A Taxpayer Bailout for ObamaCare

42-53184960An American public already reeling from the catastrophic rollout of ObamaCare will more than likely be hearing an unfamiliar term being bandied about in the new year. “Risk corridor” refers to a provision in the law that allows the government to “stabilize” premium costs for insurance companies during the first three years of the healthcare rollout. If insurance companies’ “target” costs for providing healthcare has been miscalculated, the Department of Health and Human Services (HHS) will intercede on their behalf. Syndicated columnist Charles Krauthammer illuminates the nature of that intercession. “The insurers understand that they’re going to be completely ruined,” Krauthammer explains. “And what’s going to happen as a result of this? There’s only one way out, a huge government bailout of the insurers is waiting at the end of next year.” More accurately, it will be a taxpayer-funded bailout, similar to the ones given to the banks and the car companies.

Risk corridors were established to protect insurance companies that signed up too many sick people, relative to the number of healthy enrollees. They were part of a system that also included two other concepts known as “reinsurance” and “risk adjustment.”

The reinsurance part of the equation initially compensated insurance companies for enrollees whose costs exceed $60,000 per year. For 2014, that compensation is funded by a $10 billion fund, fed by a $63 tax that has been levied on all healthcare plans. And while the program collects those taxes even from large employer-sponsored plans, payouts only help to underwrite the costs of individual and small-group plans.

Risk adjustment refers to the idea that, after insurance companies have calculated all the payments they have made for 2014, those that paid out less than the average cost of compensation would “redistribute” that largesse to companies that paid out more. This redistribution was designed to dis-incentivize insurers from signing up only low-risk healthy people. This part of the law is permanent, and its zero-sum feature is intended to spread risk across the entire spectrum of carriers.

Which brings us to the risk corridors. Risk corridors only apply to insurance programs being sold on the ObamaCare exchanges. It is similar to the risk adjustment concept in that it is also an attempt to even out insurers’ profits and losses. Those insurers who set their rates too high are required to pay a portion of that excess profit to the government. Those that set their rates too low will have a portion of their losses mitigated by a government payout.

As previously noted, the formula only affects adjustments for the first three years of ObamaCare’s implementation. The Incidental Economist’s Adrianna McIntyre provides a chart showing the payout structure. If insurers’ calculations fall between 97 percent and 103 percent of their actual costs, no action is taken. For those whose costs range from 103-108 percent, a 50 percent bailout applies to the amount in excess of 103 percent. Above 108 percent, HHS pays 2.5 percent of target, plus 80 percent of the costs in excess of 108 percent.

On the other end of the spectrum, costs that range between 92-97 percent require providers to pay HHS 50 percent of the difference between 97 percent and allowable costs. Below 92 percent requires insurers to pay HHS 2.5 percent of the target, plus 80 percent of the difference between 92 percent and the allowable costs.

When the risk corridors were established, the Congressional Budget Office (CBO) scored the program as “budget neutral,” meaning that it was likely there would be just as many insurance companies who overestimated the costs of implementing ObamaCare as those who underestimated them.

The critical point is this: these formulas were calculated based on the law as written. As National Review’s John Fund reveals, when the Obama administration moved to allow the hundreds of thousands of Americans who lost their coverage to sign up for bare-bones “catastrophic” plans, it marked “at least the 14th unilateral change to Obamacare that’s been made without consulting Congress.”

In other words, due to the lawlessness of the Obama administration, all of those ostensibly budget-neutral calculations have been kicked to the curb.

Furthermore, the administration is well aware of that reality. On Monday, November 25, the administration lowered the reinsurance threshold from $60,000 to $45,000. This move will likely transfer billions of additional dollars from taxpayers to the insurance companies, even as it adds billions of dollars to the national debt. And as Sen. Marco Rubio (R-FL) explains in a Wall Street Journal editorial, “ObamaCare’s risk corridors are designed in such an open-ended manner that the president’s action now exposes taxpayers to a bailout of the health-insurance industry if and when the law fails.”

He further explains that additional regularity rulings “have made clear that the administration views this risk-corridor authority as a blank check, requiring no further consultation or approval by Congress.” He cites section 1342 of the Affordable Care Act, which was implemented last March. To wit: “Regardless of the balance of payments and receipts, HHS will remit payments as required under section 1342 of the Affordable Care Act.”

Thus, for the next three years (at least), insurance companies will be “too big to fail.”

Rubio has introduced a bill to prevent such a bailout, but in a Democratically-controlled Senate headed by Harry Reid (D-NV), such an effort to protect the American public will go nowhere.

Unsurprisingly, an overwhelming majority of Americans are opposed to an insurance company bailout. Overall, 65 percent oppose the idea, but equally importantly, such opposition cuts across several boundaries: 51 percent of Democrats, 71 percent of Republicans and 76 percent of independents give the idea a thumbs down, and that opposition includes every age and demographic group as well.

There is little doubt that much like Congress, the Obama administration considers such public sentiment irrelevant. Yet at some point, when more and more Americans become aware of this sweetheart arrangement, they may also become aware of the bitter irony that engendered it: every unilateral move made by this administration, making an utter mockery of their contentions and those of their allies that ObamaCare was the “law of the land,” has increased the probability of a taxpayer-funded bailout.

On December 18, Jason Furman, chairman of the Council of Economic Advisers, was asked whether the administration had a “Plan B” if the number of young, healthy Americans needed to make ObamaCare viable refused to sign up for coverage. “There’s a Plan A,” Furman answered. “Which is to enroll as many young healthy people as you possibly can.”

