Report: Risk corridor woes likely to continue
U.S. health insurers, which recently learned that the federal government's risk corridor program would only pay out a small fraction of what it owed them, aren't likely to see the situation improve anytime soon, according to a new report from Standard & Poor's.
"We estimate that that the 2015 [Affordable Care Act] risk corridor will be significantly underfunded, as was the case the previous year," S&P analyst Deep Banerjee writes in the report, which was released Thursday. The government announced in early October that its 2014 payments to insurers would only total $362 million, though they were owed $2.87 billion.
The ACA's "three Rs"--risk corridors, risk adjustment and reinsurance--are meant to stabilize premiums by lessening the risk of operating in the individual markets, though some have characterized them as bailouts to insurers. S&P itself has been critical of the risk corridor program, with a previous report noting that it actually ultimately increases uncertainty in the market.
The latest report reiterates these concerns, noting that while larger insurers will likely feel only a small "pinch" from the program's shortfall, it has already proved a fatal blow to some smaller insurers. For example, Kentucky Health Cooperative blamed its decision to close in part on the risk corridor program shortfall, and Health Republic Insurance, which will cease offering plans on Oregon's exchange, said it would take a hit of more than $20 million.
But CO-OPs aren't the only insurers at risk, as the report says if the three Rs don't function properly, premium costs will be more inconsistent and insurance companies will experience a more volatile operating performance as well as potential capital strain.
S&P traces the risk corridor troubles to two main causes: An after-the-fact rule change that did not require the program to be net neural, and "a cocktail of blind pricing and aggressive pricing in the individual exchange marketplace."
To make up some of the underfunding, the report suggests the Centers for Medicare & Medicaid Services could look to the reinsurance program's $1 billion surplus. Yet it also says that appropriations may be the only way to fully fund the risk corridor deficits.
To learn more:
- here's the report
Some insurers will take hit from risk corridor program shortfall
Risk corridor program shortfall hurts more than just CO-OPs
Risk corridor program may hurt insurers, cause market uncertainty
ACA debate: Risk corridors, reinsurance, risk adjustment on the table
Struggling CO-OPs, small insurers form coalition to push for change