Risk Corridor, Healthcare Premiums, Companies Leaving the Exchanges, and Republicans
The Washington Post story “Rubio’s inaccurate claim that he ‘inserted’ a provision restricting Obamacare ‘bailout’ funds” is about a year old. Its relevance to the PPACA is in depicting how the Republicans undermined the PPACA causing many Co-ops to go bankrupt, insurance companies to leave PPACA exchanges, saddled insurance companies with $millions in debt, and is a reason for much of the premium increases. I am not pro-insurance; but, this effort to get even with Obama has set the stage for what will negatively affect millions of the insured.
I had written earlier about Rubio playing a part in cutting the funding for the Rick Corridor funding. He did play a not-so-critical part and while researching some additional information I ran across a better explanation.
The Risk Corridor program in the PPACA protects insurance companies from losses during the first three years if they did not estimate premiums properly which can happen in new markets with different characteristics. With the mandate to insure all with pre-existing conditions, keeping children on parents plans, the exchanges, etc.; the Risk Corridor program was put in place (besides two other safe guards) giving insurance companies and Co-ops a three year window to get it right. Besides looking at losses, the Risk Corridor also looked at the profits of companies who had estimated accurately, had excess profits as a result, and required them to pay a ratio of excess profits into the Risk Corridor fund to help underwrite the losses of other companies. Outside of a plus or minus 3% was the basis for whether you gave up a ratio of profits or received a ratio of funding from the Risk Corridor program. The Risk Corridor program is nothing new and was used successfully with Medicare Part D forcing the evil insurance companies to share profits with the government. It still is in place for Part D and “still” generates additional revenue for the government. I do not recall any Republicans complaining about funding for insurance companies then; but then too, Part D was Bush’s legislature while the PPACA legislation was Obama’s. Strictly politics and constituents will pay the price of it.
Depicting the Risk Corridor particulars rather than attempting to explain it in writing will give a better explanation. Click on the image to better read the chart. Please note the plus or minus 3% and then the different ratios of revenue sharing or funding from and to healthcare companies and Co-ops.
So what happened? The Risk Corridor program works well for Part D, brings in revenue for the government, and is still in place. February 2014 found Rubio testifying to the House Committee on Oversight and Government Reform on behalf of his bill. At the same time the CBO released their evaluation of the Risk Corridor program. Instead of being detrimental and a fiscal drag, the CBO projected the federal government would collect $16 billion from health insurers. Premiums would outpace claims, $8 billion would be distributed to the plans losing money, and $8 billion in additional revenue would be left for the federal government. Another House probe suggested initially there would be a shortfall with claims exceeding premiums.
The Republicans were not sitting idle and were investigating ways to derail the PPACA. As the ranking member of the Budget Committee, Senator Jeff Sessions and the chairman of the House Energy and Commerce Committee, Rep. Fred Upton came up with a plan to attack the legality of the Risk Corridor payments. They joined forces with the Appropriations Panel Chairman Rep. Jack Kingston whose panel funds the Department of Health and Human Services and the Labor Department. Kind of get the picture so far?
Questioning whether the Risk Corridor payments were being appropriated correctly, the Appropriations Panel forced the HHS to make changes in how they appropriated funds allowing Congress to stop all appropriations. The PPACA could no longer appropriate the funds as they were subject to the discretion of Congress. The GAO issue an opinion on the legality of what the HHS was doing with funds.
GAO Letter to Senator Jeff Sessions. September 30, 2014: Discussion; “At issue here is whether appropriations are available to the Secretary of HHS to make the payments specified in section 1342(b)(1). Agencies may incur obligations and make expenditures only as permitted by an appropriation. U.S. Const., art. I, § 9, cl. 7; 31 U.S.C. § 1341(a)(1); B-300192, Nov. 13, 2002, at 5. Appropriations may be provided through annual appropriations acts as well as through permanent legislation. See, e.g., 63 Comp. Gen. 331 (1984). The making of an appropriation must be expressly stated in law. 31 U.S.C. § 1301(d). It is not enough for a statute to simply require an agency to make a payment. B-114808, Aug. 7, 1979. Section 1342, by its terms, did not enact an appropriation to make the payments specified in section 1342(b)(1). In such cases, we next determine whether there are other appropriations available to an agency for this purpose.”
