Obamacare’s Risk Corridors Are Back, and Bigger and Badder than Ever!

Commentary by John R. Graham

Source: The Independent Institute

Last year, I discussed at length Obamacare’s risk corridors, which comprised an unlimited taxpayer bailout of insurers’ profits in the Obamacare exchanges, by transferring money from insurers with extra profits to those whose profits from Obamacare are less than expected. Fortunately, Congress capped this liability last December.

The CROmnibus, which funded the government for 2015, put a guardrail around the risk corridors by legislating that any payments beyond budget neutrality would have to be appropriated. (That is, if extra profitable insurers earned $100 “too much” and losing insurers lost $200 “too much”, the winners could pay the losers $100, but the U.S. Treasury could not just make up the balance without Congress appropriating the funds.)

Well, Standard & Poor’s has just concluded that payments from extra profitable insurers will fund only 10 percent of risk corridor payments:

Standard & Poor’s Ratings Services expects the ACA risk-corridor pool to be significantly underfunded if the government enforces budget neutrality. Budget neutrality requires the pool to be funded by payments insurers make into the pool. No external funding can be allocated to it. Our study of risk-corridor receivables and payables recorded in U.S. health insurance companies’ 2014 annual financial statements found that receivables insurers booked for the ACA corridor far outweigh the payables. In fact, our study indicates that the risk corridor payables are less than 10% of the receivables insurers reported in 2014.

Taxpayers: We dodged a bullet. U.S. Senator Marco Rubio wants to take it a step further, by simply abolishing the risk corridor payments entirely. Given how quickly the Republican-majority Congress stampeded into paying for an unfunded Medicare “doc fix” just a few weeks ago, it might not be a bad idea.

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