Obamacare: Risk Corridors, Postponements, and More Harmful Side Effects
Among the billions of dollars in fresh spending aimed at spurring economic growth, the $3.9-trillion budget for the 2015 fiscal year that President Barack Obama delivered to Congress on Tuesday, which has been labeled a populist wishlist primed for election year politics, included $5.5 billion in potential payments to insurance companies that suffer losses as result of the Affordable Care Act. When the healthcare reform was drafted, a temporary feature was created to reimburse insurers in the event that fewer than expected healthy individuals enrolled. This was intended to serve a cost buffer during the experimental early years of the health care reform by limiting the risk they will face by entering the new insurance market. But Republican Senator Marco Rubio of Florida branded the risk corridors, as they are called, as a “bailout” for the insurance industry.
The request for $5.5 billion to fund those risk corridors reignited the debate over the motivations behind including the potential payments in the budget, and this controversy came in the midst of what was a difficult week for the Affordable Care Act — although it was far from the worse week in the reform’s life. The White House found it necessary to hold a conference call with reporters Wednesday afternoon to reiterate that there would be no taxpayer-funded bailout of Obamacare.
In simple terms, the authors of the Affordable Care Act provided insurers risk corridors by crafting rules that would allow the Department of Health and Human Services to compensate insurance companies if their costs surpass more than 103 percent of a pre-arranged target amount, which could happen if insurance risked pools are not properly balanced. Premiums in the new federally-facilitated and state-run insurance exchanges were calculated based on the assumption that young, healthy, and therefore cheap-to-insure individuals would be moved into the new marketplaces because the cheaper plans they were currently enrolled in would not comply with Obamacare’s new requirements, or they would have previously been without insurance. If those healthier individuals chose not to purchase Obamacare insurance policies, the risk pools of the insurance exchanges will be dominated by older, sicker people, who are more like to find more affordable policies through the exchanges. Exchange risk pools must be broad enough to balance out the proportionally higher medical costs of the sicker and older individuals who will likely be among the first to sign up. But, if an unprecedented number of young and healthy health insurance customers enroll, the insurers will pay HHS.
Because the numerous design flaws and software errors that plagued the opening weeks of the online marketplaces and kept enrollment numbers extremely low, and because of President Barack Obama’s decision to allow young, healthy people to keep their non-Obamacare-compliant plans for another year — insurance companies may struggle to keep costs below targets. “I do think both factors tilt the odds toward the government sending more money to insurers under risk corridors than they’re taking in,” Larry Levitt, a healthcare expert at the Kaiser Family Foundation told Bloomberg, referring to the error-riddled rolled out of the insurance exchange system and the expected low numbers of young enrollees. As Levitt indicated, Rubio may be correct in arguing that the system will require additional funds, or a taxpayer-funded bailout as the senator has described the scenario.
The White House is well aware such a labeling would be politically damaging, and in a conference call late on Wednesday, senior administration officials told Bloomberg reporters that risk corridors are being adjusted so as to be “budget neutral,” meaning not requiring the support of taxpayer funds. But it has not yet been determined that enough money will come in from insurers to avoid taxpayer-funded payments. However, White House officials did not term the changes as a major adjustment that will help insurers and insurance consumers adapt to the healthcare reform.
But Rubio is not confident the changes will actually strengthen the system. “The Obama administration all but acknowledged today that Obamacare’s risk corridors are open-ended and needlessly expose taxpayers to bailing out health insurance companies,” he said in a statement. “Given the Obama administration’s track record of bending, breaking, and rewriting Obamacare, they should make this move permanent through the legislative process.”
The focus on risk corridors comes in the same week that the Obama administration announced insurers could keep customers on policies that do not comply with the Affordable Care Act’s requirements for another year, and this decision could push off another round of termination letters before November’s midterm elections. As with the administration’s earlier postponement of policy cancellations, state insurance commissioners have to permit insurers to continue offering these policies and insurers have to choose to do so. Originally, these plans — plans that carry low deductibles and offer limited coverage — were supposed to be eliminated and replaced with Obamacare-compliant policies.
Also, House of Representatives lawmakers passed the 50th bill to derail the Affordable Care Act on Wednesday. The legislation would suspend a penalty for individuals who fail to enroll in Obamacare-compliant coverage by March 31. As the law currently stands, those individuals who do not purchase Obamacare-compliant policies will be fined a tax penalty amounting to $95 or 1 percent of income, whichever is greater, in 2014 — an amount that will increase through 2016, when the penalty will stabilize at $695 or 2.5 percent of income. Of course, the measure is unlikely to pass the Senate.
The other bad news for the Affordable Care Act came in the form of two surveys conducted by Gallup — one asking respondents how the healthcare reform had affected their families and one asking respondents about their familiarity with Obamacare.
Although several aspects of the healthcare reform have yet to be implemented, Gallup found that as of late February and early March, 23 percent of respondents have found the healthcare law has hurt them or their families, while 10 percent of respondents have found it has helped them so far. Still, the majority of respondents, 63 percent, felt the law has had no impact on them or their families. “Despite the extraordinary emphasis on fixing problems with the healthcare exchanges that marred the initial rollout of the law, and a national campaign to enroll more Americans through the exchanges, most Americans remain unconvinced that the law will be beneficial to their families in the long run,” noted Gallup’s Justin McCarthy. “By 40 percent to 21 percent, Americans say the law is more likely to make their families’ healthcare situations worse rather than better, with the rest saying it will make little difference.”
Plus, the law’s approval ratings have ticked down from the 48 percent reached just after the November 2012 election to 40 percent, a measure that has remained fairly constant in recent months. The down tick in approval reflects the error-ridden rollout of the online marketplaces, and the widespread and highly publicized policy cancellations Americans received as the law began to take effect. Meanwhile, approximately 55 percent of Americans disapprove of the Affordable Care Act, and that measure has remained at or above 50 percent since the summer.
“For a White House that has made healthcare reform one of its core missions, the relatively low approval ratings for the Affordable Care Act are surely disappointing, though they are certainly nothing new,” wrote McCarthy. “What may be more disappointing is the growing percentage of Americans who feel the law has already hurt them and their families, though, at 23 percent, this remains relatively small in absolute terms.” More particularly, the survey data does not make it clear whether some respondents, especially those with Republican sympathies, are merely expressing their displeasure with the passage of the reform.
Meanwhile, Americans’ familiarity with the particulars of the law have remained fairly static, with a third of the country is not too or not at all familiar with it. “Whether it’s the well-publicized website glitches, the focus on Obama’s erroneous declaration that ‘if you like your plan, you can keep it,’ the requirement that most Americans have health insurance, or the law’s brief appearance in last week’s State of the Union address, the ACA has been the center of attention for some time,” stated Gallup’s Andrew Dugan. “But this has not translated into more Americans saying they are familiar with the ACA. This watershed legislation that will change the face of the U.S. healthcare system, for better or worse, remains somewhat of a mystery for a significant portion of the nation.”
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