“We are becoming increasingly concerned about momentum that is quickly building among some leading conservatives for elimination of the risk corridor and reinsurance programs,” [Blue Cross Blue Shield Association CEO Scott] Serota wrote…
“Their efforts, along with growing support for repealing the risk corridor and reinsurance programs, could combine to create a perfect storm to, at a minimum, dissuade the Administration from modifying risk corridor program rules to provide increased funding in light of the recent ‘transitional policy’ allowing insurers to offer consumers the option to renew their 2013 health plans for 2014,” Serota wrote.
In attached talking points, seemingly directed at Republican lawmakers opposed to risk corridors and reinsurance, BCBSA is asking members to argue that eliminating the risk corridors will lead to the eventual downfall of Obamacare and lead to a single-payer system: “It jeopardizes the entire private health insurance market and will ultimately lead to a single-payer system. Furthermore, it will close the door to pro-competitive health care reform alternatives.”
One bolded talking point, “use with appropriate audiences only,” charges that “eliminating these programs will result in massive premium increases and could cause private insurers to become insolvent.” In Serota’s email, however, this point is intended for Democrats only.
You remember the “risk corridor” provisions, right? If a new ObamaCare plan comes in under budget, the insurer pays the difference between the actual cost and projected cost to HHS. If it comes in over budget, HHS pays the difference to the insurance. It’s a way for insurers to spread risk among the industry with HHS as middleman. (The bit in the excerpt about the White House modifying the rules for its new “transitional policy” is a reference to this.) Problem is, there’s no cap on how much HHS might need to pay out if lots and lots of plans come in over budget — a plausible scenario given the whispers from Humana about what it’s seeing among the demographic mix of ObamaCare enrollees so far. If too many plans have lopsided numbers of sick enrollees who need expensive treatments and few healthy ones to supply the revenue needed to offset that expense, HHS could be on the hook for the shortfall via a de facto bailout — unless Congress repeals the risk corridor provisions, in which case the insurers will be stuck with the bill. How many of them will be able to cover it and how many will go belly up? Of the ones who stay in business, how many will have to charge exorbitant premiums next year to make up for their losses? And if premiums soar, some portion of their consumers are bound to cancel their plans, which means even less revenue for the insurers and the need for even higher premiums, etc. That’s the “death spiral,” and in theory that’s where single-payer comes in. If the insurance industry melts down because Congress cut its financial lifeline, what replaces it?
What’s fascinating about the BCBS talking points is that, in light of the rumblings on the left lately about single-payer, they may actually hurt the industry at this point more than they help. The “single-payer” talk won’t scare Republicans; they know they’re likely to have more control of Congress next year, not less, and they’re eager to find a weak spot in the Jenga tower that is ObamaCare that might bring the whole thing down. Killing the risk corridor could do it. Meanwhile, the “single-payer” talk might entice Democrats. Plenty of them, like Michael Moore and Noam Scheiber, defend ObamaCare not out of love but out of dutiful partisan obligation. They hate insurance companies and would leap at the chance to replace them with a government alternative but they’re stuck with the O-Care model for the time being. If the industry implodes, though, they’ll have a fully-formed alternative ready to go in the form of “Medicare for all.” And of course, as a matter of basic retail politics, Democrats want to be seen as anti-bailout as much as Republicans do, especially before a midterm election. Even assuming that Obama would veto a bailout repeal in the name of protecting his new partners in the industry, there’ll be intense political pressure on Democrats to cross the aisle and vote with the GOP to override it. I don’t think they’d get to 67 votes — the wound to ObamaCare, on which they’ve already spent so much political capital, would be too grave to inflict it so soon — but the politics of it would be attractive and we already know that they’re not averse to short-sighted political “fixes” to the law that actually make the industry’s adverse-selection problems worse. Between nervous red-state centrists like Mark Pryor who want to signal their unhappiness with O-Care and ideological leftists like Bernie Sanders who want to smash the insurance industry, how many Democratic votes might they get? Enough to get to 60 and force an Obama veto at least, right?
Exit question via Bob Laszewski: What happens when the “risk corridor” expires in 2017? Exit answer: Maybe nothing. By that point, U.S. health insurance will be so dominated by the exchanges and the penalty for not complying with the mandate will be so steep that you’ll have no choice but to sign up and pay what they want.