Watching Obamacare's Risk Corridors

• Obamacare’s death spiral is accelerating, hurting consumers and insurers.

• As insurers struggle financially under the law, Americans will see even more rising premiums and even fewer options in the Obamacare markets.

• To try to stay afloat, insurers have sued to grab taxpayer money that Republicans have fought to protect.

UnitedHealthcare shook the foundations of the health care law earlier this month when it announced that it would leave Obamacare exchanges in Georgia, Arkansas, and Michigan. This morning, the company said that it would leave exchanges in all but “a handful of states.” The move makes clear that Obamacare’s death spiral is picking up speed.

“‘Something has to give,’ said Larry Levitt, an expert on the health law at the Kaiser Family Foundation. ‘Either insurers will drop out or insurers will raise premiums.’” – The Hill, 04-15-2016

HHS issued a report last week telling Americans not to worry: premiums will not rise too much. However, insurers have been warning for months that the exchanges are unsustainable, and the past few weeks have confirmed their warnings.

Obamacare exchanges are in a death spiral

Blue Cross Blue Shield of North Carolina also warned that it may exit the market next year – and the Blue Cross Blue Shield Association released a report saying that medical costs for Obamacare enrollees were 22 percent higher than for people who received coverage from employers last year. The “Blues” lost a billion dollars last year, and UnitedHealth lost half a billion dollars. Aetna expressed “serious concerns” over whether the exchanges are sustainable because of the losses. Things will get worse when the law’s risk adjustment mechanisms phase out next year.

HEALTH REPUBLIC LAWSUIT

Some insurers are trying to solve their financial problems by suing to get more risk corridor money. At the end of February, Health Republic Insurance of Oregon – one of Obamacare’s failed co-ops – filed a class action lawsuit against the federal government for failing to make full risk corridor payments. This would amount to $5 billion.

Risk corridors are one of three risk adjustment mechanisms in Obamacare – at Section 1342 – to protect insurers. The program transfers “excess profits” from profitable insurers to companies that have “excess losses.” The administration said this program would be budget neutral or turn a profit for taxpayers, since they expected Obamacare to help more insurers than it hurt. To make sure that taxpayers would not be on the hook, Congress passed language in the Consolidated and Further Appropriations Act, 2015 and in the Consolidated Appropriations Act, 2016 prohibiting the administration from using taxpayer dollars to bail out insurance companies.

There is a danger that the Obama administration could quietly settle the case and use a special fund to bail out the insurers without any congressional action required. The Judgment Fund is a permanent, indefinite appropriation to pay judgments, regardless of amount, entered against the United States. It can also be used to pay settlements negotiated by the Department of Justice.

“The government uses [the Judgment Fund] to pay out billions of dollars every year, yet there is no practical way for Congress or the public to track where [the] money goes” – Paul Figley, Journal of Constitutional Law, 10-2015 

Congress should watch this lawsuit closely to ensure the administration does not do an end run around Republican efforts to keep the risk corridor program budget neutral. While the administration has broad authority to use the Judgment Fund, there are restrictions, such as when Congress has specifically voted to prohibit the use of funds for some purpose. In 1998, the comptroller general advised that the fund could not be used “to circumvent congressional restrictions on appropriations.”

The health care law’s burdensome mandates were guaranteed to hurt consumers and taxpayers. Now they are also hurting insurers that expected to profit from the law. Obamacare has entered what insurers most dread – a death spiral – and taxpayers should not have to pay more to prolong this process. Obamacare needs to be repealed and replaced with patient-centered choices.