But what about next year?

Congress Gets Its Hands on Insurer Incentives

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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The Government Accounting Office says that the Barack Obama administration's subsidy system for money-losing health insurers is legal -- for now. But depending on what Congress does with 2015 appropriations, it might not be legal next year.

For those who are confused, a little background. The Affordable Care Act includes several reinsurance programs that were supposed to help insurers mitigate the risk of mispricing their policies as they ventured into the strange new world of selling insurance on the government exchanges. The administration is leaning hard on these programs to keep insurers in the game, allowing payments out to be higher than payments in, and otherwise substantially reducing the potential losses that insurers can experience when selling exchange policies. Critics have charged that they are doing this to keep policy prices artificially low for the remainder of Obama's term (these provisions expire in 2017).

The GAO just issued a new decision on the legality of these payments, in response to a query from Senator Jeff Sessions and Representative Fred Upton. The GAO responded that the payments are indeed legal, but for them to be legal again in 2015, the appropriations language for 2015 would have to be similar to this year's language. In other words, the administration needs annual permission from Congress, in the form of appropriations; it can't just disburse the money based on the Affordable Care Act.

What does this mean? Well, if Republicans take control of the Senate, it theoretically means that they could effectively choke off the risk-corridor payments to insurers simply by refusing to appropriate money for them.

And what does that mean? Well, it depends on how much insurers are relying on the risk-mitigation mechanisms in setting their pricing. If that's a small overall factor, and most of them are making money on the policies they sell, then it won't make much difference. However, if the risk mitigation is enabling them to sell policies below their expected cost -- or perhaps preventing them from bailing on the exchanges entirely -- then this could be disastrous for the exchanges.

However, before we worry about that, we need to know whether this is even likely to happen. While this theoretically gives Congress the authority to strip the risk-mitigation programs of their funding, there's a heck of a gap between theory and practice. For starters, the GAO is not some legally binding authority that can force the administration to stop doing something it very much wants to do. Congress will have to fight the administration over this -- and while the GAO report gives it ammunition for that fight, it does not guarantee it will win.

And does Congress actually want to go into battle? The conflict would be difficult to win cleanly, because no one in the general public has ever heard of a risk corridor, and frankly, they don't want to start now. I'm sure there are a lot of Republicans in the House, and even a few in the Senate, who are itching for the opportunity. That doesn't mean their colleagues, or their leadership, will be ready to charge into the fray with them.

Don't get me wrong: This is an important decision. But while it may ultimately affect how much the administration can sweeten the deal for insurers, it is only the beginning of that process, not the end.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net