The big health insurance companies played a high-stakes double game throughout the 2009 health care fight, funding attacks on the so-called public option – an explicitly government-run competitor – while otherwise supporting the central elements of the bill that ultimately passed: vast taxpayer-funded subsidies flowing to their potential customers and a mandate requiring every American to buy their products. Yet the law is becoming such a disaster that the insurers stand to take losses in the new exchanges – losses that will largely be passed on to taxpayers under a provision called Risk Corridors.
Risk Corridors are a de facto bailout built into the structure of the law. As written and originally explained the provision would have smoothed out pricing risk by taking funds from insurers who made excess profits and transferring them to insurers who take losses. This was supposed to prevent companies from marketing specifically to healthier segments of the population and instead give them an incentive to simply enroll as many people as possible.
But with the exchanges overall failing to attract enough healthy people, nearly every insurer is now expected to be in a loss position on their exchange plans, making the Risk Corridors a transfer not between companies but instead a direct pipeline of tax dollars from the U.S. Treasury to the coffers of insurers. As if the law’s massive subsidized and mandated demand weren’t enough.
Moody’s recently downgraded the insurance companies to a negative outlook, citing “the ongoing unstable and evolving environment” and “new regulations and announcements that impose operational changes well after product and pricing decisions.” For all the vast subsidies and the mandate, they predicted just one percent more Americans to be on the rolls of the insurance companies in 2014 – which is down from three percent growth in 2013.
One source of uncertainty might be efforts well underway by Rep. Tim Griffin of Arkansas and Sen. Marco Rubio of Florida to repeal the Risk Corridors program.
Griffin and Rubio correctly reason that it’s wrong to force taxpayers to foot the bill for an open-ended bailout on top of the vast subsidies already flowing under the law. If insurance companies can’t make money selling exchange plans even with the mandate and subsidies, then they shouldn’t choose to participate.
Phil Kerpen is president of American Commitment, a columnist on Fox News Opinion, chairman of the Internet Freedom Coalition, and author of the 2011 book Democracy Denied.
American Commitment is dedicated to restoring and protecting America’s core commitment to free markets, economic growth, Constitutionally-limited government, property rights, and individual freedom.
Washingtonian magazine named Mr. Kerpen to their "Guest List" in 2008 and The Hill newspaper named Mr. Kerpen a "Top Grassroots Lobbyist" in 2011.
Mr. Kerpen's op-eds have run in newspapers across the country and he is a frequent radio and television commentator on economic growth issues.
Prior to joining American Commitment, Mr. Kerpen served as vice president for policy at Americans for Prosperity. Mr. Kerpen has also previously worked as an analyst and researcher for the Free Enterprise Fund, the Club for Growth, and the Cato Institute.
A native of Brooklyn, N.Y., Mr. Kerpen currently resides in Washington, D.C. with his wife Joanna and their daughter Lilly.