliminating this market-stabilizing tool—one used by both parties in the past—could mean higher premiums, which is the last thing consumers are looking for right now,” AHIP spokesman Brendan Buck said in a statement.
The Obama administration has indicated that it intends to administer the risk-corridor in a “budget-neutral manner.” But there are signs that the finances of the program aren't heading in that direction. According to an analysis released this week by Citi Research, insurers may be looking to recoup more than $1 billion in payments from the program for 2014 exchange business. Conversely, researchers found just one plan that expects to make a payment to the federal government, for a mere $2 million.
“There won't be nearly enough plan contributions to fund these requests, … and what could soon be a Republican-controlled Congress isn't likely to appropriate additional funds,” Citi Research noted. “HHS intends to use 2015 risk-corridor collections to fund any 2014 shortfalls, but it isn't clear to us why health plans will suddenly start earning excess individual profits in 2015.”
Park points out, however, that risk-corridor payments won't be paid out until next year and that they'll only be calculated after the reinsurance and risk adjustment programs—which are also designed to mitigate risk—have been assessed. Therefore it's too early to come up with specific credible numbers about the program's finances.
“We don't know yet how it's all going to play out,” Park said. “Everyone's operating under imperfect information.”
