Expert: Obama Administration Could Bail Out Obamacare Insurers

Risk-corridor program experienced shortfall of $2.5 billion in 2014

doctor money
September 13, 2016

The Obama administration could bail out Obamacare insurers through its risk-corridor program, according to an expert from the Mercatus Center.

The risk-corridor program was designed to constrain risk for health insurers who had uncertainty in pricing premiums for new plans they offered through Obamacare. The program was established and administered in years 2014, 2015, and 2016 and transferred funds from profitable insurers to insurers with losses.

In 2014, the risk-corridor program experienced a shortfall of more than $2.5 billion. Poorly performing insurers requested $2.87 billion in that year, while profitable insurers could only make up about $362 million, leaving a deficit of about $2.5 billion.

According to a memo from the Centers for Medicare and Medicaid Services, the shortfall from 2014 was so large that all of the risk-corridor payments incurred from 2015 would not cover it.

"[The Department of Health and Human Services] anticipates that all 2015 benefit year collections will be used towards remaining 2014 benefit year risk corridors payments, and no funds will be available at this time for 2015 benefit year risk corridors payments," the memo states. "Collections from the 2016 benefit year will be used first for remaining 2014 benefit year risk corridors payments, then for 2015 benefit year risk corridors payments, then for 2016 benefit year risk corridors payments."

Brian Blasé, a senior research fellow at the Mercatus Center, said this is not surprising considering insurers did worse overall in 2015 than they did in 2014.

The memo also said the risk-corridor program will experience a shortfall in 2016 and the agency will have to explore other sources of funding.

"In the event of a shortfall for the 2016 benefit year, HHS will explore other sources of funding for risk corridors payments, subject to the availability of appropriations," the memo states. "HHS will record risk corridors payments due as an obligation of the United States Government for which full payment is required."

There are two sources of funding, which include receipts from profitable insurers and tax revenue, according to Blasé.

"If receipts are way short and the payments must be made, as HHS indicated in the memo then a taxpayer bailout seems inevitable," he said.

"Some fear that the administration, which desires that as many insurers as possible participate in the exchanges, will disregard the fact that Congress made risk corridors budget neutral and will settle with insurers, awarding payments out of a permanent appropriation for judgments," Blasé wrote.

Blasé estimates that a bailout would total about $7.5 billion dollars, although the numbers for 2015 won’t be officially released until they put out the information in a few months.