Of all the Republican attempts to sabotage the Affordable Care Act, which began almost instantly after its enactment on March 23, 2010, one stands out as the most cynical and damaging.
That’s the GOP’s undermining of “risk corridors,” a provision designed to protect participants in the healthcare marketplace from undue losses as the system got rolling.
On Monday, the Supreme Court overturned that effort.
A principle as old as the nation itself: The government should honor its obligations.
The immediate result is that the federal government will have to pay health insurers the money lost in the first three years of the ACA — a total of nearly $12 billion.
In a larger sense, however, the damage has been done: Small insurers that relied on the payments, including numerous cooperative plans poised to provide real competition to big insurers, have fled the ACA marketplace or gone out of business because they didn’t get the money they were owed, when it was owed.
Reconsiderations of the GOP assault on Obamacare seem almost to be prehistoric artifacts, as the nation is embroiled in the battle against COVID-19. But they’re reminders of the Republican Party’s decade-long abdication of responsibility to help make the ACA work.
Nor is the Supreme Court’s ruling Monday likely to be its last word on the ACA, since later this year it will hear oral arguments on another GOP attack on the law, this one having bubbled up from Texas and several other red states.
Monday’s opinion was written by Justice Sonia Sotomayor for an 8-1 majority — an unusual confluence of judgment. Justice Samuel Alito wrote the one dissent, though Justices Neil Gorsuch and Clarence Thomas dissented from one minor section of Sotomayor’s opinion.
The risk corridor program was one of three provisions of the ACA designed to support insurers’ entry into a brand-new marketplace. The ACA’s drafters understood that health insurers would have difficulty pricing their plans in the individual market in those first years.
Not only would some insurers be entering that market in volume for the first time, but the market itself would be dramatically altered by the flood of new customers, as well as the law’s prohibition on exclusions for preexisting conditions. Some insurers would set their premiums too low, and therefore pay out benefits higher than they anticipated; others would set their rates too high, and capture a windfall.
Without a safety valve, these miscalculations could have an impact on premiums the following year, as insurers tried to adjust.
Under the risk corridor provision, insurers that set prices more than 3% below a set target would get a reimbursement from the government, and those that overpriced by the same margin would pay some of the windfall to the government.
“Some plans made money and paid the government,” Sotomayor wrote. “Many suffered losses and sought reimbursement. The government, however, did not pay.”
The government stiffed the insurers because the Republican majority attached riders to federal appropriation bills barring risk corridor payments out of the federal treasury. Only the surpluses paid by the overpricing insurers could be used to reimburse those with a shortfall.
Republicans were inordinately proud of this stunt. During his short-lived presidential campaign in 2015-2016, Sen. Marco Rubio (R-Fla.) claimed parentage of the risk corridor block.
“Only one candidate has actually done significant damage to Obamacare,” his campaign boasted. Rubio, who derided the risk corridor provision as a “bailout” of insurers, claimed to have “saved the American taxpayer $2.5 billion.”
In truth, however, the risk corridors were not an insurer bailout, but an important consumer protection measure. Their aim was to keep insurers participating in the new market by limiting their financial exposure. More insurers would mean more competition, with the effect of moderating spikes in premiums, which of course are paid by consumers.
The financial carnage of the riders was epic. As Sotomayor observed, in the first year of the new market (2014), insurers compiled an overall loss of $2.5 billion, followed by $5.5 billion the second year and $3.95 billion in the third — nearly $12 billion all told. In that first year, the plans owed money were told they’d collect only 12.6 cents on the dollar, due to the rider.
For some insurers, this was an unsustainable loss. The new co-op serving 80,000 customers in Iowa and Nebraska — nearly eight times the enrollment it had expected, got $16 million to cover $140 million in claims. So they shut down, leaving their patients high and dry.
Many legal experts, however, thought the GOP riders weren’t legal. The riders were based on the fact that the ACA hadn’t specifically appropriated funds to cover the risk corridor shortfall, so payments from the Treasury could be blocked. But the ACA’s commitment to pay the money hadn’t been repealed.
Insurers that sued for their money would probably win, the experts thought, and the government would have to pay in the end. Federal courts were divided about this, so the issue landed at the Supreme Court.
There the eight-justice majority agreed. Sotomayor endorsed the view of a lone dissenter to a decision upholding the blockade issued by the Court of Appeals for the Federal Circuit in 2018. The dissent observed that the appropriations riders were improperly applied to a program that had induced insurers to enter the marketplace.
“Emphasizing the importance of government credibility in public-private enterprise, the dissent warned that the majority’s decision would ‘undermin[e] the reliability of dealings with the government.’”
Sotomayor put that issue in historical context, citing “a principle as old as the nation itself: The government should honor its obligations.
“Alexander Hamilton stressed this insight as a cornerstone of fiscal policy,” she lectured the Republican saboteurs. “‘States,’” he wrote, “‘who observe their engagements ... are respected and trusted: while the reverse is the fate of those ... who pursue an opposite conduct.’”