Feds owe health insurers $12.3 billion in unpaid risk-corridor payments

The federal government now owes insurers a total of $12.3 billion under the Affordable Care Act (ACA)’s risk corridor program, according to CMS data released last week.

The three-year program, which was designed to encourage insurers to participate in the individual insurance exchanges by protecting them against extreme losses, ended in 2016. Insurers whose costs were below a set amount paid into the program, and those funds were then redistributed to insurers whose costs exceeded a set amount.

The Republican-led Congress effectively torpedoed the program in December 2014 with an appropriations bill that blocked any extra payments for the program beyond the “user fees” collected from profitable insurers.

Not enough funds were collected after the end of the first benefit year from insurers who performed well to pay those who fared poorly, resulting in a deficit of approximately $2.5 billion. Another shortfall for the 2015 benefit year increased the deficit by $5.8 billion, and the latest data show that insurers are due approximately $4 billion for the 2016 benefit year.

The $95 million collected through the program for the 2015 benefit year was used to pay down the original deficit from 2014, and the anticipated payment toward the original deficit from the 2016 benefit year is $25 million.

Our Take: We cannot overestimate the damage that the 2014 appropriations bill has done to insurance markets—and to consumers—across the country. Insurers were promised this money through the ACA as means to encourage participation on the exchanges. When Congress reneged on its promise, payers balked and headed for the exits. Lacking competition, premium price increases ensued. If there was a single event we could point to if the ACA fails, it would be the 2014 bill.

One might rightly point out that premium increases were inevitable because premiums were underpriced to begin with, which is why some payers—not all—lost money in certain markets. But it is hard to argue that premium price increases would be as steep in the face of stiff competition among health insurance plans.

If Congress really wants to fix Obamacare, they should start by making good on these past-due risk corridor payments, which just might invite some payers back to the exchanges.