Obamacare’s Bailouts May Be Extended

According to the text of
Obamacare, the health law’s risk corridors—the insurance industry
backstop that’s been dubbed a bailout—are only supposed to last
through 2016. For the first three years of the exchanges, insurers
who spend 3 percent more on health costs than expected will be
reimbursed by the federal government. It’s symmetrical, so insurers
who spend less will pay in, but there’s no requirement that the
program be revenue neutral. After 2016, the program is scheduled to
sunset, leaving insurers fully on the hook for any losses they
might incur within the exchanges.

But now the Obama administration appears to be considering an
extension of the provision beyond 2016, according
to The Washington Examiner’s Susan Ferrechio:

The Obama Administration may extend beyond 2016 a federal
reimbursement program for health insurance companies that lose
money by participating in the newly created health care
exchanges.

Industry insiders told the Washington
Examiner a plan to extend the Affordable Care Act’s “risk
corridors” are under discussion, but that administration officials
have not made a final decision.

Obamacare’s supporters have argued that the risk corridor
program is supposed to aid in the transition to the new insurance
markets. This suggests that the administration now believes that
the transition is going to be longer and more difficult than
expected. And, in combination with the insurance industry lobbying
efforts to uphold the provision, it suggests that insurers believe
they are likely to rely heavily on the program to mitigate
potential losses.

Finally, as Bloomberg View’s Megan McArdle*
notes, it’s hard to see how this would be legal. The text of
the last says that “the Secretary shall establish and administer a
program of risk corridors for calendar years 2014, 2015, and 2016
under which a qualified health plan offered in the individual or
small group market shall participate in a payment adjustment system
based on the ratio of the allowable costs of the plan to the plan’s
aggregate premiums.” I’m not a lawyer, but that doesn’t seem
to allow a lot of wiggle room to extend the program for a few more
years.

Granted, when it comes to implementing Obamacare, the
administration does not seem overly concerned with the legal
particulars. If this tweak is being considered, it’s because the
administration and insurers believe it’s necessary to make the law
work beyond 2016. Which suggests that the law could be in trouble
for years to come. 

*I am married to this person.