Recall, for a moment, how health insurers were
treated by Democrats in the Obamacare debate. They were the bad
guys, in no uncertain terms. “They’ve been
immoral all along,” Rep. Nancy Pelosi (D-CA),
then the House Majority Leader said
in July 2009, as the debate over the government-run public
option raged. “They [insurers] are
the villains in this. They have been part of the problem in a major
way.“
Democrats found some success in casting insurers as the
antagonists, and made a show of targeting health
insurers. “It is well known to the
public that the health insurance companies are the
problem,“ as
she warned
insurers how much the health law would cost them.
So, how did Obamacare end up punishing the big, bad insurance
company villains? By creating a federal program to help cover their
costs in the event of higher than anticipated spending—and then
expanding that program at the request of the insurers following the
launch of the health law’s exchanges last year.
A
report released this week by the House Oversight Committee
highlights how, in the months since the exchanges went online, the
Obama administration has worked closely with the insurance
industry, looking for policy options to assuage insurers’ financial
woes and feeding talking points to insurance industry officials
prior to major media appearances. And even though the
administration has stated an intention to run the program in a
revenue-neutral manner, the report finds it’s likely to cost
taxpayers around $1 billion this year.
The focus of the White House/ health insurer
relationship is Obamacare’s “risk corridor” program. Frequently
described as a bailout of insurers, it is a
symmetrical risk sharing program set to run through 2016:
Participating insurance carriers set a target for health spending
each year, and if the total amount comes in at 103 percent of the
target or more, the federal government kicks in a share of the
overage; between 103 and 108 percent, the federal government pays
half. Above 108 percent, the federal government pays 80 percent. If
spending comes in lower, insurers pay the government.
The thinking when the law was passed was that the program would
be revenue neutral; some insurers would pay in, and others would be
paid. The payments would even out. But there’s no requirement in
the law that it be revenue neutral, which means that it’s possible
for the federal government to pay out a lot more than it takes
in.
Earlier this year, the Obama administration indicated that it
expected the program to be revenue neutral. But the Oversight
Committee report surveyed 80 percent of participating insurers and
found that, on net, insurers expect payouts of about $725 million
this year. Add in the other insurers who weren’t surveyed, and it’s
possible that risk corridor payouts will end up totaling $1
billion.
Now, it’s of course possible the balance could always shift over
time, leaving a program that is revenue neutral for its entire
three year run. But the early signs aren’t promising.
And insurers sure aren’t excited about the possibility
that the administration might actually decide to operate the
program in a revenue-neutral manner. Insurers, who had already
expressed concern
about Republican opposition to the risk corridors,
lobbied
against the possibility. At least one even contacted the
White House directly.
In early April of this year, the Committee report says, Care
First Blue Cross Blue Shield CEO Chet Burrell wrote to Senior
Adviser Valerie Jarrett warning that “a brewing issue” could
“negatively impact upcoming ACA premium rates” and requesting a
conversation. The two spoke on the phone that day, and Burrell
followed up with an email warning that a revenue-neutral
implementation of the risk corridor rule could push insurers “to
increase rates substantially (i.e., as much as 20% or more…).” The
letter described Burrell’s worries as urgent, and thanked her for
understanding. “I am only trying to give a ‘heads-up’ notice on an
issue that could produce an unwelcome surprise.”
Jarrett was eager to assuage his concerns. According to the
report, Jarrett wrote back saying that the White House “policy team
is aggressively pursuing options.” Later that month the
administration published a memo, titled Risk Corridors and Budget
Neutrality, which said that if the program does not take in enough
funds to match the required payouts, payments would be reduced
accordingly the following year.
Burrell wrote back, still concerned about the policy and
warning, again, premium increases would likely appear because the
risk corridors program was no longer
reliable.
Jarrett’s response: “After speaking at length today with Jeanne
[Lambrew, Deputy Director of the White House Office of Health
Reform] and our other policy folks, I do not think I have any more
to add. They seem to have given you 80 percent of what you
requested and I am not in a position to second guess there [sic]
analysis.”
Eventually, though, the administration did second guess the
analysis. Insurers pressed on, with increasingly adamant lobbying
that the risk corridors program not be operated with “the
constraint of budget neutrality,” as America’s Health Insurance
Plans (AHIP), the top insurance lobby group, put it.
When the final rule came out in May, the administration had made
a number of changes. Even in the event of a shortfall, it said, the
administration would make “full payments” to insurance carriers. If
necessary, “HHS will use other sources of funding for the risk
corridors payments, subject to the availability of appropriations.”
The May rule also made additional changes to the payment formula
making the risk corridor more generous and increasing the
likelihood that insurers would receive payments through the
program.
In short, insurers warned that premium hikes were likely under
Obamacare, and begged the administration for money. The
administration was eager to respond, eventually gave in to the
insurance industry’s demands, and decided to expand and existing
program to minimize insurer losses under the law. The Obama
administration isn’t treating health insurers like villains. It’s
treating them like partners.
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