The Slush Fund
How Obamacare pays off insurers.
Enter the Three Rs. This spring the administration finalized adjustments to two of the programs—reinsurance and risk corridors—to funnel more money to insurers. Put simply, the administration lowered the threshold at which insurers become eligible for reinsurance money, and it made more generous the formula by which insurers get paid under the risk corridors. Hans Leida, an actuary for the independent consulting firm Milliman, writes that the administration’s
Seth Chandler, a University of Houston law professor with a background in insurance law, writes, “It’s an extremely sneaky way of sending money to the insurance industry, resting, as it does, on arcane manipulations of mathematical formulae. And I have serious doubts that the changes are authorized by Congress.”
These changes are estimated to cost taxpayers a princely sum—$8 billion, according to the CBO. Whereas the risk corridors were once projected to generate $8 billion in revenue for the government, they are now projected to be budget-neutral. But money is fungible, and that revenue was being used to help offset the cost of Obamacare. This means that, effectively, the insurers have received an $8 billion tax break for which the general taxpayer will now be on
Considering how vehemently the administration has attacked the “greed” of insurers, it is astonishing that it has made Uncle Sam responsible for their bottom lines. Moreover, these changes were made for purely political reasons. The people whose plans were grandfathered received only a temporary reprieve to avert a short-term public-relations nightmare for the administration. That is a poor use of $8 billion of the public’s money.
What’s more, that sum could rise. What happens if insurers try to collect more money than is available through the risk corridor fund? Last year, the CBO answered that the American taxpayer would be on the hook:
The relevant authorities seem to agree that Obamacare contains no statutory requirement that the risk corridor program be budget-neutral. In a Federal Register entry dated March 11, 2013, the Department of Health and Human Services (HHS) stated, “The risk corridors program is not statutorily required to be budget neutral.” In a letter to HHS in mid-April, Barbara W. Klever of the American Academy of Actuaries wrote: “Although the parameters of the risk corridor design are symmetrical, the design does not guarantee budget neutrality.”
But there is disagreement about whether the administration has the legal authority to pay extra money to insurers (or even to pay insurers at all under the program) in the absence of a congressional appropriation. In a memorandum dated January 23, 2014, the nonpartisan Congressional Research Service (CRS) wrote that federal agencies are prohibited “from making payments in the absence of a valid appropriation,” and it wrote that the risk corridor language in Obama-care “would not appear to constitute an appropriation.” The CRS added that federal agencies “may not create a revolving fund absent specific authorizing legislation,” and “there does not appear to be sufficient statutory language to create a revolving fund.”
HHS asserts otherwise: “Regardless of the balance of payments and receipts, HHS will remit payments as required under . . . the Affordable Care Act”—with or without Congress.
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