Attack on “Risk Corridor” Program Falls Apart

Congressional Republicans this fall may seek to repeal or block health reform’s temporary “risk corridor” program, designed to help cover any higher-than-expected costs for insurers that offer plans in the new marketplaces while sharing in the savings if costs are lower than expected.  They’ll likely make misleading claims about the risk corridors like those from Senator Marco Rubio and other Senate Republicans in a recent letter to House Speaker John Boehner.  These attacks simply don’t hold up under scrutiny.  Contrary to the Rubio letter:

• The Administration has full authority to make risk corridor payments. The Rubio letter, citing a Government Accountability Office (GAO) legal opinion, claims that the Administration would violate the Constitution if it makes any risk corridor payments to insurers because it lacks the authority to do so.  But as we recently noted, the GAO opinion actually says the opposite.  Agreeing with the Administration, the GAO finds that the Centers for Medicare and Medicaid Services (CMS), which administers the risk corridors, has the authority to use contributions from insurers with lower-than-expected costs to finance payments to insurers with higher-than-expected costs.  In fact, GAO finds that CMS has the authority to use its regular operating funds to finance risk corridor payments as well.

• The risk corridor program will be budget neutral. The Rubio letter says that the risk corridor program will put taxpayers at risk if insurers systematically face higher-than-expected costs, which could cause risk corridor payments to exceed contributions.  But the Administration has already issued regulations and guidance ensuring that the program will be budget neutral to the federal government over its three-year existence.

The Rubio letter also fails to mention that repealing or blocking the risk corridor program would result in higher premiums for marketplace plans.  That’s because the program helps keep premiums affordable by reducing uncertainty for insurers.  

Health reform’s major reforms to the poorly functioning individual insurance market (like prohibiting insurers from charging higher premiums to people in poorer health or excluding them entirely) and the launch of its new marketplaces have temporarily raised insurers’ uncertainty in pricing their premiums during the marketplaces’ first few years.  If Congress blocked the risk corridors, insurers would have to build a bigger “risk premium” into their premiums for 2016, making coverage less affordable.  (Insurers have already finalized their 2015 rates.)  And some insurers might decide not to participate in the marketplaces in 2016.

If Congress enacts legislation denying the Administration the authority to make risk corridor payments, that would be virtually certain to drive up the cost of health insurance provided through the marketplaces.