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Ponnuru: Stop health care act’s bailout of insurers

Published: Wednesday, Jan. 22, 2014 11:28 p.m. CDT

President Obama’s health care overhaul looks extremely unlikely to hit the goal set for it in October: enrolling “at least” 7 million people in exchanges by April. So the administration is redefining success as mere survival for the program.

The Patient Protection and Affordable Care Act has already achieved “preliminary sustainability,” an official recently told the National Journal. And what’s making the program sustainable? The prospect of a massive taxpayer bailout.

The bailout would come from the law’s “risk corridor” provisions. If insurers pay out more than 108 percent of the premiums they collect from customers in Obamacare’s exchanges, taxpayers are on the hook for about 75 percent of the extra cost. If the insurers make profits that are more than 108 percent of their collections, they have to pay back a similar proportion.

Risk corridors, if they’re limited, can serve a useful function. The Medicare prescription-drug benefit that Republicans enacted during George W. Bush’s administration has its own version of them that works well. Under Obamacare, they could spread the risk among participating insurers. Companies that wind up with relatively healthy populations of customers would subsidize those with relatively sick ones, helping stabilize the system. The Congressional Budget Office, when it last estimated the costs of the Affordable Care Act, assumed that payments to and from insurers would balance and the risk corridors wouldn’t cost taxpayers anything.

We’re looking at a different scenario now. Health insurer Humana Inc. recently warned that enrollees in the exchanges will probably be sicker than anticipated. So few if any insurers will be in surplus, and many will be seeking help. In other words, the exchanges as a whole will be unbalanced and in need of a taxpayer bailout. The CBO hasn’t estimated how much the risk corridors will cost if participants in the exchanges are especially unhealthy.

Jonathan Cohn, a defender of Obamacare and the risk corridors, notes that the payouts “have no actual limit.” But payouts to insurers wouldn’t be a bailout, Cohn writes, because the insurers haven’t made “egregiously irresponsible actions.”

What they did was make business plans that included supporting Obamacare and participating in it. Those business plans, like any other, depended on certain assumptions – in this case, that the program would work well. When the assumptions behind a company’s plans turn out to be wrong, and the federal government protects the company from the losses that would normally result, it’s reasonable to call that a bailout – and to object. Taxpayers, after all, took no irresponsible actions.

Another assumption the insurers made was that a bailout would be politically sustainable. That assumption will also be tested. Obamacare has always depended, both operationally and politically, on an alliance between the administration and insurance companies. But that alliance is vulnerable. The most controversial element of Obamacare to date – the coercive measures it includes to get people to buy insurance – is only there to protect the insurance companies’ viability. A bailout could be just as unpopular a sop to the insurers.

Sen. Marco Rubio, R-Fla., has introduced a bill to repeal the risk-corridors provision. Its passage would be preferable to a bailout, but it would make more sense to eliminate taxpayer exposure altogether. Let companies in the exchanges subsidize each other, and leave the rest of us out of it.

Insurers already are screaming about Rubio’s proposal, desperate to keep Obamacare’s subsidies even as they ask for relief from its regulations. If Rubio’s bill or something like it passes, they would have to raise premiums and thus make their plans even more unattractive than they already are – or just withdraw from the exchanges. Obamacare would, in other words, become even less likely to succeed than it already is.

If a bill to eliminate the risk corridors comes to a vote, many congressional Democrats will decide that the success of their cherished health care program is worth a bailout.

But then they will face a choice: Do they really want to stand for an open-ended commitment of tax dollars to insurance companies? Is that what the party now favors? Is that what swing-state senators and swing-district representatives wish to defend?

Conservatives, who almost all believe that Obamacare is a very bad law that can’t be made to work tolerably through mere tinkering, have every reason to fight a bailout. Campaigning against one will undermine the alliance between the White House and insurers by raising its price for both parties. Let’s find out just how much “sustainability” that alliance has.

• Ramesh Ponnuru is a Bloomberg View columnist, a visiting fellow at the American Enterprise Institute and a senior editor at National Review.

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