President Barack Obama’s health-care overhaul looks extremely unlikely to hit the goal set for it in October: enrolling “at least” 7 million people in exchanges by April. So the administration is redefining success as mere survival for the program.
The Patient Protection and Affordable Care Act has already achieved “preliminary sustainability,” an official recently told the National Journal. And what’s making the program sustainable? The prospect of a massive taxpayer bailout.
The bailout would come from the law’s “risk corridor” provisions. If insurers pay out more than 108 percent of the premiums they collect from customers in Obamacare’s exchanges, taxpayers are on the hook for about 75 percent of the extra cost. If the insurers make profits that are more than 108 percent of their collections, they have to pay back a similar proportion.
Risk corridors, if they’re limited, can serve a useful function. The Medicare prescription-drug benefit that Republicans enacted during George W. Bush’s administration has its own version of them that works well. Under Obamacare, they could spread the risk among participating insurers. Companies that wind up with relatively healthy populations of customers would subsidize those with relatively sick ones, helping stabilize the system. The Congressional Budget Office, when it last estimated the costs of the Affordable Care Act, assumed that payments to and from insurers would balance and the risk corridors wouldn’t cost taxpayers anything.
We’re looking at a different scenario now. Health insurer Humana Inc. recently warned that enrollees in the exchanges will probably be sicker than anticipated. So few if any insurers will be in surplus, and many will be seeking help. In other words, the exchanges as a whole will be unbalanced and in need of a taxpayer bailout. The CBO hasn’t estimated how much the risk corridors will cost if participants in the exchanges are especially unhealthy.