Further down in the GAO letter, the GAO leaves the HHS an out of using other already available appropriations for the Risk Corridor payments to insurance companies. Classifying the payments as “user fees” was another way to retain the authority to spend other appropriations already made by Congress. Otherwise if revenue from the Risk Corridor program fell short, the administration would need approval for addition appropriations from Congress. As it was, the HHS could no longer appropriate funds to make Risk Corridor payments unless the funds were already appropriated by Congress or Congress approved new funds which was not going to happen with a Republican controlled House.
Appropriations Panel Chairman Rep. Jack Kingston put the final nail in the coffin by inserting one sentence in Section 227 of the 2015 Appropriations Act (dated December 16, 2014) which escaped notice. In the 2015 Appropriations Act, the sentence inserted said no “other” funds in this bill could be used for Risk Corridor payments.
Sec. 227. None of the funds made available by this Act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services–Program Management” account, may be used for payments under section 1342(b)(1) of Public Law 111-148 (relating to risk corridors).
This action blocked the HHS from obtaining any of the necessary Risk Corridor funds from any other Congressional appropriated program funds.
Nothing was said by Sessions, Upton, or Kingston before passage on what they had managed to do. It was Rubio who issued a news release saying the provision was appropriate even though he had little to do with it. In the end, Rep. Jack Kingston’s one sentence purposely created a $2.5 billion shortfall in the Risk-Corridor program in 2015 as the HHS had collected $362 million in fees. Insurers who had misjudged the market sought nearly $2.9 billion in payments, many nonprofit insurance Co-ops failed, healthcare insurance companies began to raise premiums to compensate, and some healthcare insurance companies recognizing an untenable environment created by Republicans took their losses and left the market.
edited August 29, 2022 to preserve content
The results of these intentional attacks on the ACA will soon be duplicated with the repeal.
Basically, insurance companies will see(even without the replace part) that the market will be incredibly unstable and head for the hills.
And of course, morons will talk about the ACA being the cause of all of the problems. And other morons will swear to it.
The main thrust of this is to deny the naysayers credibility in attacking the PPACA as the cause of all of the insurance premium increases firm ground in which to make their comments. My contention is if we/you know than we can lay the blame soundly at the feet of Boehner, Ryan, Kingston, Upton (who I will write since he is in Michigan) and Sessions. Some of us will know the true as to who and what caused this issue. All the others (the annes, lamburts, etc) who have been foaming at the mouth at this have nothing to say and nothing to replace this with and we will get stuck with worse. If they say 3 years, the insurance companies will abandon the exchanges for individuals. One more part to go over, than I am done.
run-just a suggestion: maybe you can illustrate how and why the two Risk Corridor programs are different.
In terms of blame there is plenty to go around.
I can do that also. Give me some time as I need to explore it also.
Here is one version Part D http://theincidentaleconomist.com/wordpress/part-d-risk-corridor-details/
and another: http://theincidentaleconomist.com/wordpress/risk-corridors-aca-vs-part-d-in-charts/
I will write on it later while it is still hot.
Illustrating how they are different is not so hard, the charts will show this. Why they are different escapes me right now. I need to read again.
Well the risk corridor took in $362M and needed $2.9B, so it is not as if the underwriting was all that close to the mark. Yeah it was damaging and underhanded, but it suggests to me that a major flaw was that the risk pools needed subsidy, not just a subpopulation of the customers. The public option never made a lot of sense unless it was a front for subsidizing the risk pools to allow pleasing pricing without claims cost control that folks find so upsetting. In a way the public option not happening in ACA was fortunate since I feel confident that Republicans would have been just as effective preventing funding from supporting it. It would have lost a lot of money without pricing nearly identical to every other policy out there and then its supporters would have hit the roof since I believe they expected much lower prices. Then it would be “see, that stuff just can never work”.
Given the experience of Part D, it was expected the difference would be made up. Even the CBO was confident the PPACA would run a surplus. Here is a Health Affairs article affirming what I have said.
http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=134 “HHS said it anticipated that receipts from insurers would be sufficient to fully make all payments due under risk corridors, but if they were not, all payments would be reduced on a pro rata basis. Any shortfalls would first be made whole the following year using receipts from insurers before making that year’s payments. Any receipts in excess of those needed would be held in the event of a shortfall in future years”
Given past experience, there was no reason not to expect this to happen.
suppose the government established clinics staffed by doctors, and assistants, who wanted to be doctors not businessmen. Paid them a reasonable salary. Established best practice cost controls, and sold policies at a rate that would meet those costs, and subsidize those who could not afford the basic premium. Then treat all customers for a nominal co-pay.
