Health insurer Highmark has lost $700 million in the first two years it sold insurance on the Obamacare exchanges. Now the company is demanding taxpayers cover a portion of those losses and is suing the government for a quarter of a billion dollars. The Wall Street Journal reports:
Highmark, the insurance arm of Pittsburgh-based nonprofit Highmark Health, said in the suit that the U.S. failed to live up to obligations to pay the insurer nearly $223 million owed under an ACA program known as “risk corridors,” which aimed to limit the financial risks borne by insurers entering the new health-law markets. The suit claims “violations of the mandatory risk-corridor payment obligations prescribed” in the health law.
The suit is likely to draw close attention because it comes from a company that continues to be a major player in the ACA health-insurance marketplaces in three states. Many other insurers also suffered major shortfalls in risk-corridor payments.
The risk corridor program was a kind of back end insurance plan for insurance companies who agreed to sell plans on the ACA exchanges. Plans that made more money than expected paid into a fund and those that made less than expected (because enrollees were sicker than expected) could draw money out of the fund at the end of the year. The problem was that after 2014 insurers wanted to draw nearly $3 billion out of the pool but only $362 million had been paid in.
The GOP congress played a role by passing a bill which prohibited the Obama administration from taking money from other sources to pay off insurers. In other words, only money that was put in to the program by insurers could be taken out. Because of the serious shortfall, caused by sicker than expected enrollees, there was not enough money to go around. Several Obamacare co-ops failed after the government announced it would not be able to make full risk corridor payments.
The CEO of Highmark Health published a blog post Tuesday explaining the company’s decision to file the lawsuit:
For 2014 alone, government officials have acknowledged that this program should have reimbursed Highmark for more than $220 million based on a mathematical formula everyone agreed on when the ACA was created. The government now says it will pay only about $28 million of that amount. In effect, that leaves our organization to pick up the remaining tab. That’s not acceptable.
To put this in simpler terms, think about buying a new car. You’re making a big investment, and you accept responsibility for many things that could happen, and that you would have to pay for, as the owner. But there’s also a manufacturer’s warranty that covers certain unforeseeable, high-cost problems for the first few years or a certain number of miles. The reassurance of that warranty is probably an important factor in why you buy a new car in the first place.
Now — let’s say a year into owning the car there is a problem with its transmission. You take the car to the dealer and they say, “Yes, the transmission is covered under your warranty, but some executives at the manufacturer think this warranty was a bad idea, so you’ll have to pay for the transmission repairs yourself.”
The example he’s using, a car warranty, is not a good one. A car warranty covers problems that were solely the fault of the manufacturer, not the driver of the car.
A better analogy for the risk corridor program would be car insurance. When you buy a car you also buy insurance in case some reckless driver crashes into you or in case you accidentally run in to someone else. What we had with the ACA was host of insurers, all of them effectively new drivers on unfamiliar terrain, racing to offer the lowest prices in a bid to capture market share. They took big risks and many of those companies suffered major damage after colliding with the reality of older and sicker than expected enrollees. Now they are towing their beat up hulks back to the dealership and demanding the manufacturer cover the repairs under warranty? A car dealer would be right to laugh them off the lot.
Taxpayers didn’t set the too-low prices on Obamacare plans or make the bad estimates of the health of enrollees. The insurers made those calls and a few of them, with the narrowest plans, even got it right. It’s not the taxpayers’ job to cover the losses of the ones who did not. At least it shouldn’t be.