Would the Obama administration please pick its poison?
The Times' Noam Levey reported Wednesday that the administration has quietly solidified Obamacare's guarantee against excessive health insurer losses, drawing a new round of complaints from critics about a potential taxpayer bailout. It was yet another example of how the administration's efforts over the last two years to soften the law's impact have caused other problems to ripple through the system, leading to more short-term fixes that trigger yet more challenges.
The latest issue concerns "risk corridors," a mechanism that Congress used to help insurers manage some of the uncertainty created by the Affordable Care Act's reforms. This provision of the law requires insurers who have unexpectedly low medical expenses to pay a portion of the unanticipated profits to the government, while insurers with unexpectedly high medical expenses can pass on a portion of those costs to Uncle Sam.
Last week the government published a 435-page final rule updating regulations on the ACA's insurance reforms and state exchanges. Among many other things, it clarified how the temporary risk corridor program would work next year. If the amount collected through the risk corridors was not enough to cover the claims by insurers, the rule states, the ACA nevertheless requires the government to pay the claims in full. "In that event," it states, the Department of Health and Human Services "will use other sources of funding for the risk corridor payments, subject to the availability of appropriations."
The administration had previously said that the risk corridors would be "budget neutral" -- in other words, they'd pay for themselves with no taxpayer help. But in mid-April the administration advised insurers that the corridors would be budget neutral over their three-year lifespan, not necessarily in each of those years. The rule published last week reiterates that position.
Insurers sought this clarification in part because the administration's initial budget-neutral declaration caught them by surprise. There's no such limit in the text of the ACA; in fact, the law says the corridors are to be modeled after the ones Congress used when it added a prescription drug benefit to Medicare. While that effort hasn't cost the Treasury anything, it's not required by law to be budget neutral.
But a bigger factor here is the administration's belated efforts to stop insurers from canceling policies that don't meet the minimum coverage standards set by the ACA. The standards went into full effect Jan. 1, leading insurers to notify many of their customers in the individual market that their policies were noncompliant and couldn't be renewed. A huge backlash ensued, leading the administration to declare that, regardless of what the law said, insurers could renew noncompliant policies if the states permitted. (California is one of the states that did not.)
The result was that a large number of younger and healthier people held onto their non-comprehensive but inexpensive policies rather than buying costlier ones that met the new standards. Those consumers were thus held out of the risk pools that insurers had expected at the new state exchanges -- and that they had already based their first year's premiums on.
We won't know until the end of the year exactly how much higher insurers' costs per enrollee will be than they had expected. But their mathematical models are already giving them a good idea, or at least enough of an idea to help them propose premiums for next year -- when, once again, the administration will be encouraging insurers not to cancel their noncompliant policies.
It seems obvious that President Obama's effort last year to stem the tide of unpopular cancellations will result in higher premium increases at the exchanges this year, simply because of the unexpected change to the exchanges' risk pools. But just as a raft of cancellation notices can be politically damaging, so too can higher premiums announced during a hotly contested campaign. That's one reason the administration is eager for insurers to keep premiums low for 2015, even if it means taking on more risk.
Granted, competition at the exchanges encourages insurers to hold down their premiums too. But by clarifying that the Treasury will backstop the risk corridors, the administration is prodding insurers to focus less on making money and more on underpricing the competition and signing up more customers.
Which is great! Until the administration has to adjust the risk corridors to make up for the red ink spilled, and insurers suddenly feel pressure to set higher premiums and avoid losses. Or until the risk corridors end in three years and there's no cushion at all for unexpectedly high medical expenses, leading insurers to set higher premiums and avoid losses.