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Ellison's Must Read of the Day

Ellison Barber

My must read of the day is "Obamacare's a "Bailout" Now? Conservative Critics Are Getting Desperate," by Jonathan Cohn in the New Republic:

For one thing, the reinsurance money comes from the insurers themselves, who pay a tax on each beneficiary. It's basically a transfer of funds, from all carriers to those companies inside the Obamacare marketplaces that end up with unusually unhealthy members. In this sense, it’s an insurance policy for the insurers—and one they more or less finance on their own.

The payouts from risk corridors are a little different, in the sense that those dollars come directly from government funds and have no actual limit. But the risk corridors also build up government funds—in effect, by claiming some of the profits from insurers who reap unexpected windfalls. The Congressional Budget Office, in its overall cost estimates for the Affordable Care Act, assumed that the inflow and outflow would be roughly the same, so that the risk corridor program as a whole would be budget neutral. Even if CBO's prediction is wrong, and the government ends up spending more than it raises, the difference is likely to be modest. The formula for payouts calls merely for government to share in high losses or gains, not to take them on completely. It's enough to protect the insurers, the thinking goes, but not enough to cause a massive outlay.

I pay taxes, and no one has ever told me it was insurance, but of the "three Rs" (risk adjustment, reinsurance, and risk-corridors) I consider the provision for risk-corridors to be a clear bailout.

"Bailouts typically start with companies taking egregiously irresponsible actions," says Cohn. Maybe that's the case for him, but how bailouts start is irrelevant to whether government uses taxpayer funds to keep private companies alive.

Think of the Rail Passenger Act Service Act of 1970. It was a bailout of railroad companies, because the industry was considered a critical part of the economy. That bailout, whether it was good or not, didn't necessarily occur because railroad companies took "egregiously irresponsible actions." They were failing because technology was changing.

But the risk corridors, or shock absorbers, as Cohn likes to call them, aren't really for the insurance companies. They're ultimately a bailout for the administration.