Obama Administration: On second thought this Obamacare bailout is a bad idea

The Obama administration is moving to dismiss lawsuits filed by insurers under a provision of Obamacare known as risk corridors. That’s a big change from just a few days ago when the administration seemed to be signaling it would settle the lawsuits as a way to bail out insurers without having to go to Congress for funding. From the Hill:

The two insurers, Moda Healthcare and BlueCross BlueShield of North Carolina, have sued the federal government over a combined $338 million in ObamaCare payments they argue are overdue.

The Justice Department filed motions to dismiss both lawsuits on Friday, arguing that the federal government isn’t responsible for those payments at all…

Tim Jost, a health policy professor and long-time observer of the Affordable Care Act, said the federal government is now digging in on the merits of the cases for the first time.

“It seems to me that HHS is clearly changing its position in these cases,” Jost said Monday. “The motions filed in both of these cases is a full-throated repudiation of any obligation [of the payments.”

Just last week the Washington Post reported the administration was prepared to reach a settlement with insurers which would pay all of them the same percentage of what they claim they are owed. The final settlement was said to be only a couple weeks away.

All of this involves a feature of the health care bill known as risk corridors. Risk corridors was designed to be a backstop in the first three years of Obamacare. Insurers that earned more than expected would pay into a fund and those who lost money would apply to take money out. What happened in 2014 is that the amount paid in by winners in the marketplace was $2.5 billion short of the amount requested by the losers. As a result the administration could only pay out about 12% of what was requested. This left insurers with a lot of red ink on the books (at least in the Obamacare segment of their business) and caused several Obamacare co-ops to fail.

What the Obama administration planned to do was pay off the shortfall using taxpayer funds. However, Republicans predicted this would happen and added a provision to two funding bills which made the program budget neutral. That meant only what was paid in could be paid out. No taxpayer bailout was legally possible.

Meanwhile, insurers who didn’t get the money they were expecting filed lawsuits against the government. About a month ago it became clear that the administration was offering to settle those lawsuits and pay off insurers using an existing appropriation known as the judgment fund. This was basically a sneaky way to violate the budget neutrality of the risk corridors program.

Last Wednesday, a group of Republican Senators sent a letter to the administration pointing out that the Congressional Research Service had determined such a bailout could not be made using the judgment fund. Did the letter cause the administration to reconsider?

The Hill reports the document filed to dismiss the lawsuits states, “Under Moda’s [one of the insurers suing the government] interpretation, HHS would be the uncapped insurer of the insurance industry itself.” The documents adds, “Congress did not intend that result.”

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