Insurance Company Bailout: A Real Possibility with Obama’s New Rule

The Obama administration issued a new rule Friday opening up the possibility of spending even more money on a bailout for insurance companies that took the risk to work with Obamacare exchanges.

Midway through a filing from Obamacare administrator the Centers for Medicare and Medicaid Services, the administration addresses worries that the current risk corridor funding they’re collecting for any insurer bailout may not be enough to cover insurers’ losses.

“We appreciate that some commenters believe that there are uncertainties associated with rate setting, given their concerns that risk corridors collections may not be sufficient to fully fund risk corridors payments,” the rule reads. “In the unlikely event of a shortfall for the 2015 program year…HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations.”

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Risk corridor payments are currently fees collected from all insurers participating in the exchanges that will be doled out to any insurance company who suffers losses due to an exchange population that’s sicker and more costly to insure. The program was meant to stabilize premiums and prevent insurance companies from charging exorbitant rates due to the risky proposition of joining the new exchanges.

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The Obama administration has promised in the past that the risk corridor program won’t cost the taxpayers any money. CMS had issued guidance in the past promising that if the money collected from successful insurers wasn’t enough to cover all the payments due to the struggling ones, payments would be reduced and shortfalls made up for the following year.

Insurance companies, unsurprisingly, took issue with this guidance. The Washington Examiner’s Phil Klein noted that the insurance industry vehemently opposed the CMS plan to keep risk corridor payments budget neutral, in case more insurers took bigger hits than expected.

Minimizing the risk-aversion program for insurers will result in higher premium rates, top trade group America’s Health Insurance Plans wrote to CMS in April.

It looks like CMS is backing off its budget-neutral promise because of the opposition, noting that the worries of “some commenters” have led them to keep the possibility of extra funding open.

The Obama administration still considers it unlikely that the funding will fall short. While early reports suggested that exchange customers may be sicker than others with private insurance, the administration is banking on healthier, younger people signing up for coverage later on.


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