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Republicans need to make up their minds. They simultaneously claim that Obamacare will "destroy the private-insurance market" and will give insurers a massive "bailout" at taxpayer expense. Both statements can't be true. (Judging the recent statements of the insurers' CEOs—and their skyrocketing stocks prices—it is increasingly clear that neither is true.) Nevertheless, GOP leaders and their conservative amen corner are denouncing the so-called "Obamacare bailout" and demanding the repeal of Affordable Care Act provisions which for the next three years help protect health insurers from higher-than-expected costs of their newly covered customers.

Sadly, Republicans aren't just contradicting themselves now. They are conveniently forgetting their own voting records. As it turns out, President Bush's unfunded Medicare Part D prescription drug plan, which enjoyed overwhelming GOP support, uses an almost identical approach to "risk corridors" to encourage carriers to participate and protect them from unforeseen losses.

As the Wall Street Journal explained Wednesday, "The idea of risk corridors is to compensate insurance companies that end up with bigger costs than they expected." Because insurers can no longer deny customers coverage due to pre-existing conditions, some carriers may end up with sicker and more expensive policyholders than anticipated when they set their annual premiums for policies sold in the ACA exchanges:

If an insurer's actual claims in 2014 are at least 3% greater than the claims projected when the insurer set 2014 rates, the government must reimburse the insurer for half of the excess. If actual claims jump 8% beyond projected claims, the government covers 80% of the excess...Federal officials say they're counting on the program, which lasts through 2016, to forestall any nervousness among insurers about their initial customer base and prevent them from raising rates.
Please read below the fold for more on the Medicare situation.

But the Republicans now on the verge of bursting a blood vessel over that possible federal expense need to take a deep breath. As Jonathan Cohn pointed out in the New Republic:

The reinsurance and risk corridors in Obamacare and Medicare Part D are remarkably similar, except that Obamacare's are temporary and Medicare Part D's are permanent--which is to say, they are still part of the program.
To see just how similar, take a quick glance at this April 2006 assessment of "Medicare Drug Plans and Risk Mitigation: Risk Corridors, Risk Adjustment, and Federal Reinsurance:"
Here's how it works. After each contract year, CMS will compare each drug plan's expected and actual benefit costs. The thresholds (when the mechanism kicks in) and the proportions of profit and loss shared vary.

For 2006 and 2007, Medicare drug plans will bear all gains and losses that fall within 2.5 percent of their expected costs. If costs differ from expectations by more than 2.5 percent but less than 5 percent, the risk corridor payment will cover 75 percent of the amount in that range. If actual and expected costs differ by more than 5 percent, the risk corridor payment will cover 75 percent of the amount between 2.5 percent and 5 percent and 80 percent of the amount in excess of 5 percent. If a sufficient number of plans serving a substantial majority of enrollees receive risk corridor payments for a given year, the feds will cover 90 percent of costs falling within the corridor (instead of 75 percent).

For 2008 through 2011, the risk corridor thresholds will double. The assumption is that by then the private drug plans will have sufficient experience in bidding and projecting costs. Specifically, the 2.5 percent factor goes to 5 percent and 5 percent is replaced by 10 percent. Within these new, wider corridors, the federal share covered by the risk corridors drops from 75 percent to 50 percent. For cost deviations exceeding 10 percent, the federal share will remain at 80 percent.

For contract years 2012 and beyond, CMS has the authority to further increase the risk corridor thresholds provided they are structured symmetrically.

So much for the protests of James Capretta and Yuval Levin in the Weekly Standard that "It is hard to imagine that many Americans, regardless of their political leanings, want taxpayers to be on the hook for covering the losses of shareholder-owned insurance companies." In 2003, 204 of 229 House Republicans and 42 of 51 GOP Senators voted for precisely that.

If conservatives are so concerned about the budgetary exposure from a federal "bailout" to private insurers, they should call for the repeal of these provisions of the 2003 Medicare Modernization Act immediately. (At the very least, Republicans should raise the revenue to pay for the Medicare Rx plan that will cost Uncle Sam $400 billion in its first decade, all in the form of red ink. In contrast, the Affordable Care Act is forecast to reduce the national debt, due to the mix of new tax revenue and savings from elsewhere in the budget.)

So, Obamacare is no more a bailout for private insurers than the Republican Medicare drug program. In fact, Part D is a massive Medicare windfall for both the insurance companies and the pharmaceutical industry. After all, Medicare Part D provides 49 million American seniors with public tax dollars to purchase prescription coverage from private insurers. And as it turns out, the Medicare Modernization Act Republicans passed and President Bush signed expressly forbids the government from either offering a "public option" for prescription insurance within the government-run Medicare program or negotiating drug prices directly with pharmaceutical firms. The MMA's ban on Medicare negotiating better prices directly with the drug companies is the key reason why only 16 Democratic House members voted for it in 2003.

