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Wednesday, November 25, 2015

Risk Corridors and Credibility


The ObamaCare risk corridors provide subsidies to insurance companies that make losses on the marketplaces while collecting revenues from those that make above-normal profits. Until recently, everybody—from the CBO on down—knew that the risk corridors would generate multi-billion dollar surpluses for the federal government. Now everybody knows, and has always known, that they would generate multi-billion dollar losses for the federal government.

The stated purpose of the risk corridors has always been to encourage participation in the marketplaces by serving effectively as a form of revenue neutral reinsurance for the health care insurers. Opponents of ObamaCare long suspected that the actual purpose of the risk corridors was to provide additional, unbudgeted subsidies to the health insurance companies in order to cement the principal political alliance supporting ObamaCare between the administration and the lobbying arms of the insurance companies. The latter purpose—so at odds with the public Kabuki theater in which the Administration pushed ObamaCare in order to punish and discipline the universally reviled health insurance companies while the insurance companies begged not to be thrown into that briar patch—was of course unspeakable.

So, when last year, the Congressional Budget Office authoritatively announced that the risk corridors would over the period from 2015 to 2017 collect $16 billion in revenues while only distributing $8 billion in subsidies, much wind was taken out of the sails of these ObamaCare critics. The conclusion was accepted as gospel among countless mainstream media outlets.The question of why the insurance industry—surely the best-informed player in the game—would furiously lobby for the preservation of a program that would cost it $16 billion for a return of $8 billion, is not one that appears to have occurred to most journalists. Public-spiritedness, presumably. On the PBS NewsHour, host Gwen Ifill and a putatively non-partisan health care journalist would literally giggle it up wondering what taxes the Republicans would raise to make up for the $8 billion shortfall should they succeed in eliminating the risk corridors.

In the end, Sen. Rubio—who had shrewdly recognized the risk corridors as a cornerstone of the political alliance that sustained ObamaCare—was unable to abolish them and had to contend himself with a 2014 budget rider that prohibited the risk corridors from receiving outside funds. But with the risk corridors universally know to be more than self-sustaining that could hardly have expected to be an obstacle.

So imagine one’s surprise to now read headlines like Rubio Budget Win Is Dealing Heavy Blow to ObamaCare over reports that the risk corridor program has so far run a $2.5 billion deficit and, thanks to the Rubio rider, only been able to pay 13% of the insurance subsidies the companies expected, resulting in widespread withdrawal and threats of withdrawal from the marketplaces.

I think this is one of the most effective things they’ve done so far in terms of trying to undermine the Affordable Care Act, Tim Jost,Prof. Jost, a strong defender of the risk corridor program, apparently did not get a chance to explain his earlier endorsement of the $8 billion surplus figure in Congressional testimony. a healthcare law professor at Washington and Lee University, said of Republicans in Congress.

Unless the administration does a really good job of negotiating the budget, I don’t see much can be done there, he said. Plans have known now for a number of years there wasn’t going to be new money for that program, but I think there still the hope that were would be more money from people paying into it.

At this point, it is represented as uncontroversial fact that the risk corridors would have functioned as a net subsidy to the insurance companies:

The program was almost certain to need extra money in the first few years, when there were fewer healthier customers signing up. But Rubio’s provision in 2014 severely limited any new spending by requiring the program to become budget neutral.

Obviously what happened was exactly what we thought would happen—there’d be an imbalance. Most of the companies lost money, said Joseph Marinucci, a senior analyst with Standard & Poor.

Strangely one finds no quotation from Mr. Marinucci indicating at the time of the widely-touted CBO report that everybody knew that it was obviously and gravely incorrect.

To be clear: Nobody has infallible foresight. Intelligent people may in good faith at some point state a firm belief that some unfortunate event will not come to pass, but then over the years as more evidence accumulates and upon further reflection, reach and state the opposite conclusion. Such a change of view, if done honestly and transparently, should detract but little from such a person’s credibility.

However, nobody is entitled to reassure with great confidence that some event will not occur and—when the event occurs nevertheless—to dismiss this as old news which everybody always knew was going to happen. But this is exactly the posture so many media outlets and commentators have adopted here. One should adjust the weight one gives any future statements from these sources accordingly.