Sen. Lamar Alexander, R-Tenn., convened a meeting of the Health, Education, Labor and Pensions Committee late last week to discuss the “emergency condition” of the individual health insurance market in some states.
Committee Republicans believe the individual market is in a death spiral and needs to be fixed immediately, but Democrats at the meeting said uncertainty stirred up by the GOP is creating chaos that is destabilizing the market.
Sen. Alexander noted that in some parts of the country people have few or no choices of an insurer, and policies are unaffordable for many. He said in Tennessee, three quarters of the state’s counties have no insurance offerings on the exchanges.
“Our goal is to repair the damage caused by Obamacare, where we find damage,” Sen. Alexander said. The Republican strategy is to shift decisions pertaining to health care and insurance away from Washington, to the states.
Sen. Al Franken, D-Minn., said insurers are leaving some markets because Republicans voted to reduce the reinsurance payments guaranteed to insurers to cover losses on the exchanges for the first three years. According to the Centers for Medicare and Medicaid Services (CMS), the federal government owes insurers more than $8 billion for 2014 and 2015, but the budget bill approved in 2015 stipulated that CMS pay out only what it has collected in revenues.
Senate Democrats contend that the individual market is better than it was before the ACA was enacted, and that the ongoing talk of repealing the ACA without a plan to replace it is creating instability in the market.
Insurers who testified at the hearing asked for immediate relief so they can remain on the marketplace, making requests such as subsidies in the form of advanced premium tax credits and cost-sharing reduction payments, to be paid in their entirety for the next few years, and full federal reinsurance payments for 2016.
The Trump administration last week submitted a rule last week to stabilize the individual insurance market. The rule was submitted to the Office of Management and Budget (OMB) on the same day the Senate Health, Education, Labor and Pensions Committee met to address the state of the individual market. Details of the rule have not yet been made public. The OMB has 90 days to review the proposal.
Our Take: The 8-year fight over Obamacare is coming to a head. And while we strive to remain objective—as we’ve written on several occasions, taking sides in a political fight is bad for business—we lay blame for the current state of affairs squarely at the feet of Republicans.
Sen. Franken is right. The “risk corridors” were a temporary, short-term solution to reduce the risk for payers entering a highly uncertain marketplace. As it happened, in year one, when competition was vigorous, many insurers set prices too low for the patient population that actually enrolled: younger, healthier people didn’t sign up at projected levels and the Medicaid expansion added sicker people to the rolls. But insurers participated without hesitation, in large part because their losses would be mitigated by risk corridors.
CMS also protected payers through reinsurance and risk adjustment, which were essentially transfer payments from profitable carriers to those that fared poorly. CMS offers a clear and detailed explanation of The Three Rs (reinsurance, risk adjustment and risk corridors) here if you’re interested.
In October 2014, Sen. Marco Rubio, R-Fla., led the effort to block any extra payments for risk corridors beyond “user fees” paid by profitable payers. In December of that year, Congress passed an appropriations bill that did just that—creating a zero-sum game for the market exchanges. That move did more to undermine the health care law than the 50-odd times that Congressional Republicans voted to repeal it.
In 2014, profitable payers contributed $362 million in user fees. But other, less-fortunate payers asked for $2.87 billion in risk corridor payments. As stated above, today the federal government owes about $8 billion to payers.
We repeat: insurers asked for nearly $3 billion to cover their losses. CMS paid them about a tenth of what they were owed.
In the presidential debates, Sen. Rubio likened the risk corridor program to a “bailout fund” and said that his colleagues’ efforts “wiped out” that fund.
"When they passed Obamacare, they put a bailout fund in Obamacare," Rubio said during the debate on Feb. 25, 2016. "All these lobbyists you keep talking about, they put a bailout fund in the law that would allow public money to be used, taxpayer money, to bail out companies when they lost money. We led the effort and wiped out that bailout fund."
The risk corridor program was in fact modeled on one of President Bush’s signature programs, the Medicare Part D plan for prescription drugs. As shown here, that program was even more protective of plans than the ACA was.
One can reasonably assume that some guesswork was involved when creating the plans and determining premiums in the first and second years. Lawmakers crafting the ACA had to include something like risk corridors to ensure robust participation by the payers. But with Congress’ move in late 2014, insurers with losses felt that the federal government reneged on the deal.
We would feel bad for the insurance companies, but as we report elsewhere in this issue, they seem to be doing quite well.
In any case, as research from Garthwaite and Graves shows below, other factors may be at play in keeping payers on the exchanges—or discouraging them enough to leave.
One thing is indisputable, irrespective of politics: in many states, the cost of health insurance on the exchanges is skyrocketing. If the ACA is to be retained in any form, Congress needs to do something to encourage payers to participate again, which will increase competition and (should) once again lower the cost of insurance for people purchasing plans through the exchanges.