The Obama administration is now on the hook for more than $8 billion in payments to cover insurer losses on the health insurance exchanges, but industry experts are growing doubtful the full tab will ever be paid.
At the same time, while Republican lawmakers are committed to sewing up the federal wallet to keep the current administration from paying insurers what they call a “bailout,” they don't want to see the insurance markets collapse under their watch. Any replacement plan for the Affordable Care Act—which President-elect Donald Trump and Republicans in Congress have vowed to repeal and replace—would require private insurers to jump on board. And alienating them by refusing to pay promised funds would be bad for business, experts say.
The federal government owes insurers roughly $8.3 billion from the ACA's risk-corridor program to offset losses on the exchanges from 2014 and 2015. Insurers are owed more than $5.8 billion in net risk-corridor payments for 2015 alone, according to the latest CMS data.
The 2015 total comes on top of the $2.5 billion shortfall to cover insurers' 2014 losses. All told, the federal government is barely making a dent in the mounting requests for payments, largely because Congress required the program to be budget-neutral.
The risk-corridor program was established under the ACA to help offset insurer losses in the first three years of the insurance exchanges. The program, which expires at the end of the year, was designed to discourage insurers from hiking premiums because of uncertainty in who would enroll in their plans. It works by requiring profitable insurers to pay funds into the program, while plans with higher medical claims receive money. A similar risk-corridor program exists in Medicare Part D, which was created by Republican President George W. Bush.
But the ACA's program hasn't worked as planned. The gap between what some insurers are paying in and what others are requesting is widening. Congress in 2014 passed a provision in the 2015 federal budget requiring risk corridors to be revenue-neutral, so the CMS can only dole out what it takes in. In October 2015, the CMS said it would pay just 12.6% of the risk-corridor requests for 2014. The rest of the payments would be paid from 2015 and 2016 collections.
Several insurers are suing to recoup overdue payments. While they have strong cases, a favorable court decision may not be enough to pry open the federal government's wallet, said Nicholas Bagley, a law professor at the University of Michigan.
Republican lawmakers have floated bills that would prohibit the CMS from using federal funds, particularly the Judgment Fund, to settle the lawsuits. If the bill, titled the HHS Slush Fund Elimination Act, is passed, that fund would be off-limits, and “insurers are out of luck,” Bagley said.
“Congress' most important constitutional authority is the power of the purse, and no court will abrogate that constitutional prerogative,” he said.