Ultimately, the dire 2005 forecasts that Part D might cost as much as $720 billion over its first decade rather than the $400 billion the Bush administration promised did not come to pass. But it was largely due to much lower enrollment (77 versus 93 percent) and the rapid adoption of generic drugs, rather than its "competitive mechanisms," which largely explain the lower Medicare Part D bill for taxpayers. Nevertheless, a November 2005 report released by Democratic staff on the House Government Reform Committee showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80 percent higher than those negotiated by the Veterans Department, 60 percent above that paid by Canadian consumers and still 3 percent higher than volume pharmacies such as Costco and Drugstore.com. The report concluded that:

"The prices offered by the Medicare drug plans are higher than all four benchmarks, in some cases significantly so. This increases costs to seniors and federal taxpayers and makes it doubtful that the complicated design of Medicare Part D provides any tangible benefit to anyone but drug manufacturers and insurers."
Or as the likes of Marco Rubio, Tim Griffin, Charles Krauthammer, the National Review and the Weekly Standard might put it, a "bailout."

NOTE: It is worth highlighting that risk adjustment mechanisms have been a central feature of Medicare for decades. As Gerald Kaminski explained in his August 2007 report, "Medicare's Use of Risk Adjustment:"

Medicare accounts for expected differences in resource needs of patients or health plan enrollees by risk-adjusting the payments it makes to health care facilities, such as hospitals, skilled nursing facilities, and home health agencies, and the premiums it pays to health plans. Risk adjustment is intended to ensure that payments or premiums are adequate for patients or plan enrollees who require more resources than average in order to protect beneficiary access as well as the financial condition of the provider or plan. At the same time, risk adjustment lowers payments or premiums for beneficiaries who are expected to use fewer resources to reduce incentives for providers or plans to favor these beneficiaries.

Originally posted to Jon Perr on Thu Jan 23, 2014 at 01:38 PM PST.

Also republished by Daily Kos.

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Comment Preferences

  •  When adverse selection isn't (0+ / 0-)

    Recommend review and fact-checking opinions from the many Kossacks wiser than me. This wonkish actuarial Healthcare Reform Briefing Paper from Milliman anticipates that newborns, adult female, and the elderly appear to be more profitable than other members. This is contrary to the MSM view that young invincibles enrollment is mandatory for the ACA to succeed. http://www.milliman.com/...

  •  Republicans again socializing losses (1+ / 0-)
    Recommended by:
    JerryNA
  •  Are you saying (0+ / 0-)

    that if initial premiums are inadequate to meet "expenses" (see .http://www.dailykos.com/...  ) then the government guarantees to cover the difference? I smell a conspiracy theory.

  •  I thought the ACA was the bailout, so confused. (0+ / 0-)

    MsBee's Blue Sheild $4000 outta pocket private plan was $600+ a month.

    The ACA BlueSheild plan says the 2500/4000 bronze plan (I think the details essentially right) has an unsubsidized premium of $1500ish.

    (Subsidized is way way less, and yay for that. We plan on spending the savings willy nilly thruout the economy.)

    That's the bailout, but these people will never stop trying to get that welfare...the true Welfare Queens.

    As we learned from Reagan and before, take everything the repubs whine about and look at it as projection...they finally make sense...I mean 'sense'.

    This machine kills Fascists.

    by KenBee on Thu Jan 23, 2014 at 05:16:57 PM PST

  •  completely and utterly off topic: (0+ / 0-)
    MELO!!!!!!!!!!!!!!!!!!!!!
  •  Photo of Bush (1+ / 0-)
    Recommended by:
    OleHippieChick
    "Catapultin' the Propaganda"
  •  a helpful cheat sheet from commonwealth fund: (1+ / 0-)
    Recommended by:
    skepticalcitizen

    on the 3 R's (click for bigger)

    risk corridor, reinsurance, risk adjustment explanation

    "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" — Upton Sinclair

    by Greg Dworkin on Fri Jan 24, 2014 at 07:37:11 PM PST

  •  If private insurers can't deal with the market... (2+ / 0-)
    Recommended by:
    Nannyberry, JBraden

    ...then that's an argument for public healthcare. Health is a public good, if private-sector solutions are the best, that's wonderful. If they're claiming they can't deal with it without public-side assistance, they really don't have a place in that societal goal.

    it fitfully blows, half conceals, half discloses

    by Addison on Fri Jan 24, 2014 at 07:42:38 PM PST

    •  Historically, they have dealt with the market. (2+ / 0-)
      Recommended by:
      skepticalcitizen, ruellia

      This transitional "risk corridor" is because of the dramatic changes required under the PPACA (most notably, the limits on ratio of old:young policy premiums and the elimination of "pre existing condition" policy denials or premium adjustments).

      Realistically, an insurance company could have no idea which groups of people will sign up and which won't as no one has any experience to base this on.

