Risk Corridor Massacre

2018 MIDTERM ELECTION

Time: D H M S

Well this is rather unexpected.

Let's fire up the Wayback Machine, Sherman, and go back to 3 years ago, when the Risk Corridor Massacre first reared its ugly head.

The simplest explanation of how Risk Corridors worked is this:

  • The ACA made dramatic changes to how the individual insurance policy market worked.
  • Since it was so disruptive, it included several provisions to help stabilize the market.
  • One of these programs, called "Risk Corridors", was a temporary (3 year) program which acted as sort of an insurance policy for insurance carriers.
  • In a nutshell: Carriers which earned excessive profits on ACA policies had to place a chunk of those profits into a pool of money. Carriers which took excessive losses on ACA policies were supposed to be reimbursed for a chunk of those losses.
  • If the profits exceeded the losses, the government got to keep the difference, so it was theoretically possible they'd actually profit off the system.
  • If, however, the losses exceeded the profits, the government was supposed to pay out the difference.

(As an aside: For those claiming "government bailout! picking winners and losers!" etc etc, the ACA's risk corridor program is actually very similar in many ways to the permanent Medicare Part D risk corridor program, although there are some key differences between the two).

OK, first take a few minutes to read all of this.

I'll wait.

OK, done? Good. Now read this (via Stephanie Armour of the Wall St. Journal):

Health insurers and the Trump administration face a court decision shortly that will determine whether the government must pay insurers billions of dollars despite Republican efforts to block payments they view as an industry bailout.

Insurers have filed roughly two-dozen lawsuits claiming the federal government reneged on promises it made to pay them under the Affordable Care Act.

...It could also shape the outcome of other insurer lawsuits that would leave the government potentially owing as much as roughly $20 billion in past and future payments. Those cases, legal experts say, amount to the largest civil lawsuits ever.

Healthcare reporter extraordinaire Margot Sanger-Katz has been picking through the horror show known as Donald Trump's proposed annual federal budget, and it's every bit as awful as you might expect:

The first one I already wrote about this morning...

The White House’s preferred Obamacare replacement now appears to be Graham-Cassidy.
https://t.co/stjZMYSeMO pic.twitter.com/wS62MkbgVp

— Margot Sanger-Katz (@sangerkatz) February 12, 2018

In a surprise to no one, Planned Parenthood would appear to be defunded...

This would be a big policy change. pic.twitter.com/1UoylIyHRJ

NOTE: I've toned down the title a wee bit.

Read this (12/01/15):

Hey, remember the Risk Corridor Massacre? The one which is at least partly responsible (and in some cases, mostly responsible) for a dozen ACA-created Co-Ops (as well as at least one private insurance carrier in Wyoming) going out of business?

Well, there's two more rather interesting developments to the Risk Corridor mess.

As anyone who's been following the ongoing ACA Risk Corridor Massacre saga knows, the program was designed to help insurance carriers participating in the ACA exchanges smooth over the rough patches during the first 3 years by transferring a chunk of the profits from carriers which did excessively well over to carriers which did excessively poorly. Here's an overview of how the program was supposed to work, and what went wrong; the short version is this:

  • IF the amount of excessive profit going into the kitty was greater than the amount of excessive losses, the federal government would have paid out what was owed and keep the difference, in which case it was conceivable that the feds would actually profit off of the program.
  • IF, instead, the profit was less than the loss, the government would have to pay out the difference.

Unfortunately, as it happens, the second scenario is how things played out in 2014...as well as in 2015, and, most likely, 2016 as well.

As noted by Nicholas Bagley, Richard Mayhew and myself several times over the past year, Marco Rubio's Risk Corridor Massacre, which cut the ACA's risk corridor program off at the knees back in December 2014, has caused a tremendous amount of damage to the country in the form of helping kick 800,000 people off their healthcare policies, putting several hundred people out of work and could potentially cost taxpayers several billion dollars more than it would have cost if the program hadn't been interfered with in the first place...for no reason whatsoever. Rubio can't even argue that it was worth it for his own personal gain, since his stunt didn't even gain him the Republican Presidential nomination.

Presented without comment:

Nicholas Bagley in The Incidental Economist, December 1st, 2015:

Did Marco Rubio Kill Obamacare?

A simmering dispute over the risk corridor program has broken into the presidential campaign, with Senator Rubio crowing that an arcane budget move has “kill[ed] Obamacare” and “saved the American taxpayer $2.5 billion.” On account of that move, health plans are set to receive only pennies on the dollar from the risk corridor program, which was supposed to cushion them from big losses.

...The administration has vaguely said that it will “use other sources of funding for the risk corridors payments, subject to the availability of appropriations.” But the budget bill limits the administration’s power to dip into other funds, and a Republican-controlled Congress isn’t likely to appropriate money for a program that’s been decried as an insurer bailout.

NOTE: Read this for the backstory. The conclusion? The end result of Marco Rubio's shenanigans were:

  • About 800,000 people nationally lost their insurance coverage, on very short notice, and were forced to scramble to find alternate coverage
  • The new coverage they ended up with was generally more expensive, and in many cases has worse networks
  • The federal government has to pay out more in premium subsidies to cover the increased costs as benchmark plans were increased
  • Over a dozen insurance carriers went out of business, meaning hundreds of people lost their jobs
  • Less competition in those markets, therefore higher premiums, therefore even more cost to the federal government in subsidies to make up the difference
  • Since all of the carriers which went out of business were little guys, this also means the big kahunas suck up even more market share
  • The original $2.5 billion which Rubio was supposedly trying to "save" taxpayers ends up being paid out anyway; and
  • Assuming the government decides to just concede the point (which, by all rights, they should), it's conceivable that Marco Rubio's "genius" stunt from December 2014could also very well end up costing taxpayers $2.5 billion MORE than it would have to just let the government make the payments they were supposed to in the first place.

