Republican Senator Marco Rubio of Florida introduced a bill on Nov. 19 that represents a potentially crippling line of attack against the Affordable Care Act. Republicans first tried to repeal the law outright. That failed. Then earlier this month came bills from Republicans and Democrats to allow people whose insurance plans were canceled to extend them. Doing this would keep an important group of mostly healthy people from participating in the federal exchanges, driving up costs. These bills are in limbo. President Obama’s own proposed fix—allowing insurers to extend canceled plans—could have a similar effect.
Rubio’s bill takes a new approach, seeking to abolish “risk corridors,” one of several mechanisms in the law meant to hold down premium costs and entice insurers to participate in the exchanges, by protecting them from big losses if they draw a costlier applicant pool than anticipated. Risk corridors function a lot like Major League Baseball profit-sharing: Insurers who wind up with an unexpected number of healthy applicants and lower costs will “pay in” money to the government, which in turn will “pay out” to insurers with costlier applicants, thereby stabilizing the nascent market.
When Obamacare was being written, the winners and losers were expected to balance out, making the risk corridors budget-neutral. But if too many insurers lose money, the text of the law (in Section 1342, for those following at home) makes clear that the government will step in with additional funds to pay companies whose costs end up being significantly higher than anticipated. This is what Rubio is seizing on in his new bill: He’s calling the potential payment a “bailout” and trying to stop it. The senator declined to comment.
There’s some validity to the scenario Rubio is warning about, though no one can yet say whether it will happen—or, if it does, what the cost might be to taxpayers. Obama’s decision to allow people in the individual market to keep their plans increases the likelihood of higher costs. In a Nov. 14 letter to Congress, the American Academy of Actuaries warned that if “lower-cost individuals retain their prior coverage, and higher-cost people move to new coverage, the medical costs for those purchasing new insurance would be higher than expected.” This would create a set of conditions “more likely to trigger risk corridor payments.”
If Rubio were truly motivated by concern that taxpayers might end up footing a “bailout,” there would be an easy solution: write a bill stipulating that risk corridors must be budget-neutral. Presto, problem solved. But Rubio’s bill is far more sweeping than that—it eliminates risk corridors by striking Section 1342 from the law. This is a clue that his real motivation isn’t to eliminate the possibility of a payout but to topple the Affordable Care Act altogether. “The insurers who signed up for the exchange did so with the understanding that their risk was limited,” says Timothy Jost, a health-care expert at the Washington and Lee University School of Law. “So repealing those risk corridors is basically breaking a contract with the insurers that, if they would come into this program, there’d be some limit to their risk exposure.”
Jost says eliminating risk corridors could set off a chain reaction that would undermine the law. Some insurers might drop out or decline to participate in the exchanges. Others might run into solvency issues or start charging a risk premium. The actuaries who set rates would then jack up premiums for 2015. This could lead to the death spiral of rising costs and declining participation that the law’s supporters worry about. “Basically, it’s a way of killing the exchanges,” Jost says.
Rubio’s bill won’t get far in the Democratic-controlled Senate. But Republicans are sure to embrace it, given the political potency of the “bailout” label. If the healthcare.gov website continues to falter and only the most desperate applicants persevere, insurers facing higher costs would put the government on the hook for a sizable payout. At that point, some Democrats might decide to support the bill.
Even if none of that comes to pass, Rubio’s efforts won’t be in vain. As he gets set for a possible presidential run, Rubio has looked for ways to improve his standing with conservatives upset by his support for comprehensive immigration reform. The bill could at least help accomplish that.