from – Investors.com – by Stephen Moore
It didn’t get much attention outside Capitol Hill, but late last week House Republican leaders scuttled a vote to repeal an ObamaCare bailout plan for major heath insurance companies if they lose money on new Affordable Care Act policies.
Taxpayers could be on the hook for billions of dollars of payouts for ACA insurance policies that incur losses that exceed premiums collected.
Despite pleas from conservatives to hold a vote to repeal the sham subsidy program to the biggest insurers — like Aetna (NYSE:AET), Cigna (NYSE:CI) and Humana (NYSE:HUM) — our sources tell us the House leadership reportedly said that it “ran out of time to hold a roll call vote.”
Conservative activists are complaining that the real motive for killing a vote was to avoid ruffling the feathers of the health insurance lobby by ending the ObamaCare insurance industry safety net.
Conservative lawmakers also fear that in the anticipated lame-duck session in December, Republicans will allow the Obama administration a de facto blank check to make payments to insurance companies that lose money on ObamaCare policies without congressional approval.
The bailout measure is the Affordable Care Act’s controversial “risk corridor” program, which provides financial “protection” against losses to insurers that sponsor exchange plans. The idea of this short-term program was to create a pool of funds from the profits of some insurers with ObamaCare plans to offset the losses of others.
A 2013 analysis by the Society of Actuaries says that the risk corridors program “provides a strong incentive for insurers to participate in the health insurance exchanges set up by the Affordable Care Act.” Perhaps too strong an incentive, budget experts worry.
Under the program, if “allowable costs” to an insurer top 103% of the “target amount,” the feds subsidize half of those excess payments. The subsidy climbs to 80% of allowable costs that exceed 108% of the target amount. The potential liability to taxpayers is “uncapped,” so the sky is the limit on losses.
The White House understands the stakes. Without these subsidized risk corridors to backstop the ObamaCare plans, insurance companies will stop issuing ACA plans, and the entire program could be derailed.
But insurance experts warn that this program creates the same moral hazard problem for health insurance that we saw in the mortgage market with Fannie Mae and Freddie Mac. The guarantee on bad mortgages encouraged bad mortgages. The guarantee against losses on ObamaCare enrollees encourages insurers to toss sound underwriting standards out the window. This didn’t turn out so well with Fannie and Freddie, which received a taxpayer-funded bailout of more than $180 billion after issuing subprime mortgages that should have never been issued.
Supporters of the reinsurance system on new plans counter that the Congressional Budget Office scored this program earlier this year as budget neutral. That’s what Washington’s budget experts said about Fannie and Freddie. On the eve of the housing collapse, the CBO said that the chances of Fannie needing a bailout were minuscule.
So here we go again. Sen. Marco Rubio, R-Fla., smells a rat. He says, “The risk corridor program was not designed to be budget neutral, and the program, at least as being contemplated by the administration, puts taxpayers at risk of a large bailout if insurers systematically lose money on exchange plans.”
The most recent data on ACA plans suggest that Rubio is right. Congressional oversight hearings found surveys of insurers showing that almost all expect an ObamaCare reimbursement check from the risk corridors in excess of payments made.
If nearly all insurers are expecting a net cash payment, how can the program pay for itself?
Another problem, according to sources at the Senate Budget Committee, is that the millions of new ACA policies are not actuarially sound because of an adverse selection problem. As one tells us, “the sick and the elderly are disproportionately signing up for coverage.”
If so, per capita costs will be far higher than expected — and under the risk corridor program, taxpayers get stuck with the tab.
Again, the analogy to the housing crisis is apt. President George W. Bush, Rep. Barney Frank and Sen. Chris Dodd wanted to promote home ownership, so the feds started underwriting mortgages that should have never been made. Obama wants every American to have health insurance regardless of the cost. The net cost in the first year alone to the risk corridor program could near $1 billion. That’s just a start.
Obama is asserting executive authority to subsidize money-losing plans. Rubio and nine other Senators say that he needs a congressional appropriation under the Constitution. Rep. Jack Kingston, R-Ga., chair of the House subcommittee that handles health appropriations, made the same point in a recent letter to the White House.
The U.S. Government Accountability Office agrees, ruling Tuesday that the Department of Health and Human Services can’t provide funds to insurers for excessive losses on ObamaCare plans without Congress’ formal approval.
But again Republicans may duck this fight and provide the bailout funding in a lame-duck session.
“A year-end budget deal will be hard to stop,” a top Senate GOP health care staffer said. “If there is Republican resistance, Obama may threaten a government shutdown to get his way. Don’t be surprised if we surrender.”
Meanwhile, conservatives at organizations such as Heritage Action are denouncing this subsidy plan as “corporate welfare” for the insurance lobby. They worry that Republicans have the policy and politics wrong. A new McLaughlin & Associates poll found that 81% of Americans oppose any health insurance company bailout.
What is especially perplexing is that Republicans may get blamed for a bailout to an industry that sided with the White House in passing ObamaCare in the first place.
“The Democrats who passed ObamaCare are accusing Republicans of being in the pocket of health insurance companies,” notes Bill Kristol, editor of the Weekly Standard. “They accuse Republicans of wanting ‘to put insurance companies back in charge of Americans’ health care.’ Meanwhile, voters would like the party to take a clear stand against cronyism, which benefits well-connected operatives in Washington at the expense of citizens in the heartland.”
He calls killing the risk corridor program a “no-brainer” because it is the best way to kill ObamaCare altogether. But right now Republicans aren’t listening.