Read More »"/> Read More »"/> Obamacare’s Secret Taxpayer Bailout of Health Insurers | MyGovCost | Government Cost Calculator

Obamacare’s Secret Taxpayer Bailout of Health Insurers

Sunday July 6th, 2014   •   Posted by Craig Eyermann at 7:35am PDT   •  

obamacare-taxpayer-bailout-word-cloud-wordle The Patient Protection and Affordable Care Act, which is often abbreviated as either PPACA or ACA, but which is most popularly known as “Obamacare,” is a very complicated law that stands as an prime example of how politicians will put the interests of their crony corporate contributors ahead of those of the American people.

As a case in point, one example of that may be found in the law’s provisions for a “risk corridor” program for health insurance companies that the Department of Health and Human Services approves to sell subsidized health insurance policies on state- or federal-government run “marketplaces.” What this provision in the law does for health insurers is to make up a large portion of any losses they have and to put a cap on their losses if the amount of money they have to pay out for their policyholders’ health care expenses is greater than the amount they collect in premiums. Those premiums are paid by both the policyholders and by the federal government, which directly pays Obamacare’s health insurers in the amount of the income tax credit subsidies for which the policyholders may be eligible.

The Wall Street Journal explains how Obamacare’s risk corridor program is intended to work in 2014:

The idea of risk corridors is to compensate insurance companies that end up with bigger costs than they expected. Under the law, they must sell policies equally to everyone, regardless of their medical history, so it’s possible some insurers could end up with an especially unhealthy pool of customers.

If an insurer’s actual claims in 2014 are at least 3% greater than the claims projected when the insurer set 2014 rates, the government must reimburse the insurer for half of the excess. If actual claims jump 8% beyond projected claims, the government covers 80% of the excess.

The money for the ACA’s risk corridor program is supposed to come from fees that are assessed by the federal government on all health insurance policies, which back in February 2014, the Congressional Budget Office projected would actually be a net positive for the U.S. Treasury, collecting $8 billion in fees more than would have to be paid out to bail out Obamacare health insurers from 2014 through 2016.

But things have changed. The implementation of the Affordable Care Act has gone badly enough where instead of reducing the federal government’s budget deficit, the U.S. Treasury will instead have to borrow money to bail out Obamacare’s health insurers.

The Orange County Register reveals how U.S. taxpayers were suddenly put on the hook for bailing out unprofitable health insurance companies because of the series of executive actions by President Obama to avoid the political consequences of implementing the Affordable Care Act as written. The latest was to arbitrarily rewrite the rules for the risk corridor program so that taxpayers would directly cover a portion of the much larger than expected losses at Obamacare’s crony health insurance companies — above and beyond the fees collected on each health insurance policy sold that were specifically established for that purpose under the PPACA:

President Obama, however, changed the equation for those companies with his repeated rewriting of Obamacare rules, such as his decision to extend the period in which consumers could keep insurance plans that would otherwise have been canceled under Obamacare’s requirements. That shifted the risk pool on the exchanges, putting fewer insurers on the profit side and more on the loss side.

Because of the ACA’s corporatist construction – wherein the government has made an implicit deal with the insurers that it will dictate their behavior but still preserve their bottom lines – the president had to atone for the increased burden, which he did by easing the risk corridor rules to provide insurers with an extra $8 billion in compensation.

Because there are no offsetting spending cuts to make up for that unplanned expenditure, taxpayers are essentially on the hook for an insurer bailout.

Don’t expect this to be a one-time-only affair. A recent survey of insurers by the House Oversight and Government Reform Committee indicates that payouts from the risk corridor program could exceed the available funds by $725 million to $900 million in the next year. The people footing that bill? We the taxpayers.

In essence, the rule change would allow the Department of Health and Human Services to reallocate money collected from other sources to bail out Obamacare’s money-losing health insurers. But since that other money has been authorized to support other things, in order to make good on those spending obligations, the federal government will have to borrow money to make up the difference, which is what puts U.S. taxpayers on the hook for the worst kind of corporate welfare.

The kind that endures for generations.

Facebook Twitter Youtube

Support the Independent Institute when you shop on Amazon with the AmazonSmile program. Every time you make a purchase, 0.5% will be donated to Independent on your behalf, at no extra cost to you. Just visit, log in using your usual Amazon account details, and select the Independent Institute as your charity.

RSS Recent Posts on The Independent Institute’s Other Blog, The Beacon


July 2014