Those would be the very same young, healthy people who were told eight days ago that there will be no tax penalty for those who had their existing health insurance plans canceled because of ObamaCare, and who did not find new coverage as required by law. Two thirds of the same young healthy, Americans polled by Harvard University’s Institute of Politics said they will not sign up for any healthcare plan.

Plan B is a taxpayer bailout of the insurance industry.

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  • rascaltherat

    And who didn’t see this coming?? DON’T SIGN UP, OR EVEN GO TO THE WEBSITE. It’s all a trap to get all of your personal info.

    • Freddie King

      I agree. Once you enter your personal information, the Feds have you by the privates – no escape. DO NOT GO TO HEALTHCARE.GOV!!!!

  • lhfry

    If economic viability of the ACA was dependent on the inclusion of young healthy people under thirty, why permit those up to age 26 to remain on their parents’ plans. Isn’t that half the target age group? And then, why permit those under thirty to buy catastrophic plans (now those over thirty can too), another reduction in the target group? Makes no sense.

    • Freddie King

      Well how else will Pajamaboy get insurance coverage???

  • Ron Sherman

    How many more billions (which the government does not have in the first place – over $17 trillion debt) will they keep throwing at this Obamacare disaster? Should there have been something in the law that might have said “Stop, enough is enough already?” It’s enough to basically destroy our health care system but squandering more and more of our taxpayer money and piling up more and more debt on our children and grandchildren is (to quote Obama about our debt) – “irresponsible and unpatriotic”………………………….period.

    • carpe diem 36

      this is another Solyndra, but much much bigger, nothing but a scam from those who do not know hot to manage anything, not even a lemonade stand.

      • Bodhi

        Sorry, the FDA has outlawed lemonade stands.

        • carpe diem 36

          they did not outlawe it, they only require permits from the EPA, the IRS, the Dept. of Agriculture, and the city planning commission.

  • lessthantolerant

    When will the American people realize how dangerous this disaster and the complete destruction it is bringing? The socialist democrats simply want to bring America down to the former Soviet Union standards.
    The socialist democrats want all people to be equally poor and dependent on elites for their meager handouts.
    We The People need to rise up and begin eradicating these liberals as many and as often as possible.

    • Geoffrey_Britain

      Not to quibble but the socialist (Marxist progressives) democrats do NOT want to “bring America down to the former Soviet Union standards”. They want to “FUNDAMENTALLY (and irreversibly) TRANSFORM” America into ‘The United Socialist States of Amerika’.

      • lessthantolerant


  • BenJabo1Machal

    I, for one, can think of two major disasters in the past 20 years.
    The Unaffordable Care Act
    Both up to no good as far as America in concerned

  • Geoffrey_Britain

    “Plan B is a taxpayer bailout of the insurance industry.
    an overwhelming majority of Americans are opposed to an insurance company bailout.”

    ObamaCare is going to collapse because it’s unsustainable. So, what would happen if the insurance industry was NOT bailed out? Bankruptcy and goodbye insurance industry, right? What do we do then? Let anyone sick die? Force doctors, nurses and hospitals into unpaid slavery?

    Of course not but with a bankrupt insurance industry, what alternative to single payer, government run health care will there be?

    None and that is Plan ‘C’.

    • Drakken

      What was not mentioned in the article, is that the insurance industry is shipping their reserves of cash overseas to protect it from being confiscated by the govt. The smart ones are offshoring themselves in order to protect themselves and I don’t blame them one bit.

  • keyster

    This will set the liberal/leftist/socialist agenda back for at least a decade.
    And we haven’t even seen the worst of it.

  • Reverend Joe Ruyle

    Just a sparkling ray of sunshine for the author…… who must have spent more than a few years in the dark…… but there is not one single solitary aspect of ObamaCare which is NOT taxpayer funded!!! Thus it make no difference if its the 20 or 30 years the leftists spent writing and refining the bill……. or the time spent on the (non) debate……. or the creation of new agencies to oversee the program…… or the cost of hiring new IRS agents to “enforce” the law…… or the billions wasted it trying to build a web site…… ALL if it…… bought and paid for with our hard earned and legally confiscated dollars.

    Remember this simple rule…. government has NO money until they first TAKE it from people who actually work and earn it.

    As long as the rats and cockroaches are running the kitchen…… try not to eat the food.

  • Bodhi

    A taxpayer bailout wasn’t Plan B; it was the goal all along. This explains the piss pour website roll out and the millions of cancelled policies. From the insurer’s point of view, bailouts are far better than actual premium income because they will be quick, tax free, and the insurers won’t have to mess with all those annoying claims and confusing laws. Win/win for the corporations. Again. Surprise. Not.

  • Craig Gorsuch

    Plan B (for Bailout) will be yet another excuse to enact Single Payer. We are truly Damned if we do and Damned if we don’t.


    Signing up for obo-care is simply not an option. I’ll take my chances. The time to run & hide from this corrupt government is NOW!

  • USARetired

    Upcoming candidates must vow to repeal this socialist program called ‘Obamacare’, or we do not vote for them,!

  • justquitnow

    Yeah but Arnold, you’ve been doing everything you can to keep young people from signing up…and just to derail the program. If you can keep the outrage and the “apocalypse is coming” attitude going until the mid-terms then you might be able to make political hay over it, but most people will have new plans by then and the end of the world won’t come…so good luck with that. What will be a problem is for the red state governors and legislatures that have refused medicare expansion and tried to sabotage their own state exchanges….when the people look at other states and see it working well.