The coming risk corridors bailout of Obamacare

The Obama administration appears to be gearing up for an end run around congress. Though it hasn’t happened yet, there are signs the administration is planning to settle lawsuits over the so-called risk corridors program, thereby paying insurers in the form of settlements money that Congress has said the administration cannot pay out directly.

When Obamacare was created there were three programs designed to help stabilize the market. One of those three programs, called risk corridors, was a kind of financial balancing act among insurers. Those who earned more than anticipated would pay into a pool and those who earned less than anticipated would file claims on the money in the pool.

What happened is that most insurers lost money in 2014 meaning there was very little money put into the risk corridors pool and a lot of insurers wanting to take money out. At this point the Obama administration would have simply paid out the extra $2.5 billion insurers requested but congress stepped in to insure the risk corridors program would stay budget neutral. From Forbes:

In a desire to ensure that the administration could not use the risk corridor program as a taxpayer bailout of insurers participating in the ACA exchanges, Congress codified the administration’s stated intention and made the risk corridor program budget neutral in both the 2015 and 2016 government funding bills. These funding bills were signed by President Obama.

The Obama administration has since been sued by a number of insurers demanding to be made whole for the remainder of the risk corridor payments they believe they are owed. And last Friday the Obama administration signaled there may be a way to pay them despite congress’ previous action. Forbes reports:

Despite Congress’ repeated actions to ensure a budget neutral risk corridor program, HHS stated that it “will record risk corridor payments due as an obligation of the United States Government for which full payment is required.” The following paragraph concludes the memo:

We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.

There is no appropriation of money to pay insurers under risk corridors but there is an appropriation for legal judgments. Timothy Jost, a supporter of Obamacare, writes, “Given that there is a standing appropriation for Court of Claims judgments, settling these cases may be a way to get funds to health plans owed money under the risk corridor program despite the failure of Congress to fully fund the program.”

To be clear, this hasn’t happened yet but as the memo itself says, discussions could begin “at any time.”