Large Bailout for ACA Insurers May Be Coming

Average premium increases above 25%, roughly one-third of U.S. counties projected to lack any competition in the Affordable Care Act (ACA) exchanges next year, and enrollment less than half of initial expectations provide strong evidence that the law’s exchange program is failing. Moreover, the failure is occurring despite massive government subsidies, including nearly $15 billion of unlawful payments, for participating insurers. As bad news pours in and with a potentially very rough 2017 open enrollment period ahead, the Obama administration signaled on Friday that it may defy Congress and bail out insurers through the risk corridor program. Congress should take all steps at its disposal to prevent the administration from doing so.

Administration Has Already Delivered Nearly $15 Billion in Unlawful Funds to Insurers

In May, U.S. District Court Judge Rosemary Collyer sided with the U.S. House of Representatives in a suit brought against the Obama administration for making payments to insurers through the cost sharing reduction (CSR) program without a congressional appropriation. According to Judge Collyer, “Paying out [cost-sharing subsidies] without an appropriation violates the Constitution. Congress is the only source for such an appropriation, and no public money can be spent without one.” CSR payments are sent to insurers to enable them to reduce cost sharing amounts, such as deductibles, for certain exchange plan enrollees. Insurers received about $7 billion in CSR payments through 2015 and have likely received nearly $11 billion in such payments to date.

In addition to the unlawful payments through the CSR program, the administration has also diverted reinsurance program revenue to insurers that should have been deposited in the Treasury. Doug Badger of the Galen Institute has writtenextensively about this diversion. In 2014 and 2015, $3.5 billion that should have been deposited in the Treasury was instead directed to insurers selling ACA individual market plans.

Potential Size of a Risk Corridor Bailout

The ACA’s risk corridor program was intended to transfer funds from profitable insurers to unprofitable ones for the first three years of the exchanges (2014 to 2016). When members of Congress expressed concern, beginning in early 2014, about a potential taxpayer bailout if insurers systematically incurred losses, the administration expressed confidence that payments from profitable insurers would cover losses from unprofitable ones. Moreover, on March 11, 2014, the Department of Health and Human Services (HHS) wrote that “HHS intends to implement this program in a budget neutral manner [claims could not exceed receipts].”

We intend to implement this program in a budget neutral manner, and may make future adjustments, either upward or downward to this program (for example, as discussed below, we may modify the ceiling on allowable administrative costs) to the extent necessary to achieve this goal.

As documented in a House Committee on Oversight and Government Reform report, the administration, including senior White House advisor Valerie Jarrett, worked to address insurer concerns about budget neutrality. For example, although Jarrett told Care First Blue Cross Blue Shield CEO Chet Burrell that the administration gave insurers 80% of what they sought, Burrell nevertheless warned of large premium hikes if the risk corridor program remained budget neutral.

Shortly thereafter, on May 16, 2014, revised HHS regulationsput taxpayer funds at risk:

In the unlikely event of a shortfall for the 2015 program year, HHS recognizes that the Affordable Care Act requires the Secretary to make full payments to issuers. In that event, HHS will use other sources of funding for the risk corridors payments, subject to the availability of appropriations.

In a desire to ensure that the administration could not use the risk corridor program as a taxpayer bailout of insurers participating in the ACA exchanges, Congress codified the administration’s stated intention and made the risk corridor program budget neutral in both the 2015 and 2016 government funding bills. These funding bills were signed by President Obama.

Due to a much more adverse risk pool than expected, the risk corridor shortfall exceeded $2.5 billion in 2014. Profitable insurers owed about $360 million, and unprofitable insurers requested about $2.9 billion.

Congress’ actions, therefore, resulted in unprofitable insurers only receiving 12.6% of their requests. In total, congressional action saved taxpayers $2.5 billion for the 2014 plan year and likely double that amount for the 2015 plan year because insurer losses were much greater for 2015 than for 2014.

Administration Signals a Potential Bailout

On a Friday afternoon, a time generally chosen to limit the media coverage accorded to bad news, the administrationreleased a five paragraph update on 2015 risk corridor payments. Unsurprisingly, the administration indicated that the incoming payments for 2015 would be less than the 2014 deficit amount. The administration stated that it would first use 2015 risk corridor receipts to pay insurers for unpaid claims incurred in 2014, so none of insurers’ 2015 risk corridor claims will be paid. While the administration did not release estimates for last year’s risk corridor receipts and claims, it is likely that 2015 receipts will only cover a small percentage of the 2014 deficit.

Despite Congress’ repeated actions to ensure a budget neutral risk corridor program, HHS stated that it “will record risk corridor payments due as an obligation of the United States Government for which full payment is required.” The following paragraph concludes the memo:

We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.

Several insurers have brought suits claiming they should receive payment of their full risk corridor claims. The Department of Justice (DOJ) position thus far has been that the suit should be discarded because the program lasts through the end of this year and 2016 receipts and claims will likely be unknown until mid-2017. 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. Friday’s announcement will likely intensify such fears.

Steps Congress Should Take

The ACA is failing to deliver on numerous promises made when it became law six-and-a-half years ago. Congress should take all actions available to prevent the administration, which has already delivered billions in unlawful payments to insurers through the CSR and reinsurance programs, from using taxpayer money to bail out insurers through the risk corridor program in an attempt to prop up the law’s untenable aspects a little longer.

In March, law professor Seth Chandler made the case that Speaker Ryan should intervene “to make sure that the litigation does not proceed without an opportunity for the Court to consider Congressional power over the purse.” That action now seems more necessary than ever. In addition, Congress should ask the administration, including HHS and DOJ, about any discussions—both intergovernmental ones and with insurers—about the risk corridor lawsuits and for all relevant documents and communications.