The state of the ACA’s risk corridors
The Obama administration is now on the hook for more than $8 billion in payments to cover health insurers’ losses in the Affordable Care Act marketplaces, and industry experts doubt the full tab will be paid.
But even though Republican lawmakers have blocked the current administration from paying insurers what they call a “bailout,” they don’t want the blame for causing insurance markets to collapse. Any replacement plan for the ACA would require private insurers to jump on board, and Congress would risk alienating them by refusing to pay promised funds.
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 riskcorridor payments for 2015 alone, according to the latest CMS data.
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 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 riskcorridor program exists in Medicare Part D, which was created under 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. 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, said Nicholas Bagley, a law professor at the University of Michigan. Republican lawmakers are moving to prohibit the CMS from using federal funds, particularly the Judgment Fund, to settle the lawsuits.
If a bill titled the HHS Slush Fund Elimination Act is passed, “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.”
Some health plans aren’t owed a dime since they had healthier ACA enrollees, but others are waiting for massive payments.
Blue Cross and Blue Shield of Texas, for instance, has racked up the biggest tally in risk-corridor payments at $916.8 million for 2014 and 2015, according to a Modern Healthcare analysis of the CMS data. The CMS said it will pay $9.8 million toward the health plan’s outstanding 2014 request from money collected for the 2015 benefit year.
Other Blues are also high on the government’s IOU list: Blue Cross and Blue Shield of Illinois is owed $488.7 million for the first two years, while the CMS expects to pay $6.5 million toward its 2014 requests. Health Care Service Corp., headquartered in Chicago, owns the Illinois and Texas Blues.
Across all plans affiliated with the Blue Cross and Blue Shield Association, risk-corridor payments total $3.6 billion after charges, according to the analysis. Nearly all the Blues plans participated in the ACA’s exchanges, and in some places they were the only ones available.
Among the national investor-owned companies, Humana is owed the most: $449.3 million for the first two years. The Louisville, Ky.-based insurer said it has collected about $30 million of that so far. The CMS expects to pay another $8.1 million. Last week Humana said it would write off “essentially all of the $591 million” the company calculated it was owed under the program as of Sept. 30.
While Republican lawmakers are committed to dismantling the ACA and the risk-corridor program along with it, it’s possible some of the payments will be made as a bridge from repeal to replace.
“There’s been a little noise that some Republicans may be reluctant to have the health insurance markets collapse under their watch,” said Timothy Jost, a law professor at Washington and Lee University. “The obvious way to keep the markets from collapsing is to pay out the risk corridors.”