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By Sara Hansard
Health insurers will have nearly $12.3 billion in losses under an Obamacare program intended to compensate them for their risk in participating in the exchanges.
Some $27 million collected under the Affordable Care Act risk corridors program in 2016 will be used to continue paying back claims from 2014, the Department of Health and Human Services said in a report Nov. 15. The report tallies the claims and payments made under the ACA’s risk corridors program for 2016. Under that program, insurers were supposed to receive payments from the government if their losses exceeded a threshold level, while insurers whose profits exceeded a threshold level had to pay a percentage of their profits to the government.
The risk corridors program became one of the first hostages of the tug-of-war between Republicans and Democrats over the ACA. While Section 1342 of the ACA doesn’t explicitly state that payments made into the program by insurers had to be the sole source of funding for payments made to them, Sen. Marco Rubio (R-Fla.) led a movement by Republicans in Congress to pass appropriations legislation requiring that the program be funded only by insurers’ payments. Large losses by exchange plans far exceeded profits, making it impossible for the payments to meet the claims. Three dozen lawsuits have been filed by insurers against the government to try to collect the payments.
“This was supposed to be a stabilizer, but it ended up being a disrupter,” Deep Banerjee, director of insurance ratings with bond rating company S&P Global Ratings, told Bloomberg Law Nov. 16.
“One can’t blame all the money lost by the insurance industry on the risk corridor, but it would have offset a significant amount of the losses insurers had during the first three years of the ACA marketplace,” Banerjee said. “Everyone’s moved past this. It will be decided by the courts.”
Under the program, if an insurer’s costs were more than 103 percent of a target amount, the HHS was supposed to pay a percentage of the difference. If an insurer’s costs were less than 97 percent of its target amount, it was liable to pay the HHS a percentage of the difference.
“The statute [the ACA] doesn’t say that one is connected to the other,” Lawrence Sher, a partner in the Washington office of Reed Smith LLP, which represents some of the health insurers in the lawsuits, told Bloomberg Law Nov. 16. “That’s an argument the government has made. There’s no offset in the statute.”
The HHS didn’t tally the totals in its report, but Bloomberg Law found that 2016 claims, less payments attributed to profitable insurers, totaled about $3.5 billion for 2016 in the individual market, and $469.7 million in the small group market.
The HHS said it is collecting the charges in November and will begin remitting risk corridors payments to insurers in January as collections are received.
The 2016 report “demonstrates the significance of the risk corridors amounts that the government acknowledges are still owed to insurers who participated in the ACA,” Sher said.
“Even with the risk corridors collections received through all three years, the government claims it still doesn’t have enough money to pay the outstanding amounts owed for calendar year 2014,” he said.
If the insurer plaintiffs prevail in the court cases, “the federal government could owe over $12 billion,” ACA expert Timothy Jost wrote in a blog posting for Health Affairs.
—With assistance from Llewellyn Hinkes-Jones
To contact the reporter on this story: Sara Hansard in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Kendra Casey Plank at email@example.com
The Department of Health and Human Services report, Risk Corridors Payment and Charge Amounts for the 2016 Benefit Year, is at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Risk-Corridors-Amounts-2016.pdf.
Information on the Centers for Medicare & Medicaid Services's Reinsurance, Risk Corridors, and Risk Adjustment Final Rule is at https://www.cms.gov/cciio/resources/files/downloads/3rs-final-rule.pdf.
While Litigation Proceeds, Outstanding Risk Corridor Payments Mount is at http://www.healthaffairs.org/do/10.1377/hblog20171114.922938/full/.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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