I wonder if such a … note, not government paid for, as costs would come directly from participants… plan could compete with the pay for profit providers and the insurance companies that play that game.
We can lay the blame. And be totally correct in doing so. It will make no difference.
It is us vs them.
sanders screwed progressives more than can be believed
and I love the man.
But his dream, without effort, and the sarandonistas he encouraged is a huge deficit in the progressive movement we cannot deal with.
Putting light on the issue does cast a degree of guilt on those who act in malice towards whom they are supposed to represent.
thanks for this. i appreciate the work and needed the information.
Data Brief: 2016 Median Marketplace Deductible $850, with Seven Health Services Covered Before the Deductible on Average
In the more than six years since the enactment of the Affordable Care Act, our country has made tremendous progress in improving access to health coverage and health care. The data show this: 20 million people have health coverage thanks to the Affordable Care Act, and for the first time in our nation’s history, the uninsured rate last year fell below 10 percent.
Part of this success is thanks to the Health Insurance Marketplace, where 11.1 million individuals had coverage as of March 2016. This issue brief provides new information about the coverage selected by Marketplace consumers in states using the HealthCare.gov platform for the 2016 coverage year. Specifically, the data show:
The median individual deductible for HealthCare.gov Marketplace policies in 2016 is $850, down from $900 in 2015. Importantly, these figures account for the fact that many consumers qualify for financial assistance that lowers their deductibles based on their income. As with Marketplace premiums, many consumers’ deductibles are well below the deductible that would apply without financial assistance, so ignoring financial assistance gives a misleading picture of what consumers actually pay.1
On average, Healthcare.gov Marketplace policies cover seven common health care services (most often generic drugs and primary care visits), in addition to preventive services, with no or low cost-sharing before consumers meet their deductibles. This means that even accurately-measured deductibles present an incomplete picture of consumers’ actual cost-sharing obligations, since deductibles do not apply to most consumers’ most frequent health care needs.
Meanwhile, unlike many insurance policies sold before the Affordable Care Act was enacted, all Marketplace plans have out-of-pocket limits that protect consumers from catastrophic costs.
These findings on the moderate cost-sharing levels in Marketplace plans are consistent with other data showing that Marketplace policies are providing consumers with access to care and financial protection. For example, Marketplace consumers report accessing health services, including check-ups, physician services, and prescription drugs, at rates similar to consumers with employer-sponsored coverage, according to an Urban Institute survey .
Marketplace Plan Deductibles
A health plan’s deductible is the amount the consumer needs to pay for certain health care services before the health insurance plan begins to pay. Deductibles can be an important factor in an individual’s plan choice. In 2016, among all consumers purchasing HealthCare.gov Marketplace coverage, the median individual deductible is $850. This is lower than the $900 median deductible for 2015. (See Figure 1.)
These facts may seem surprising given anecdotes about Marketplace policies with very high cost sharing. However, those reports, which often focus on the highest-deductible plans in a market, ignore two important factors.
Financial assistance. The figures in this analysis account for the fact that about 60 percent of 2016 HealthCare.gov Marketplace consumers qualify for financial assistance that reduces their deductibles, out-of-pocket maximums, and other cost-sharing obligations. For example, among consumers in silver plans who do not qualify for reduced cost sharing, the median deductible is $3,000, whereas the median deductible for groups of silver plan enrollees who do receive assistances ranges anywhere from $0 to $2,500, depending on the consumers’ household income. (See Table 1.) Just as examining Marketplace premiums without accounting for advance payment of premium tax credits gives a highly misleading picture of what consumers actually pay, examining cost sharing without taking into account cost-sharing reductions substantially exaggerates consumers’ actual deductibles.
Consumer choice. Rather than choosing bronze plans, which generally offer the lowest premiums, Marketplace consumers are overwhelmingly choosing silver plans, which generally have higher premiums, but lower cost sharing. Last year, HealthCare.gov rolled out new shopping tools that help consumers estimate their total cost of care across different policies (taking into account both premiums and cost sharing). These tools let consumers make informed tradeoffs between up-front costs and more comprehensive coverage.
The net result of these factors is that about a third of HealthCare.gov Marketplace enrollees have deductibles less than or equal to $250, and over half have deductibles below $1000 in 2016. (Table 1.)