An Obamacare “Risk” Question for Insurers
As insurers submit bids for the 2015 open-enrollment season, media reports have trumpeted increased participation by carriers on several health exchanges. Depending on the legal and judicial interpretations of two important issues, those insurance companies may end up getting much more than they bargained for.
The first issue involves the temporary “risk corridor” provision in Obamacare, under which plans with enrollees who are healthier than average pay into a pool that subsidizes plans whose enrollees are unhealthier than average. This was designed to provide stability for the first three years of the exchanges–2014 through 2016–as insurers became accustomed to a new marketplace.
While some conservatives have focused on whether the risk corridors would be implemented in a budget-neutral manner and whether the program represents a “bailout” for insurers, a more fundamental question is: Does the Obama administration have the authority to implement this provision? A January memo from the Congressional Research Service raises doubts.
The memo and manuals of appropriations law published by the Government Accountability Office provide the minute background, but the basic premise is simple: To spend money, Congress must pass legislation authorizing the executive to do X action and then also appropriate Y dollars for that purpose. But Section 1342 of Obamacare, which directed the Department of Health and Human Services to establish risk corridors, included no language appropriating funds for the program. (See Pages 108-109 here for the legislative language.) Because both conditions necessary to appropriate funds were not met, the risk corridors appear to exist in, at best, a legally murky area.
A range of legal, judicial, administrative and political outcomes are possible. It’s worth asking whether insurers have taken the absence of legal authority into account when deciding whether to plunge into exchanges for 2015. Because it’s possible that some insurers could face medical claims from enrollees who are sicker than expected yet not have the backstop they expected when submitting their rates.
This post was originally published at the Wall Street Journal Think Tank blog.