U.S. Sen. Marco Rubio, R-Fla., attracts attention in the latest Bloomberg Businessweek for his plan to “unravel Obamacare.”
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.
