The ACA and Insurance Company Subsidies
Recognizing that the cost of health care could be prohibitive, the Affordable Care Act includes “Cost Sharing Subsidies” in addition to the tax credits which help many Americans purchase insurance. These subsidies are offered through the insurance companies to help people pay for out-of-pocket health care expenses; in turn, the payers are supposed to be reimbursed by the federal government.
These reimbursements helped convince the insurance industry to participate in the Obamacare Exchanges [“Marketplaces”], particularly in the beginning when it was hard to calculate the risk to the industry accurately.
The reimbursement of the insurance companies are known as “Risk Corridor” payments and allowed insurers to offer coverage to the poorest and sickest people in the Exchanges, without raising premiums on the entire market in return.
In passing the ACA Congress authorized these payments, but as was later realized, the law did not include an explicit authorization allowing the Obama Administration to use Federal Treasury funds to reimburse insurance carriers.
In 2014, the House of Representatives brought a suit against the government saying that the billions of dollars that were paid out under the Risk Corridor program in the first years of Obamacare were unconstitutional.
The Obama Administration’s argument in defense is multifaceted and highly technical- but for our purposes, it suffices to say that the justification for the payments was that they are inferred by context, precedent, and statutory interpretation.
In April 2016 the House of Representatives won when the federal trial court agreed that the payments are not authorized, and therefore the government illegally spent billions of dollars under the Risk Corridor program under President Obama.
The impact of this decision, if upheld on appeal, would be catastrophic to Obamacare. Insurance companies will undoubtedly precipitously withdraw from the Exchanges, which will crumble. The entire ACA framework will fall apart.
This has not happened (yet), however, because the Judge stayed the execution of her decision pending Appeal.
That appeal was filed in July.
Stay with me- this is where this story gets interesting!
Trump Inherited Defending the Risk Corridor Subsidies
When Donald Trump became President, he inherited the appeal previously being fought by the Obama Administration.
All Trump has to do to kill Obamacare– or at least mortally wound it- is drop the appeal, thereby letting the lower court opinion in the House’s favor stand. He could have directed his Administration to do that in January.
But it gets harder to kill Obamacare when it is on your watch, which explains why the House of Representatives is reportedly “fretting” that they may actually win their suit.
The Trump Administration needs a smooth transition to “Repeal & Replace” Obamacare in a politically viable fashion, and to do that they need for the insurance companies to stay in the Exchanges until the “Replacement” is in place. Accordingly, HHS finalized rules to stabilize the insurance markets as recently as April 13th.
But as the 100-day evaluation looms, the Administration has also been searching for some way to move the “Repeal & Replace” movement forward. The Risk Corridor subsidies are right in the middle of that vortex; for the past two weeks President Trump has issued conflicting messages about whether he would use the payments as a method to get results.
On April 10th it was announced that the government would continue the pay the subsidies, which was meant to encourage insurers to stay in the ACA marketplaces. On April 11th the Trump administration was reported as “waffling”; on April 12th the Administration announced it had not yet decided if they were going to pay the insurance companies or not.
None of this brought calm to the insurance industry, as the Administration so clearly needs.
Trump Dangles Subsidies in Shutdown Fight
At the same time the 100-day marker looms, Washington has also entered the government shut down drama, and the Risk Corridor conundrum has been thrown in to that mix as well.
In a show of brinksmanship with Democrats President Trump threatened to end the Risk Corridor payments if the opposition party did not help to keep the lights on in Washington. He made that threat on at least three occasions (April 12th, April 13th, and April 16th).
On April 22nd the dual goals of avoiding a shutdown and gaining a 100-day victory were combined when Trump announced an offer to Democrats of one dollar of insurance company subsidies for every dollar they approved for funding his boarder wall.
The Democrats did not bite.
But on April 24th they offered them back to in exchange for increased military funding.
As if that was not all dizzying enough, on Wednesday the 26th the White House issued a promise to the Democrats that the payments would continue if they could just help avoid a shutdown. Democrats replied they want the promise in writing.
The Subsidy Issue Isn’t Going Away
The ACA Risk Corridor payments caused problems for the Obama administration for years, and the threat of losing them continues to cause concern among supporters of Obamacare.
But the Trump Administration’s problems with the program may be just beginning. In the middle of all the political turmoil around the subsidies, the Appeal, and what to do now in office- multiple insurance companies are now suing the government [i.e. Trump’s] for significant past debts under the Risk Corridor program, such as the $214 Million won by Moda Health in February.
There are many important aspects of health care to monitor as we head into an uncertain future for Obamacare, our health care system, and health care reform generally- but none are more interesting (and perhaps entertaining) than waiting to see what the next fight over Risk Corridor reimbursements will be.
Want To Know More?
An excellent resource from the Kaiser Foundation about these Risk Corridor Subsidies, as well as Risk Adjustment and Reinsurance, is available here.
Detailed analysis of the House of Representative’s suit regarding the Risk Corridor program, the government’s defense and the judge’s ruling is available on the Health Affairs blog here.