Although House Republicans have dropped a plan to tie an increase in the debt ceiling to a repeal of the insurance company bailout clause in Obamacare, as more details emerge, there is growing concern over the costs incurred by the health care law’s risk corridor provision.
In just one example of how much money insurers stand to gain from taxpayer subsidies for future losses, Humana has announced that it expects to receive between $250 and $450 million through the three-risk adjustment mechanisms in Obamacare in 2014, half of which will come mostly from the risk corridors, reports Forbes.
Humana will book the money as revenue to offset shortfalls between what it takes in from exchange premiums and what it pays out in medical claims, according to the publication.
The company reportedly attributed the higher risk pool largely to the Obama administration’s decision to allow individuals to keep their coverage rather than buy insurance plans through the new exchanges.
Humana said it had enrolled 202,000 people on its exchange-based health plans as of Jan. 31, 82 percent of whom were eligible for subsidies.
If Humana’s situation is repeated throughout the healthcare system, the implication for taxpayers is staggering. “The risk-corridor provision of the law commits taxpayers to cover insurance-company losses beyond a certain level and places no limit on the taxpayers’ exposure to the risk of such losses,” writes political analyst Yuval Levin in the National Review.
“If the balance of risk in the exchange system as a whole ends up being badly out of whack, taxpayers could easily end up turning over billions to cover insurer losses,” he said.
Levin called the risk-corridor provision “a discrete instance of highly inappropriate unlimited taxpayer exposure to private corporate risk,” and suggested it “could be readily repealed or at least made formally budget neutral (by requiring that outgoing payments not exceed incoming ones) by itself.”
“Obviously such a move would not be welcomed by the insurers, and in many states it could undermine the viability of the exchanges,” Levin concluded.
“But that just means that the exchanges are not viable without the promise of a taxpayer bailout of major insurer losses. That’s not exactly a case for Obamacare either.”
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By Lisa Barron