The passage of the Affordable Care Act (ACA), popularly known as “Obamacare,” in 2010 was so contentious that we continue to see the ripple effects. The Republican-controlled U.S. House of Representatives has voted to repeal the law more than four dozen times. The Senate, also controlled by the GOP, has passed its own version of repeal. Legal challenges have made their way to the Supreme Court on several occasions, leading to three decisions that have affirmed or augmented the law. One of these, in National Federation of Independent Business v. Sebelius, arguably caused the most harm by depriving low-income individuals of access to Medicaid and creating a coverage gap in some states, with people who don’t qualify for Medicaid but can’t afford private coverage.
But so far, no one has succeeded in destabilizing the implementation of the law quite like Sen. Marco Rubio of Florida, a leading contender for the Republican presidential nomination.
How did he do it? By slipping a provision into the Consolidated and Further Continuing Appropriations Act of 2015. Rubio added the provision, which limits the federal government’s ability to cover expense overages for insurance companies during the initial rollout of the ACA, into the appropriations bill in 2013. It was accepted into law in December 2014 and intended to fund the government through September 2015. Because it was snuck in, no one could really anticipate how destabilizing the law would be until the end of 2015, when insurers began reporting on projected and actual losses for the year. In effect, any insurer, whether privately owned or part of a cooperative, will receive significantly reduced federal assistance to cover expenses during the first few years of insuring new policyholders through state exchanges.
While this may not seem like a big deal, consider this scenario: Imagine you are a parent trying to encourage your children to be independent. You agree to help cover budget deficits for them during their first two years of independent living. They need to learn how to be responsible, but you know some mistakes will be made. You want to ensure a learning curve, but you also want to insulate them from catastrophic failure.
At the end of the year, when accounts are being finalized and balances are being determined, your boss cuts your salary. You are now limited in your capacity to help your children. Meanwhile, they have bought household items, such as furniture, kitchenware, cookware, toiletries and a bed. These are big purchases and are outside your children’s budgets, but they are necessary and will have many years of utility. Yet you can no longer cover their deficits as planned.
This is essentially what Rubio has done to the federal government’s capacity to cover insurers’ overages.
Rubio and others in the GOP often insist that the government should not engage in crony capitalism by bailing out failing companies. However, that is not what the law is intended to do. Rather, it seeks to eliminate risk corridors — a provision to smooth out over time the intense initial utilization of health insurance by the previously uninsured — in favor of tax credits. After all, people lacking coverage for medical care will want to determine their health status, and medical providers will need to provide services to establish health baselines for future monitoring. When patients are stable, they use insurance less and are more likely to be healthier in proceeding years. Therefore, while costs may be high during the initial years of the health mandate, they should eventually fall as demand decreases.
It is impossible to talk about insurance without talking about moral hazard, the idea that people take greater risks if they are protected from the consequences of those risks. In his Web series “Health Triage,” Dr. Aaron Carroll recently argued, citing the Rand Corp.’s study on health utilization behaviors, that unhealthy people should be insulated from risks associated with accessing care because it encourages them to see the doctor more. By extension, risk corridors insulate insurers from risk associated with covering care services for those sick people. Rubio wants to remove that security.
While his actions may be controversial, the use of risk corridors is not. As the American Action Forum notes in its primer on risk corridors, “The ACA’s exchanges are not the first federal entitlement program to use risk-spreading mechanisms to protect participating health insurance issuers.” Medicare Part D, Medicaid Managed Care and Medicare Advantage programs, for example, have also benefited from government insulation of risk. Such practices acknowledge the inherent risk of providing a new service and the uncertainty that it brings.
The potential fallout from Rubio’s maneuver is significant. While the provision had the initial impact of preventing highly affected insurers from gaining federal relief (with funds collected from high-performing insurers), the program is now under threat. The latest $1.1 trillion omnibus spending bill, passed by the House of Representatives last week, contains legislation that would eliminate the program. Instead, Republicans in Congress are offering $12 billion in tax breaks to health insurance companies as a means of helping offset the costs that would then be incorporated into future premiums. The risk is that the economic relief will be spread across the entire insurer market, while the former program targeted those that were affected most. Furthermore, such a change carries a $10 billion increase in federal spending compared with the previous program, funded by future losses in tax revenue, whereas the original program was self-funded.
Smaller insurers that would contribute greater competition to the insurer market are leaving the exchanges, are decreasing their involvement or have folded. People with policies from these organizations are experiencing disruption in their coverage. The long-term stability and effectiveness of the ACA have been compromised because of a twisted variation of the populist rhetoric against companies considered too big to fail. The government had targeted mechanisms in place to help, but one presidential hopeful decided to play politics instead.