Invincibles weren’t the only folks courted during the 2014 HIX open-enrollment season. So were insurers. And in order to convince enough of the latter group to sell their products in public exchanges, so-called risk corridors were established through 2016 to make it worth their while.
Financial assistance is available to insurers if their HIX claims cost at least 3 percent more than their premium revenue and it would be funded with payments from insurers that earn a profit of 3 percent or more. The temporary program has been called everything from a “subsidy” and “safety valve for consumers and insurers” to a “taxpayer bailout.”
Risk corridors are one of three risk-management programs created under the Affordable Care Act aimed at protecting consumers by stabilizing premiums during the landmark law’s initial years of implementation. The other two involve reinsurance and risk adjustment, the latter guarding against adverse selection.
Humana expects to seek risk-corridor assistance, while WellPoint CEO Joseph Swedish indicated during a recent shareholder meeting that his company also could apply for such help. His comment came in response to a question raised by David Hogberg, a health care policy analyst for the National Center for Public Policy Research.
The Indianapolis Star reported that Hogberg later said in a prepared statement that the exchanges “are going to attract people who are generally older and less healthy, a population that, risk corridor or not, will lead to a death spiral.”
The program seems reasonable and an appropriate area for government involvement, says Henry J. Aaron, a senior fellow of economic studies with the Brookings Institution, who notes that it helps insurers make the transition to insuring a potentially sicker population. Helping lure more health insurers to the HIX marketplace also “could well promote additional competition, which is the name of the game here,” he adds.
Clare Krusing, a spokeswoman for America’s Health Insurance Plans, notes that similar premium-stabilization programs have been used in other government programs and are a permanent feature of the Medicare Part D program, which passed with bipartisan support.
“As the transition to the new marketplaces continues, the temporary premium protection programs are essential to holding down premiums and ensuring that consumers have affordable coverage choices,” she says.
It’s in the best interests of employers, particularly small businesses, for risk corridors to work as intended, observes Larry McNeely, policy director for the National Coalition on Health Care in Washington, D.C. His point is that helping stabilize the rates of public exchanges would provide their employees with another viable option for obtaining health insurance if they choose that avenue. “If you end up having a market collapse with all the sick people on one single plan and all the healthier in another, we know how that movie ends,” he says.
Still, questions remain about risk corridors. In a recent blog, Scott Harrington, Ph.D., a health care professor at the University of Pennsylvania’s Wharton School, wrote that “regardless of HHS assurances and CBO projections, the potential magnitude of risk corridor receipts and payments and the effects on particular insurers and markets is highly uncertain.”
“The substantial uncertainty facing insurers participating in the exchanges in 2014 has only been partially resolved as they develop rates for 2015,” he continued. “There remains a real possibility that promised risk corridor payments could significantly exceed receipts for 2014 or later. If so, payment reductions could be problematic for some insurers, especially for smaller companies and/or new entrants.”
Shutan is a Los Angeles freelance writer.
This story first appeared at HIX.
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