BEYOND THE NUMBERS
Health reform’s opponents are renewing efforts to kill its temporary “risk corridor” program, through which the federal government will help cover any higher-than-expected costs for insurers that offer plans in the new marketplaces while sharing in the savings if costs prove lower than expected. But the Government Accountability Office (GAO) legal opinion on which they’re basing this latest attack says the opposite of what they claim.
Citing the GAO opinion, opponents claim that the Administration lacks the legal authority to provide risk corridor payments and that legislation is needed to prevent it from making unlawful payments. But GAO actually concludes 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.
GAO finds that CMS has the authority to use its regular operating funds to finance risk corridor payments as well. But the Administration has made clear that the risk corridor program, which will exist for three years (2014-2016), will be budget neutral over that period — that is, payments won’t exceed contributions.
CMS would only lack authority to make risk corridor payments, GAO finds, if Congress specifically blocked it as part of legislation funding the government for the rest of fiscal year 2015 (when the payments associated with health coverage in 2014 are scheduled to be made). The GAO opinion thus offers no basis for repealing the risk corridor program or stopping it from taking effect.
Moreover, repealing or blocking the 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 now, insurers would build a bigger “risk premium” into their premiums for 2016, making coverage less affordable. (Insurers have already finalized their 2015 rates in many states.) And some insurers might decide not to participate in the marketplaces in 2016.
Once insurers have had several years of actual claims experience with their marketplace plans, they’ll be able to price their premiums with more confidence and accuracy. At that point, the risk corridors will no longer be needed and will expire as scheduled.