Massive shortfall in government payouts to insurance companies promises big premium increases
The government program to reimburse insurance companies with big losses as a result of signing up too many old and sick customers is massively short of funds and could cause some companies to either go under or get out of the Obamacare exchanges.
The so-called "risk corridors" that forced profitable companies to pay into a fund that would be disbursed to companies who lost money is underfunded by 88% and will almost certainly lead to big changes in premiums and consumer choice on the exchanges.
Obamacare insurers requested about $2.9 billion in risk corridor payments for the 2014 calendar year, but they only received $362 million, a mere 12 percent of what they asked for. The shortfall happened because insurers requested more than what was paid into the program.
The result has been devastating for some insurers. WinHealth, which provides coverage in Wyoming, went into receivership last week because of a low risk corridor payment.
It will suspend insurance sales in 2016, leaving about 8,200 residents to search for a new plan from the sole remaining insurer in the Obamacare marketplace.
In addition, nine taxpayer-funded insurance co-ops have closed recently, with some blaming the low payments.
The shortfall hit small insurers that don't have enough reserves to cover them, said Deep Bannerjee, director of ratings at credit ratings agency Standard & Poor's.
Bannerjee didn't give an exact number on how many insurers could fall but said the "shakeup will continue."
Instead of shutting down, insurers most likely will react to the shortfall through raising premiums since they can't count on the risk corridor money, he said. They also could shift their plans away from offering a more open network to a narrow network such as an HMO.
The dramatic shortfall happened partly because the rules of the game changed for insurers, Bannerjee said.
The program is supposed to pay insurers for 2014, 2015 and 2016. The most recent payments were for the 2014 calendar year.
Insurers set their rates for the 2014 year in late 2013, believing they could charge lower premiums because they thought they would get the risk corridor money
However, the program experienced an unexpected change.
In late 2014, the "cromnibus" spending package that funded the federal government included a provision from Republicans making the risk corridor program revenue neutral. That meant the program could only pay out what it took in, which slashed the expected payments.
Republicans were essentially calling the Obama administration's bluff, as officials ensured Congress the program would be revenue neutral.
Nothing about Obamacare has delivered as promised, except perhaps the element the government can least afford to be successful: Medicaid expansion. An already hugely dysfunctional program has been swamped by 13 million new enrollees. New recipients are being forced to travel for hours to find a doctor willing to treat new Medicaid patients. Consequently it is very difficult trying to make an appointment for routine examinations.
Of course, this is all the GOP's fault for opposing single-payer national health insurance in the first place. And that will be the "solution" offered by the Democrats when Obamacare is threatened by collapse due to its internal inconsistencies and inept administration.