Hearing Description:
The House Oversight and Government Reform Committee recently met to examine the risk corridor and reinsurance programs that will cover losses for health insurers. There is a concern that the competitive marketplaces will lead to massive amounts of taxpayer money to subsidize insurer losses.
Hearing Date: February 5th, 2014
Hearing Summary: Prepared for AAPS by the Market Institute
The Oversight and Government Reform Committee recently met to examine how insurance companies will benefit from the Affordable Care Act. Chairman Darrell Issa (R-CA) said in his opening statement they will look at reinsurance, which will essentially guarantee a profit for insurance companies. In the event insurance companies are not able to cover losses, risk corridors will induce Treasury to cover up to 80% of the losses. Rep. Elijah Cummings (D-MD) said in his opening statement that the right has crossed the line from oversight to obsession regarding the ACA. Obamacare has done many positive things for Americans, including the lowest rise in healthcare costs in 50 years.
The first witness, Senator Marco Rubio (R-FL) testified in his opening statement that the idea of reinsurance and risk corridors is good, but the entire industry is being affected by the ACA and not a few anomalies. The marketplace is not competitive and the chances of a bailout has increased significantly in the past few months. The pool of enrollees is not meeting expectations. They are older, sicker, and more risky, which is the exact opposite of what insurers were hoping for.
The second witness, John C. Goodman, CEO at the National Center for Policy Analysis testified in his opening statement that insurers are prevented from pricing risk accurately in the marketplace. Insurers are incentivized to attract the young and healthy and avoid the elderly and sick. The insurance market prior to the ACA was working, and working well. He expects following the next election cycle or two, Americans will want a return to “normalcy” and that legislation will be needed for market corrections.
The third witness, Doug Badger, Former Senior Adviser to President George W. Bush testified in his opening statement that it is generally understood that subsidies exist for individuals buying insurance, but should not exist for the companies selling it. Insurance companies should be able to make a profit even if risk corridors are repealed. It is not the taxpayer’s problem if the insurers costs exceed their revenues.
The fourth witness, Professor Timothy Jost at Washington and Lee University testified in his opening statement that risk corridors is not a bailout of insurance companies, but rather risk sharing in a public/private partnership. They have helped reduce premiums for qualified health plans, saving American consumers and the federal government billions of dollars. He claims the current reinsurance program is less risky than the one the Bush Administration implemented for Medicare Part D. Removing risk corridors would put many insurers at risk of insolvency and decrease the number of competitors in the marketplace.
In response to questioning, John C. Goodman said:
- Reinsurance is creating a “race to the bottom”
In response to questioning, Doug Badger said:
- CBO thinks health insurers are going to make a profit
- There is a concern that insurers will price aggressively knowing their losses will be covered. While good in the short term for consumers, there are dire long term effects
- CMS has indicated it will throw taxpayer money at the risk corridor program
In response to questioning, Timothy Jost said:
- Through the risk corridor statutes, he believes the Government is sharing in the risk and will have to honor their obligation
- The risk corridor and reinsurance program is capped at 3 years
- Premiums can be priced at a reasonable rate because of a backstop
Hearing Website:
http://oversight.house.gov/hearing/obamacare-need-insurance-company-bailout/
Links to Testimony:
John C. Goodman
Executive Director and CEO of the National Center for Policy Analysis
Click to access Goodman-Statement-ObamaCare-Insurance-COMPLETE.pdf
Doug Badger
Former Senior Adviser to George W. Bush
Click to access Badger-Statement-ObamaCare-Insurance-COMPLETE.pdf
Timothy Josh
Professor at Washington and Lee University
Click to access Jost-Statement-ObamaCare-Insurance-COMPLETE.pdf
