March 4 (Bloomberg) — Carriers such as WellPoint Inc. and Humana Inc. stand to gain $5.5 billion next year to cover losses from Obamacare in a program the law’s opponents label a bailout.
The money, outlined in President Barack Obama’s proposed budget for the fiscal year that begins in October, is designated to help carriers who find the cost of the law higher than expected, based on the percentage of older, sicker people who sign up compared with younger enrollees.
Under the Patient Protection and Affordable Care Act, carriers who record a profit of 3 percent or more on their Obamacare business would put some of the gains into a government-controlled fund. Companies whose claims cost at least 3 percent more than their premium revenue can access the money.
“If you want to insure the uninsured, and you want to set up a competitive marketplace and drive health-system improvement, you’re not going to do that without off-loading some of the risk for insurance providers,” Dan Mendelson, the president of Avalere Health, a Washington consulting firm, said in a telephone interview.
The administration expects to collect enough from profitable insurers to cover the costs of payments to other companies in the risk corridors program, Emily Cain, a spokeswoman for the Office of Management and Budget, said in an e-mail.
The program is “an important safety valve for consumers and insurers as millions of Americans transition to new coverage in a brand new marketplace,” Cain said. “The Administration intends to operate the risk corridor program in a budget neutral manner, with payments in equaling payments out.”
About 4 million people have so far signed up for private health plans from companies under the act known as Obamacare. Insurers participating in the law’s new health exchanges are required to cover everyone who applies for a plan, regardless of their health.
The risk corridors program was adopted from earlier federal health programs that rely on private insurers, including Medicare’s prescription drug benefit. It was designed to protect insurers temporarily while the new health program is introduced and expires after 2016.
At least one insurer, Louisville, Kentucky-based Humana, has said it expects to seek money from the pool. The company said in a Jan. 9 regulatory filing that it expected new Obamacare customers to be sicker and costlier than anticipated, after the U.S. government’s decision to let healthier people keep their existing plans.
Republican opponents of the Affordable Care Act have called the program a handout to insurers, warning that payouts may exceed the amount collected.
“The risk of a bailout has always been high,” Senator Marco Rubio, a Florida Republican, said at a Feb. 5 hearing. “As many of us predicted, these exchanges have not attracted enough young and healthy people to sign up.”
Rubio said Obama increased the likelihood of the program costing taxpayers when the president announced a policy last fall to allow healthy people to keep their existing insurance plans. About 2.6 million Americans received cancellation letters from their insurance carriers at the end of 2014, according to a study published online today by the journal Health Affairs. The letters caused a political headache for the president, who had promised that people with insurance they liked wouldn’t have to change plans under Obamacare.
House Republicans earlier this year considered legislation that would repeal the risk corridors. Those plans were dropped after the Congressional Budget Office said on Feb. 4 that the health law’s programs to reduce risk for insurers, including risk corridors, would save the government $8 billion over the next 10 years.
Obama’s budget plan also proposes to save about $402 billion over the next decade mainly by reducing spending in Medicare, the $513 billion program for the elderly and disabled, and Medicaid, the state-run program for low-income people that will cost the federal government $308 billion this year.
The budget targets drugmakers for much of the cuts, including paying $117 billion more in rebates for medicines used by federal health program beneficiaries. Obama’s 2014 budget contained a similar proposal that Congress didn’t adopt.
Obama also proposes to spend about $14.6 billion over a decade to train new health providers. The U.S. shortage of primary care physicians is estimated at 8,000 doctors by the U.S. Health Resources and Services Administration.