...all of this just so that Marco Rubio could earn a couple of political brownie points to help him win the GOP nomination for President...which he ended up failing at miserably.

From December 1, 2015:

Hey, remember the Risk Corridor Massacre? The one which is at least partly responsible (and in some cases, mostly responsible) for a dozen ACA-created Co-Ops (as well as at least one private insurance carrier in Wyoming) going out of business?

Well, there's two more rather interesting developments to the Risk Corridor mess.

...This fall, more than a dozen health insurers representing 800,000 people have dropped out of the ObamaCare exchanges, many out of fear that the administration no longer has the cash to cushion their losses in the costly early years of the marketplace.

Hey, remember the Risk Corridor Massacre? The one which is at least partly responsible (and in some cases, mostly responsible) for a dozen ACA-created Co-Ops (as well as at least one private insurance carrier in Wyoming) going out of business?

Well, there's two more rather interesting developments to the Risk Corridor mess.

First of all, guess who's proudly claiming responsibility for helping destroy over a dozen businesses and kicking hundreds of thousands of people off of "the plan they like"? Marco Rubio.

Marco Rubio has killed ObamaCare

ObamaCare is on life support and we have one senator who we can thank for planning years ahead a way to cripple the fraudulent program: Marco Rubio.

In 2013, Joshua Green, a liberal, recognized the role Marco Rubio played in his so-called “devious plan to kill Obamacare”:

Republican Senator Marco Rubio of Florida will introduce a bill today that represents a new and potentially crippling line of attack against the Affordable Care Act, aka Obamacare.

...Rubio’s bill takes a new tack by seeking to abolish “risk corridors,” one of several mechanisms in the law meant to hold down premium costs and entice insurers to participate in the exchanges by ensuring they won’t lose a lot of money if they draw a costlier applicant pool than anticipated. Risk corridors function like Major League Baseball profit-sharing: Insurers who wind up with unexpectedly healthy applicants and lower costs will “pay in” money to the government, which in turn “pays out” to insurers with costlier applicants, thereby stabilizing the nascent market. (snip)

...Once Republicans took over Congress Rubio’s bill passed into law. There would be no bailouts of health insurers. There would be no bailouts for health insurers. Rubio predicted the problems years before others (as he has with all the foreign policy crises) and figured out a way to deal with them. He laid out his plans in his op-ed in the Wall Street Journal years ago.

Presented without comment: (strike that...with plenty of comment; see below)

Date: November 19, 2015
From: Center for Consumer Information & Insurance Oversight (CCIIO), Centers for Medicare & Medicaid Services (CMS)
Subject: Risk Corridors Payments for the 2014 Benefit Year

On October 1, 2015, the Centers for Medicare & Medicaid Services (CMS) announced that for the first year of the three year risk corridors program, qualified health plan (QHP) issuers will pay charges of approximately $362 million, and QHP issuers have requested $2.87 billion of 2014 payments, based on current data for the 2014 benefit year. 1 Consistent with prior guidance, assuming full collections of risk corridors charges for the 2014 benefit year, insurers will be paid an amount that reflects a proration rate of 12.6% of their 2014 benefit year risk corridors payment requests.2 The remaining 2014 risk corridors payments will be made from 2015 risk corridors collections, and if necessary, 2016 collections.

Over at SNL Financial, healthcare reporter Adam Cancryn has posted what looks to be the definitive history of the ACA Co-Op debacle, documenting everything which went wrong from the beginning up through today:

In late September, the handful of CEOs leading Affordable Care Act-funded consumer operated and oriented plans traveled to Denver in search of answers.

The past year had been a difficult one. Their companies were struggling, awash in red ink and facing a mounting list of operational challenges. A few co-ops had already shut down, and regulators were circling several more. The fledgling health insurers needed more support from the Centers for Medicare & Medicaid Services if they were going to survive. Most importantly, they needed a lot more money.

(sigh) Details to follow, but for the moment...

Utah insurance department confirms Arches will be the 10th health co-op to wind down. (cc: @charles_gaba)

— Adam Cancryn (@adamcancryn) October 27, 2015

@charles_gaba Yeah, insurance dept. just confirmed. Shooould be the last one, but we'll see

— Adam Cancryn (@adamcancryn) October 27, 2015

UPDATE: OK, here's the actual press release from the Utah Insurance Department, not that there's anything new here:

I've said before that there are a few areas of the ACA which I simply don't consider myself knowledgable enough about to try and explain to others in depth. One of these is the so-called "Cadillac Tax" on high-end employer sponsored insurance policies. The other (well 3 others, really) are the "3R" programs which were set up to try and smooth out the transition period for insurance carriers for the first few years. The "3 R's" are "Risk Adjustment", "Reinsurrance" and "Risk Corridors".

Since I don't know much about them, here's a quick explainer from the Commonwealth Fund. A summary version is below:

Risk adjustment is a process that deters insurance plans from trying to attract healthy enrollees (“cherry picking”), and protects companies that may—by chance or because of their particular benefits—attract sicker than average customers (“adverse risk selection”). Though the Affordable Care Act bans carriers from turning people down or charging them more based on their health, the incentive to attract healthier enrollees remains because healthier customers increase profits by reducing companies’ payouts.