House May Eliminate Risk Corridor in Debt Ceiling Deal?

iStock_000028142224SmallThe debt ceiling was suspended through February 7 under an agreement struck in October between Congressional Republicans and President Obama. Beyond February 7 U.S. Treasury will use accounting measures to ensure the U.S. remains under the debt ceiling.

For months President Obama has drawn a hard line saying he will not engage in legislative bargaining when it comes to increasing the U.S. borrowing authority. But, Congressional Republicans have been spending a lot of time lately developing ideas on how to leverage the debt limit increase and extract concessions from the White House. They may have an issue that will be an ultimate test.

Inside the Affordable Care Act provisions (Part V, Sections 1341-42) were included to make it less risky for health insurance companies to sell their plans on the new exchanges. In essence, the federal government stepped in and minimized the risk of insurance companies for the first three years of the law in order to give them time to see who, and more importantly how healthy the people are who are participating in the exchanges. The GOP sees these provisions as a bailout to prevent health insurance companies from losing too much money under the law.

Section 1341 creates a reinsurance fund that generates $20 billion ($10 bil in 2014, $6 bil in 2015 and $4 bil in 2016) from collections from health insurance issuers and self-insured health group plans using a national per-capita rate announced in an annual notice from the Department of Health and Human Services. This reinsurance fund is supposed to cover high-cost individuals in non-grandfathered plans.

Section 1342 establishes a temporary risk corridor for FY 2014-16. This provision would help avoid a so-called “death spiral” of low participation due to higher premium costs. Since insurers had no idea how people would respond to selling health policies on the new exchanges one way to mitigate this would be to charge higher premiums. But, higher premiums would prevent and limit participation rates. This provision reimburses insurance companies for claims that cost significantly more than premiums paid by new subscribers. When a person submits a health claim that exceeds premiums paid by more than 3 percent the insurance company may submit that amount and be reimbursed through the reinsurance program. For claims that exceed premiums paid between 3 to 8 percent, the federal government will reimburse half of the amount. For claims that exceed premiums by 8 percent, insurance companies will be reimbursed 80 percent.

The ACA’s success hinges on enrollment of at least 40 percent of healthy and young adults. To date, enrollment figures are not reaching their target and with the abysmal roll out most remain skeptical if it ever will reach its targeted enrollment. Moreover, the rules kept changing. Employer mandates were postponed, those with cancelled policies were exempted from individual mandates and health insurance companies were encouraged to cover doctors and drugs that may not have normally been included.

It is likely given American skepticism of the healthcare law and general disdain for bailouts that the GOP will have public opinion of their side. The GOP could be right about this, or as some observers are arguing they could be wrong. But one thing is certain, the politics of the issue is definitely to their advantage.

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Tim Cansler