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Insurers Face $2.5 Billion Shortfall on Health Law Risk Program

By Kerry Young, CQ Roll Call

October 2, 2015 -- A federal program to protect insurance companies offering coverage under the Affordable Care Act had a $2.5 billion shortfall in its first year of operation, as expanding health care coverage for Americans proved more costly than many insurers had estimated.

Due to the shortfall, insurers will get only a fraction—12.6 percent—of the $2.87 billion in payments they had expected through the so-called risk corridor program, the Centers for Medicare and Medicaid Services (CMS) announced Thursday.

The total pool of money for risk-corridor payments is limited to the $362 million that insurers are expected to contribute for 2015. Obama administration officials had in the past spoken of potentially using other federal funds in the case of such a shortfall. But last year Congress blocked the administration through a rider added to the fiscal 2015 spending package (PL 113-235) from tapping major Medicare trust funds or appropriations to bolster the risk corridor program.

The announcement of the shortfall triggered a quick call Thursday from insurers for additional money from Congress for the program, but the odds appear stacked against this request due to continued Republican opposition.  GOP presidential contender Sen. Marco Rubio of Florida made his "ObamaCare Taxpayer Bailout Prevention Act" the first piece of legislation he introduced in the 114th Congress,  a deliberate decision to draw attention to this issue, according to his staff. This bill (S 123) would repeal the section of the 2010 health law that created the risk corridor program. Rubio also was among those who helped get the funding restrictions on the risk-corridor program into the spending law last year.

The program was meant to help insurers adjust to a new market, in which the health law prevents them from pegging prices and coverage decisions to people’s health. The risk corridor program was designed to collect money from insurance plans that have profits above a certain target, and then distribute this money among those plans that had profits that were below target.

"Stable, affordable coverage for consumers depends on adequate funding of the risk corridor program," said Marilyn Tavenner, the chief executive of America’s Health Insurance Plans and former CMS administrator, in a Thursday statement. "It's essential that Congress and CMS act to ensure the program works as designed and consumers are protected."

The paltry payments from the risk corridor program may have helped bring to an end one new health insurance venture. Health Republic Insurance of New York, one of the largest of the new nonprofit insurance cooperatives created with the help of the 2010 law, began winding down its operations last week.

It’s the second failure among one-time coop success stories that enrolled at least 100,000 people. The other giant CoOportunity Health of Iowa collapsed last year. Health Republic had expected a payment of about $147 million through the risk program, an official said. With the reductions in place, the insurer would receive a payment of less than $20 million.

CMS's approach to reducing payments appears close to what Sen. Bill Cassidy, R-La., spelled out in his risk corridor bill (S 359), for which Rubio is the chief cosponsor. Cassidy, who also helped get the rider on risk corridor funds added to the fiscal 2015 CR, wants to leave in place the risk corridor program. But he wants further restrictions placed on the use of federal funds for the program, with instructions to CMS that it should proportionately decrease payments to plans if requests exceed available money.

"We should not allow a rogue insurance company to cherry-pick the well as the expense of an insurance company that does it right and take all comers, so I am in favor of some sort of risk adjustment in which that is not allowed to happen," Cassidy, a physician who earlier helped found a community health clinic, told CQ HealthBeat Wednesday. "That said, the taxpayer should not be on the hook."

The risk corridor is part of what is known as the 3 Rs, referring to programs created by the 2010 health law to entice insurers to participate in a new market.

Only one of these programs is meant to be a permanent feature, the risk adjustment mechanism for shifting funds from plans where people are thought to be in better health in general to those that serve people who suffer from more medical problems. About $4.6 billion will be transferred among insurers through the risk adjustment program based on 2014 results, CMS said on Thursday.

For the third program, known as reinsurance, there will be $7.9 billion in payments based on 2014 results. This program is meant to spread the cost of covering people with very high medical costs among insurers. Like the risk corridor program, it is intended to level payments in keeping with the results seen in the first three years of the new marketplace, 2014, 2015, and 2016, with payments made a year later.

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