Government Watch

Next Big Bailout May Go to ObamaCare Health Insurers

from – – 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.

‘Strong Incentive’

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.

ObamaCare’s Fannie?

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.

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8 years ago

Wow, I guess I may be senile but we’re blaming Bush for the housing collapse?? I remember it being Clinton and Janet Reno going after banks that would not lend to unqualified people along with good old Frank and Dodd. Remember the nice commercials showing a couple saying, “gee we can afford that!” NOT!!

And I am getting tired of the Republicans bending over backwards. I wish they would take a stance and stick to it, Obamacare is bad for the country and it is a shame that the House leadership will not stop it while they can. The House controls the purse strings so they need to cut the funding.

8 years ago

People, we’ve all been had! I firmly believe that today’s Republican Party leadership has been infiltrated by Socialists! The wealthy Socialists, at that. How else can we explain how stupid their campaigns are run? How inept they are when elected? Republican elected representatives are too complicit. How else can you explain what’s going on in Washington? We, conservatives need our own party. The Tea Party should break away before it’s too late, and it might be too late already! A party with NO LAWYERS ALLOWED! Lawyers are all scumbags, parasites feeding off of the people. There’s a reason 1/2 of ALL the lawyers in the world are here, in the good old USA! They’re running everything. They make the laws, they challenge the same laws in courts, arguing their cases in front of their brethren, the judges and We the People don’t stand a chance of winning. It’s their game, they own the ball, they make the rules and they rip us all off doing it!

And the people … They’re just too stupid! The cheese is always “free” … in the mousetrap!

8 years ago

The longer I live, the less faith I have in both the communist democrat party and their heel dog rino GOP fools in office. It just gets worse and worse with the DC politicians who live only to increase their riches on the backs of the people whom they represent but despise and hate. Obamacare is a sham for increased government buereaucrat power and only hurts those who earn a living getting up to go to work and raising kids.
May the good Lord and Saviour Jesus Christ bring the corrupt DC government system to a quick end so that Americans can return to rule of law and prosper as under President Reagan, a godly President who loved America and hated the federal corruption he tried so hard to reign in.
come quickly, LORD Jesus!

8 years ago

“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.”

Yet another example of why Boehner, McConnell and the other RINOs should have all been primaried out by the voters this past spring and summer and replaced with REAL fiscal conservatives on the Republican ticket for this fall. Instead far too many voters voted for the familiar name and face over the chance to vote for people who were more willing to do the will of the People. Each bad voting choice means it’s that much harder to ever turn this country around. Now we have no choice, but to vote for the RINOs and then relentlessly try to pressure them to do the right thing, on a myriad of issues, before time finally runs out for the country. Vote people!!!

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