INSURERS TO SUFFER WITH BROKEN OBAMACARE PROMISES

From the Desk of Bob McNett……

Health Insurers May Suffer Financial Losses Due to Risk Corridor Broken Promises.

The Patient Protection and Affordable Care Act (known popularly as the ACA, or Obamacare) has, as a part of it’s basic structure, programs designed to protect health insurers from suffering big operating losses during the first few years of adjusting to the new rules of the law. These protective programs involved so-called risk corridors.

The concept is that the federal government would collect payments from insurance companies who made money from the new ACA exchange policies, and would transfer some of this wealth to insurance companies who lost money in this new marketplace. The problem turned out to be that very few insurers actually made money by marketing individual, exchange-based policies under the ACA law. Actually, most insurers took a bath.

Thus, there was not enough money collected to fund these risk corridor programs to provide the promised protections to insurers. Republicans in Congress had moved earlier to prevent payments to insurers from being made from any source other than collections under the risk corridor programs, which, as explained above, were inadequate to do the job.

A number of insurers actually sued the government recently, saying that since these protections were part of the ACA law, they must be paid. However, the federal judge involved recently found against the insurers, pending any further appeals.

Now, the new Congress must decide whether the government will live up to the promises made to insurers under the ACA law. Since the original law received exactly zero Republican votes when it passed in 2010, the chances of this happening under the new Republican Congress look questionable.

Most of the large, national carriers approached these markets with some caution, and actually have been reducing their exposure even further this year. United Healthcare, Aetna and others had limited their initial participation and reduced it even further this year. Ironically, the companies that made the largest commitments to the exchange markets, including many Blue Cross plans, are now sitting with egg or their faces due to their financial exposure.

For example, it is reported that Blue Cross and Blue Shield of Oklahoma is owed over $113 million by the government under these risk corridor programs. Blue Cross of Oklahoma is part of the Health Care Services Corporation, which also includes the Blue Cross carriers in Texas and Illinois. Together, these Blue Cross companies are owed around $1 billion in payments.

If these payments end of up not being made, or if they are delayed for a lengthy time period, this could cause long-term cash flow problems for those carriers that were most “on board” with the ACA law.

Robert K. McNett, LUTCF
The McNett Agency
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