The Affordable Care Act was written so that, despite noisy protests based purely upon partisanship, it would be a win-win situation. Consumers benefit from new protections against abuses from insurance companies and more affordable coverage. Insurance companies benefit from increased profits from increased customers. There are potential business risks in a new situation, and while insurance companies should profit from increased business, insurance companies do have challenges in developing initial premiums when they cannot be certain as to the makeup of the new purchasers of insurance. The Affordable Care Act does include protections for insurance companies, and ironically it is now the Republicans who are playing politics and talking about repealing these aspects of the law.
House Republicans are considering attaching a provision that would prevent a “bailout” of insurance companies under ObamaCare to a one-year increase in the debt limit.The Republican conference met behind closed doors Friday on the final day of their annual retreat to hash out a plan for raising the debt limit, which the Treasury Department says must happen within a month to avoid a first-ever default.
The House Republican leadership has not settled on a plan, but an idea that gained support during the meeting, according to a person in the room, was to repeal the so-called “risk corridors” provision in the healthcare law, which Republicans have labeled a potential bailout of insurance companies.
Conservatives have mentioned the risk corridors provisions repeatedly in recent weeks in connection with the debt limit, as Republicans seek legislation that could win some Democratic support.
The party has largely abandoned hopes of gaining a major concession from Democrats in exchange for raising the debt limit now that President Obama has vowed never to negotiate over the issue again.
Kaiser Health News has summarized three portions of the Affordable Care Act which provide protection to insurance companies:
–Risk adjustment redistributes money from insurers that cover people who tend to be healthier to plans whose enrollees are sicker. Non-grandfathered plans in the individual and small group insurance markets – including those not participating in the law’s online marketplaces, or exchanges – must participate. Insurers who have more low-risk enrollees contribute to the fund, which then makes payments to insurers with more high-risk enrollees.Eligible insurers are compared based on the average financial risk of their enrollees, according to an analysis from the Kaiser Family Foundation. The program, which has no sunset date, is financed by insurers’ payments. (KHN is an editorially independent program of the Foundation).
–The reinsurance program is a temporary provision that builds on the risk adjustment provision to compensate insurers who have enrollees with especially high claims. Since sick people need health insurance, they have the greatest incentive to enroll and could, in the early years of the law’s implementation, make up a larger amount of the “risk pool,” according to the American Academy of Actuaries.
Individual, small group and large group health plans, as well as self-funded plans, will contribute to the program, which lasts through 2016. They pay a $63 tax assessed on nearly every health insurance enrollee for 2014 (the Department of Health and Human Services has proposed a rate of $44 per person in 2015). The money collected is then used to help insurers in the individual market with high-cost cases that reach beyond a catastrophic cap. The fund would reimburse insurers for 80 percent of costs for claims between $60,000 and $250,000 per person, although HHS has proposed some changes to the program. Without the reinsurance tax, individual market premiums would be about 10 to 15 percent higher, according to HHS.
–Risk corridors – that’s the provision getting the most attention these days – limit plans’ losses and gains. Actual claims are compared to the claims insurers anticipated when they set their premiums. If claims are below specific target amounts, they return part of that money to the government. If claims exceed specific target amounts, HHS reimburses the insurer for some of the money.
The risk corridors program, like the reinsurance program, is scheduled to be a temporary measure and sunset in 2016. But insurers could pressure lawmakers to extend the program.
The Republicans want to be able to say that they forced the repeal of part of the Affordable Care Act despite Obama’s insistence he will not negotiate on the debt ceiling. My suspicion is that they will settle for any part of the law, and feel that Democrats might be least likely to fight over a part which can be called a bail out to insurance companies.
Health corridors are commonly used when using private insurance plans to expand health care coverage. They are a part of the Swiss health care plan which uses private insurance companies to provide universal coverage. They are also a part of the Medicare D plans established under George Bush. It is possible that the risk corridors might not be necessary. Data from the first insurance company to release information on sales in the exchanges show that WellPoint is doing better than expected. Until we have data from more insurance companies it will be difficult to see if there would be a negative impact to eliminating the risk corridors. This protection against losses allow insurance companies to offer lower premiums than they might otherwise offer, both saving money for consumers and reducing subsidies which would need to be paid.
These protections might help solve another problem which the individual market has faced. Many markets have had a limited choice of insurance plans, often with a single plan dominating a market. Increasing competition would provide greater choice in the exchanges and probably lead to lower premiums. Insurance companies have become experts at cherry picking customers. Even though they can no longer can deny coverage to individuals, larger companies already established in an area would be at an advantage in marketing to healthier customers, making it riskier for new companies to enter an unfamiliar market. These measures protect insurance companies from loses if they wind up with a sicker pool than other companies, making it easier for companies to enter new markets and offer more choices.