Obamacare's Bailouts May Be Extended



According to the text of Obamacare, the health law's risk corridors—the insurance industry backstop that's been dubbed a bailout—are only supposed to last through 2016. For the first three years of the exchanges, insurers who spend 3 percent more on health costs than expected will be reimbursed by the federal government. It's symmetrical, so insurers who spend less will pay in, but there's no requirement that the program be revenue neutral. After 2016, the program is scheduled to sunset, leaving insurers fully on the hook for any losses they might incur within the exchanges.

But now the Obama administration appears to be considering an extension of the provision beyond 2016, according to The Washington Examiner's Susan Ferrechio:

The Obama Administration may extend beyond 2016 a federal reimbursement program for health insurance companies that lose money by participating in the newly created health care exchanges.

Industry insiders told the Washington Examiner a plan to extend the Affordable Care Act's "risk corridors" are under discussion, but that administration officials have not made a final decision.

Obamacare's supporters have argued that the risk corridor program is supposed to aid in the transition to the new insurance markets. This suggests that the administration now believes that the transition is going to be longer and more difficult than expected. And, in combination with the insurance industry lobbying efforts to uphold the provision, it suggests that insurers believe they are likely to rely heavily on the program to mitigate potential losses.

Finally, as Bloomberg View's Megan McArdle* notes, it's hard to see how this would be legal. The text of the last says that "the Secretary shall establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016 under which a qualified health plan offered in the individual or small group market shall participate in a payment adjustment system based on the ratio of the allowable costs of the plan to the plan's aggregate premiums." I'm not a lawyer, but that doesn't seem to allow a lot of wiggle room to extend the program for a few more years.

Granted, when it comes to implementing Obamacare, the administration does not seem overly concerned with the legal particulars. If this tweak is being considered, it's because the administration and insurers believe it's necessary to make the law work beyond 2016. Which suggests that the law could be in trouble for years to come. 

*I am married to this person.