David Hogberg says “the death spiral is still coming” despite assurances from Paul Krugman and Rachel Maddow that they aren’t and never were.
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It’s understandable that insurers would feel far less pressure to increase their rates if most of their losses were covered. What will happen after three years, when the risk corridor program ends, is unclear and should be of more concern. Presumably, Obamacare proponents apparently believe that after three years, insurers will figure out how to make a profit (or at least break even) on the exchanges. How this is supposed to happen wasn’t entirely clear, as the mix of people in the risk pools probably wouldn’t be that much different in 2017 as it was in 2014.
The risk corridor, though, was never popular with the public, being dubbed an “insurance company bailout.” In late 2014, Republicans put a provision in the budget bill known as “Cromnibus” that required the risk corridors to be “revenue neutral,” meaning insurers that lose money on the exchanges can only have their losses offset with money from insurers who make a profit. Insurers would no longer have access to taxpayer money.
Short version: The risk corridors were meant as a temporary bridge to keep insurers above water during the three-year adjustment period of getting people buying on the exchanges. Without taxpayer money however, then the mix of mandate-customers must improve for there to be enough profits for the exchanges to become (mostly) self-financing. But as we learned last week:
Moreover, significant rate increases are what I would broadly expect, because these rates are the first ones set with a full year of claims data, and what we know about the pool is that it is poorer and older — which would also mean sicker — than was projected. Initially, HHS was saying that it needed about 40 percent of the exchange policies to be purchased by people age 18-35 to keep the exchanges financially stable. It was 28 percent in both 2014 and 2015, according to HHS data. The CBO had projected about 85 percent of exchange enrollees to be subsidized, falling toward 80 percent as enrollment grew; instead, that number is 87 percent and actually rose slightly from 2014. It would be pretty surprising if rates weren’t increasing faster than inflation, or even than general health care cost inflation.
As things look now, the coming years will either see big rates hikes, or yet another political “solution” involving your tax dollars.
Care to wager which way Washington goes?
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