Risk Corridors: Update
The ACA’s premium stabilization programs encourage insurers to participate in exchanges by eliminating unpredictability around new enrollees.
What’s the Issue?
The risk corridor program created by the Affordable Care Act (ACA) has proven to be one of the most controversial aspects of the health care law. Questions have been raised about the source of payments, whether the Department of Health and Human Services (HHS) has the authority to make payments under the program, and whether the program is required to be budget neutral.
In response to questions from the Government Accountability Office (GAO) on its budget authority for risk corridor payments, HHS cited section 1342 of the ACA, which establishes the risk corridor program and requires HHS to collect payments from and make payments to certain qualified health plans. HHS says that the fees collected and the payments made under the risk corridor program are consistent with the definition of user fees.
The fiscal year 2014 appropriation gives the Centers for Medicare and Medicaid Services (CMS) the authority to collect user fees and keep the fees available for use through the 2019 fiscal year. HHS states that this appropriation along with section 1342 gives CMS the authority to collect and distribute risk corridor payments. In an opinion issued September 2014, the GAO agreed that payments collected under the risk corridor program are “properly characterized as user fees.”
In addition, the GAO found that HHS has the authority to use its regular operating funds to finance risk corridor payments should the amounts received under the program be less than the payments required to be made to insurers. This authority was granted under the Program Management Appropriation for fiscal year 2014 that allows transfers of money from the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund necessary to carry out the responsibilities of CMS.
The first risk corridor payments are not due until the 2015 fiscal year, however, so similar language was required in the 2015 appropriation bill. While the Consolidated and Further Continuing Appropriations Act of 2015, which funded the government for the 2015 fiscal year, did give HHS the authority to collect user fees, an amendment was included that specifically prohibited HHS from transferring money from either trust fund. The amendment did not eliminate the risk corridor program, nor did it prevent HHS from using payments received from insurers to pay out claims under the program (that is, user fees), but it effectively made the risk corridor program budget neutral unless HHS can find another source of funding. As a result, insurers expecting payments from HHS may not receive the full amount due.
HHS has maintained that it expects risk corridors to be budget neutral over the three-year life of the program, even as it has made changes that are expected to increase the expense of the program. But, changes to the reinsurance program will offset some of that increase. How much is unknown. In the latest proposed rule on benefit and payment parameters for 2016, HHS describes a process for adjusting the program should it take in more money under risk corridors than it pays out. HHS also reiterated that should the program fall short on collections needed to make payments, it will use other sources of funding subject to availability of appropriations.
It remains to be seen whether HHS has something in mind should this occur. If risk corridor claims exceed receivables and HHS does not find an alternative source of funding, it seems likely it will revert to its earlier proposal to prioritize paying off shortfalls from previous years before making new payments. If the shortfalls were great enough, this could effectively eliminate payments to insurers for the final two years of the program. Shortfalls to the risk corridor program could have an effect on insurers’ ability to set premiums. Insurers must factor into their rates the possibility that the risk corridor payments may not be fully made in a given year.
Legislation has once again been introduced in both the House (Rep. Andy Harris, R-MD) and the Senate (Sen. Marco Rubio, R-FL) to eliminate the risk corridor program. With a Republican-controlled Congress, these bills have a better chance of passing out of Congress than they did in the previous year. The amendment to the appropriations bill is for fiscal year 2015. HHS will need to make payments under the risk corridor program in fiscal years 2016 and 2017 as well. Congress could include similar language in those appropriations bills that limit HHS’ ability to use other sources of funds or use those vehicles to eliminate risk corridors completely.
Finally, the upcoming Supreme Court decision in King v. Burwell on whether premium subsidies are available in all Marketplaces has implications for risk corridors. If the Court finds for the plaintiff and rules that the ACA only provides premium assistance to those purchasing plans in state-based Marketplaces, many people may be forced to drop their health plans.
A recent paper by researchers at the Urban Institute estimates that eliminating subsidies for plans purchased on the federal Marketplace would result in 9.3 million people losing premium assistance and 8.2 million becoming uninsured. It is likely that those who remain insured after losing premium assistance will be older and less healthy than those who drop coverage. If premium assistance was eliminated before insurers could set new premiums, the existing premiums will likely be inadequate. In theory, risk corridors could compensate for that scenario, but the money required will likely be insufficient.