      As well, ongoing administrative and judicial actions which affect who/which groups will sign up for insurance are impossible to predict and have occurred after the insurers had to set their rates. These include the delay of enforcement of the individual mandate for those whose insurance polices were cancelled, the elimination of the enforcement of some provisions of the limitations on "grandfathered" individual polices, and the yet to be decided (likely by the SCOTUS) question of if subsidies (and, of course, employer penalties) are available to those who go through the Federal exchange because their state failed to implement one.

      In addition, the problems with Healthcare.gov certainly will have some impact on signups.

      These are all things that are beyond the insurer's control and outside of the markets they already know. Previously they could select their clients, now they can't (although, they can keep a low profile and market aggressively to good risks - but that's no guarantee).

      I don't know that the "risk corridor" provision is appropriate, but if it wasn't there and the result was that no insurance company would participate in exchanges (and some have decided not to anyway), the entire PPACA would have failed immediately. Perhaps the Federal government could have made fairly narrow predictions on who would/would not sign up for health care and only if those predictions were not met would the "risk corridor" type provisions take effect.

      I think the assertion that the need for "risk corridors" demonstrates that health insurers can't deal with the market makes about as little sense as asserting that the fact the Administration was unable to provide a functioning Healthcare.gov even close to on schedule demonstrates that the Federal government can't be relied upon to be involved in health care in any way.

  •  pretty much forgot immidiately (1+ / 0-)
    Recommended by:
    OleHippieChick

    The 'unfunded mandate' thing has been used pretty much exclusively by conservatives to obstruct unwanted programs like the civil rights act and environmental laws. During the Reagan years he tried to put in mechanisms that would limit the authority of the federal goverment to do such things.  Conservatives did the same during the Clinton years.

    Pretty much, though, as soon as GW Bush got in and conservatives were doing as they please, unfunded mandates went ballistic.  The worst was Medicare Part D, what I like to call i-got-all-the-drugs-I-wanted-so-should-everyone-else.

    But NCLB was also a real spend thrift plan.  It transfered wealth from the local taxpayer,  wealth intended to pay for education, to Bush's friends at pearson's and other publishing company.  One benefit of NCLB, the well qualified teacher, is undermined by charter schools and TFA.  Charter schools also undermine the basic testing principle of NCLB.

  •  They can't make up their mind (0+ / 0-)

    The Ryan Budget called for the privatization of Medicare. The budget would have ceated vouchers for Medicare, turning over Medicare to the health insurance industry, setting up Obamacare-like Medicare health insurance exchanges where seniors could purchase a Medicare insurance policy with premium support funded by the federal government. Isn't that Obamacare?

  •  I read this diary, but I don't quite understand it (0+ / 0-)

    It's Friday, I'm a bit frazzled from the work week, and need something more easily digestible.  

    My frontline experience with Medicare is via my Mother.  She has rheumatoid artritus, and for the past 3 years has been going for monthly infusions of some biotic drug, whose name escapes me at the moment.  It costs Medicare an arm and a leg, and the medical office she goes to does a robust business.

    In a cost cutting move, Medicare announced they would no longer cover these office visits, and that patients would have to switch to an injectable drug that they self administered at home, shifting the cost from a doctor visit to prescription drugs.

    The Medical Office was going to lose many, many patients, and a major cash stream.  So...what did they do?  They wrote letters on behalf of all of their patients to Medicare explaining that this patient*, and that patient*...in fac, virtually everypatient would be, in their opinion, incapable of administering an injectable drug themselves.

    Their patients were glad to maintain the convenience of just going to their doctor once a month and having everything done for them, and the doctors have thwarted a cost cutting move by Medicare to reign in expenses, and at the same time maintained their cash pipeline.

    This one example, I'm pretty sure, is replicated across the entire spectrum of Medicare reimbursed services.  Medicare tries to find a way to control costs, and the private medical service providers find a way to prevent those savings from ever materializing.

    This is why Medicare will never get its arms around rising costs.  The patients want it all, and want it delivered in the utmost convenience.  And the care providers don't want to lose one dime of revenue, and know how to document their case to game the system.  Medicare likely doesn't have the staff nor the will to push back and scrutinize each case on its merits.

    Could my Mom inject herself once a month?  Yes.  Would she?  No.  Either my sister or myself would likely be called upon to do that, since she likes the attention and would simply say "I don't think I can do this."  That's okay...I already take her to those monthly appt's as it is and have to wait an hour in the lobby.  I'd rather just go to her house and do the needle work and be done with it.

    The point is, though, that it could be done.  And it would save the system some money.  But the doctors will sabotage it in order to preserve their repeat customer base and cash flow.  I'm sure they have a template saved in Word that they simply plug a patient's name and address into, which they send to Medicare in order to exempt all of their patients from the cost cutting measure.

    That's how our system, such as it is, rolls.

    L'enfer, c'est les autres....Jean-Paul Sartre

    by Keith930 on Fri Jan 24, 2014 at 08:20:03 PM PST

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