Obamacare Risk Corridors Could Cost Taxpayers: NCPA Study Unlimited Compensation Rule for Insurer’s Needs Change

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Obamacare leaves taxpayers responsible for health insurers' costs.

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Taxpayers are on the hook to bail out health insurers which lose money in Obamacare’s health-insurance exchanges.

Two provisions in the Affordable Care Act designed to protect insurance companies from unanticipated losses -- reinsurance and risk corridors -- threaten to force taxpayers to cover those losses through 2016, according to a new study from John R. Graham, senior fellow at the National Center for Policy Analysis (NCPA).

“Taxpayers are on the hook to bail out health insurers which lose money in Obamacare’s health-insurance exchanges,” says Graham. “The law does not even limit taxpayers’ exposure, and no government agency has a credible estimate of how much taxpayers’ money is at risk.”

The Affordable Care Act imposes a number of requirements and restrictions on insurance companies, who stand to lose money if they enroll too many expensive people in their health plans. As such, the ACA established three mechanisms to backstop insurers' risks: risk adjustment, reinsurance and risk corridors.

  •     The first, risk adjustment, consists of transfers of money from insurers which enroll unexpectedly healthy people to those which enroll unexpectedly sick people. Taxpayers are not at risk.
  •     The second, reinsurance, also protects insurers which enroll unexpectedly sick people. Taxpayers’ costs are limited to $25 billion over three years.
  •     The third, risk corridors, also last three years. However, instead of protecting insurers against the medical claims of unexpectedly sick people, it protects their profit and loss statements. The statute puts no limit on taxpayers’ liability, and if the Administration refuses to submit to appropriations to fund the risk corridors, it can put unlimited taxpayers’ funds at risk.

“Right now, health insurers are pricing their offerings for Obamacare’s second year based on the Obama Administration’s assurances that taxpayers will prevent them from losing money. Removing this guarantee is necessary to ensure that health insurers bear all the business risk of participating in Obamacare,” explained Graham.

Full text: Risky Business: Will Taxpayers Bail Out Health Insurers?

John R Graham is an experienced, Washington D.C.-based health economist available for interviews or background on national health care policy issues. Video of some of his previous interviews here: http://youtu.be/FVH0t8pYkdk.

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. Visit our website today for more information.

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Catherine Daniell
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