Congress Must Stop the Flow of Corporate Welfare to Insurers

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This could be a very merry Christmas for Blue Cross and Blue Shield (BCBS) of Texas.  The Obama administration wants to stuff its stocking with $257,172,917.34 – at your expense – to compensate the company for losing scads of money last year selling Obamacare policies in the Lone Star State.

That would bring that single company’s total corporate welfare haul for the 2014 plan year to $843.3 million.  

That is, unless Congress decides this week to play the Grinch that stole the corporate welfare Christmas.

Everyone knows Obamacare subsidizes low-income individuals, but few are aware it also subsidizes big insurance companies. Corporate welfare payments to insurers under the risk corridor and reinsurance programs (both of which are slated to expire in 2017) amounted to $10.4 billion for the 2014 benefit year. That’s less than the $18.5 billion Washington spent on premium and cost-sharing subsidies for low-income people, but hardly chump change.

The administration already has distributed nearly $8 billion in payments to insurance companies, but Congress has so far blocked it from spending the remaining $2.5 billion. 

Insurers are hoping to collect the remaining sum through the so-called “risk corridor” program, which requires companies that reap “excess” profits selling ACA-compliant Obamacare policies both on and off the exchanges to hand some of their gains over to the government. The government then gives that money to firms that suffered “excess” losses.

In theory, no taxpayer money should be needed: The government simply takes money from successful insurance companies and gives it to unsuccessful ones. But in Obamacare’s first year, “excess” losses outpaced “excess” gains by $2.5 billion. The White House wants taxpayers to make up the difference. 

Congress balked, stipulating last year in an omnibus spending bill that risk corridor payments could not exceed receipts. That restriction expires on Friday.

The administration and industry lobbyists are demanding that Congress provide the money, either in the annual spending bill or through a bill to extend corporate tax breaks. Both measures are scheduled to be considered this week.

Should Congress relent, BCBS of Texas will collect around ten percent of the $2.5 billion. Leading recipients of the remaining 90 percent include Humana ($213 million), BCBS Illinois ($172 million) and Coventry ($101 million).

Supporters of risk corridor payments note that the Medicare prescription drug program (Part D) also uses risk corridors. But unlike Obamacare, profitable insurers in the Part D program have paid the government more than unprofitable ones received every year. Part D risk corridors have thereby reduced the deficit.  Indeed, in the first year of the drug program (2006), the government collected nearly $2.6 billion more through the risk corridor program than it paid out – the exact opposite of what happened in Obamacare, where payments eclipsed receipts by $2.5 billion.

This $5 billion disparity is especially perplexing, since the plans that sold the most prescription drug policies ended up returning the most “excess” profits to the government. In Obamacare, the opposite appears to be happening, with some insurers that boast the largest enrollments reporting the biggest losses.

These losses are occurring despite a second corporate welfare program that lavished $7.9 billion on insurers selling ACA-compliant product. This inaptly-named “reinsurance” program was capitalized by nearly $10 billion in assessments, mostly falling on those who get coverage through their jobs.  For the 2014 plan year, your employer was required to give the government $63 for each enrollee covered under its group health plan ($252 for a family of four).

The government used this money, not for your family’s medical expenses, but to subsidize insurance companies that sold Obamacare policies to other people.  BCBS of Texas netted $549 million, roughly the same amount as Humana. Both were surpassed by Anthem ($586 million), with Kaiser pocketing $300 million.  The puzzlement is how, even after receiving these generous helpings of corporate welfare, two of these corporations – BCBS of Texas and Humana – are among the scores of companies that ran substantial losses for which they are now demanding risk corridor bailout money. 

Many insurance companies are bleeding money on their Obamacare products. The administration wants to make their losses your problem, declaring them an “obligation of the United States government for which full payment is required.”  They insist that you are legally bound to bail out some very big corporations that made some very bad business decisions.

Congress last year quashed these corporate welfare payments. This week they will decide whether to capitulate to the White House and let the bailout money flow. Congress should stand firm, even if it means a less than merry Christmas for the insurance industry.

TECHNICAL NOTE: I compiled the figures on reinsurance and risk corridor payments from CMS reports, issued in June 2015 and November 2015 respectively. To compute the amount an issuer would receive were Congress not to renew the budget neutrality requirement, I subtracted the pro rata risk corridor payment the entity was paid from the total amount CMS believes the government is obligated to remit. Total corporate welfare is the 2014 benefit year is the sum of payments to an entity for risk reinsurance and risk corridors. For corporate organizations that have multiple issuers (e.g., Aetna and Anthem), I summed the amounts for each issuer in that parent organization. Using that methodology, I computed total reinsurance payments the parent organization has received and the amount such organization would expect if the budget neutrality requirement on risk corridors were to lapse.

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