The Obama administration has taken a red pen to its signature health care reform law again — rewriting the measure without consulting Congress.
This time, the White House wants to extend Obamacare’s “risk corridors,” which require the feds to bail out insurance companies if they lose too much money in the law’s exchanges.
Taxpayers can’t afford billions more in unchecked corporate liabilities. Rather than stroke checks to insurers to make up for the huge sums they’ll lose by participating in Obamacare’s exchanges, Congress should scrap the law altogether.
Here’s how the risk corridors work. If an insurer has to pay claims that are 3 percent more than projected, the government must reimburse the insurer for half the excess payments. If claims are 8 percent or more beyond projections, the government reimburses about 75 percent of the losses.
If costs are lower than projected, insurers are supposed to pay the government. Because estimates of Obamacare’s cost have marched steadily upward since the law passed, though, that outcome seems unlikely. Indeed, the Congressional Budget Office now estimates that Obamacare will cost more than $2 trillion through 2024 — more than double its initial projection.
Without the promise of a bailout, many insurers would have been reluctant to sell through the exchanges, due to the high probability of “adverse selection.” That’s the insurance-industry term for having too many old and sick customers — and not enough young and healthy ones.
If that happens, then the insurance risk pools become imbalanced. Insurers end up paying out more in claims than they receive in premiums. If the “selection” is “adverse” enough, the whole system collapses.
Insurers’ fears are increasingly looking justified.
Many Americans have had trouble enrolling because of technical problems with both federal and state exchange websites.
Meanwhile, the president has declared that the approximately 5 million Americans whose policies were cancelled because of Obamacare won’t have to pay tax penalties in 2014 designed to force them into the exchanges. The special dispensation was granted after a public outcry about the president’s promise that Americans would be able to keep their existing coverage under his health reform plan.
Younger Americans are realizing that they’re going to pay higher premiums to subsidize coverage for older Americans, even though the latter group is, on average, wealthier. For millions of young adults, remaining uninsured — whereby they can pay the individual mandate penalty of $95 or 1 percent of income, whichever is greater, starting April 1 — will be cheaper than getting covered. So they’re staying away from the marketplaces.
A December Kaiser Family Foundation report described a 25 percent enrollment rate among 18-34 year olds as a “worst-case scenario” that could cost insurers more than half their profit margin.
That worst-case scenario is now reality. Manhattan Institute Senior Fellow Avik Roy notes that “25 percent of non-elderly adults who selected an exchange plan were younger than 35,” according to January data.
Obamacare’s supporters say that they envisioned these hiccups. Indeed, the law plainly states that Obamacare “shall establish and administer a program of risk corridors for calendar years 2014, 2015 and 2016” to help the exchanges outlast any growing pains.
We’re just two months into their first year, though, and the White House is already talking about extending them three more years. That means the Obama administration expects the exchanges to be financially unsustainable for at least six years after their launch.
How long are Americans supposed to wait before Obamacare starts working?
Sen. Marco Rubio, Florida Republican, isn’t willing to wait any longer. He’s looking to repeal the risk corridors. “The American people are sick of Washington picking winners and losers, especially since the chosen losers often end up being taxpayers who foot the bills for Washington’s mistakes,” said Mr. Rubio. “Eliminating Obamacare’s blank check for a bailout of insurance companies is a common-sense step to protect taxpayers when Obamacare fails.”
Obamacare is already set to cost taxpayers more than $2 trillion over the next decade. Funneling federal money to insurers through 2019 to get them to play ball on the exchanges — as the administration appears to want to do — will drive that price tag even higher. Congress should put a stop to this ill-advised bailout.
Sally C. Pipes is president, CEO and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is “The Cure for Obamacare” (Encounter 2013).