The recent premium hikes on many ACA plans, some say on average by 22% or more, shows the inherent weakness of a health care reform based on recommendations by the ultra-conservatiive Heritage Foundation which, parenthetically, has always stood by what it believed to be the Mandate’s constitutionality. As it turns out, one of the reasons that premium increases have occurred has been the cuts in funding for what is called the “risk corridor” or the added margin of risk that insurance companies must assume in taking on less healthy subscribers they never would have insured before the ACA required that all pre-existing conditions be covered. The three year period (2014, when the law first went into effect, until 2016) during which the federal government spread the risk among insurance companies with subsidies from the Health and Human Services budget was known as the risk corridor. But Marco Rubio, who lead the assault against such funding, called it a “bail out” of the insurance industry.
Leaving aside for the moment that a bailout is saving a company from financial losses after the fact instead of heading off a collapse with funding for an anticipated problem with extraordinary risks, HHS would spread risk by taking “user fees” from companies whose revenues exceeded a certain amount over and above their expenses to pay those companies whose premiums didn’t cover additional costs until the market could stabilize the premium price regime in the face of the new unanticipated conditions created by the uncertainties of taking on higher risk subscribers as required by ACA. The three year period was the “risk corridor” during which such stabilization would take place. Rubio introduced legislation to cut the ACA funding for the program calling it a “bailout” of unsuccessful insurance companies rather than adjustment period assistance. The Republican dominated congress eventually passed a rider on an appropriations bill in late 2014 that disallowed HHS from using any part of its budget beyond the users fees it collected to help struggling insurers forcing many new insurance companies on the exchanges to fail tightening supply and ironically causing a spike in rates. A user fee deficit in 2015 could not be filled by use of funds from HHS annual budget as allowed by provisions in the ACA. According to PolitiFact,
The "bailout fund" is actually a provision in the Affordable Care Act called risk corridors, designed to temporarily aid insurers as they adjust premiums. Rubio helped persuade Congress to prevent Health and Human Services from being able to cover expenses in its own budget. But experts have said Rubio is wrong to call the program a bailout, and that the program is supposed to pay for itself through fees from insurers.
The New York Times, which calls the GOP efforts led by Rubio, “quiet legislative sabotage,” has blamed these efforts for some of ACA’s current problems. One of those is the collapse of needed coverage. The Times asserts;
““Risk corridors have become a political football,” said Dawn H. Bonder, the president and chief executive of Health Republic of Oregon, an insurance co-op that announced in October it would close its doors after learning that it would receive only $995,000 of the $7.9 million it had expected from the government. “We were stable, had a growing membership and could have been successful if we had received those payments. We relied on the payments in pricing our plans, but the government reneged on its promise. I am disgusted.”
Blue Cross and Blue Shield executives have warned the administration and Congress that eliminating the federal payments could have a devastating impact on insurance markets.
Twelve of the 23 nonprofit insurance cooperatives created under the law have failed, disrupting coverage for more than 700,000 people, and co-op executives like Ms. Bonder have angrily cited the sharp reduction in federal payments as a factor in their demise.”
It is certain that new conditions of uncertainty created by the collapse of firms relying on risk corridor payments led to recent premium hikes. GOP efforts have caused risk corridor payments to sink below 13% of anticipated levels according to most sources. This has shrunk provider supply and concentrated the market. One Newsweek article says;
[One] reason your premiums are soaring relates to a declining number of insurer options to choose from. As noted above, the failure of the risk corridor has eliminated more than two-thirds of the available healthcare cooperatives, and there may be more failures to come...competition is decreasing, which is bad news for the consumer, and insurers are losing money and needing to hike premiums in order to offer a sustainable product over the long-term.
But as the article points out, for profit corporations, some of largest in the business, have dropped their plans on the exchanges tightening the market as well. But it was the smaller non-profits that relied most on the risk corridor payments. And they were important to ACA’s success in underwriting higher risk subscribers especially as the failure to enroll younger, healthier subscribers didn’t expand and balance the national risk pool as originally intended. Health Care Blog details the impact of the GOP efforts against the HHS program for risk payments (paid through the CMS which is part of HHS), particularly on coops;
“The risk corridor program is supposed to move money from qualified health plan (QHP) insurers that have excessive premium income relative to claims to QHP insurers that have excessive claims relative to premium income. On October 1, 2015, CMS announced that it would have only $362 million in contributions to pay out $2.87 billion in requested payments, and so would only pay out 12.6 cents on the dollar for payment claims at this time. This decision was necessitated by the fact that Congress limited payments under the program for 2014 to the contributions collected under the program under the 2015 Cromnibus appropriations bill.
The devastating effect of this decision, particularly on the health insurance cooperatives, is illustrated dramatically in the data released on November 19. The Colorado CO-OP, for example, recovered about $184,000 on nearly $16 million in risk corridor claims. The Kentucky CO-OP recovered only $9.7 million of $77 million in claims. CoOpportunity received about $7 million on $66 million in claims in Iowa and about $9 million on $74 million in claims in Nebraska. The New York Freelancers CO-OP received about $19 million on $150 million in claims.”
The complexity of ACA has made its administration difficult but what is even more clear is the impractical nature of a health care reform that relies almost completely on protecting the profitability of private health insurance. Universal health care insurance isn’t profitable or we’d have had it from the start. Private insurance firms want to take loads of money from the healthy and avoid spending it on the sick as much as possible. Spreading risk is only profitable when risk is as low as possible. America’s national health profile doesn’t fit maximum profit expectations and another system with different assumptions and priorities is needed.
Physicians for a National Health Program (PNHP) list the problems with ACA very clearly; it maintains a financially fragmented system, whose administrative costs rise instead of being eliminated by a single payer system. Private, for profit health insurance leads to less care, higher costs, fewer insured and allows revenue to be diverted to profit instead of actual care. It also maintains the profitability of treating diseases making incentives for preventative care less likely. PNHP explains;
“Many still assume universal health care must mean higher costs, but other countries prove this assumption false. The US spends about twice as much per capita on health care as other industrialized countries, yet others are able to cover everyone and have better health outcomes. If we are to succeed in health care reform, we must ask the question, "What are we spending on health care that other countries are not, and that does not add value to health care?" We are now spending about 18% of our gross domestic product on health care and rising. If we do not correctly identify wasted spending and take steps to reduce it, health care spending will continue to break the budget. Contrary to what some assume, all evidence indicates that government financing in health care is actually far more efficient than the private insurance industry. The "Patient Protection and Affordable Care Act" (PPACA) is built around the private insurance model with government subsidies to fill in some of the gaps. It will not reduce total national health spending or waste, and we will face escalating pressure to restrict necessary care.”
PNHP estimates that administrative costs in the highly fragmented US system are about 24% greater than necessary; the costs eliminated by a single payer system would include, “...marketing and advertising, underwriting, multiple private bureaucracies, highly paid executives, managed care costs, pharmacy benefit manager costs, maintenance of insurance reserves, profit, lobbying and "government relations," employer and broker costs, costs to doctors and hospitals to deal with billing and insurance, and physician time lost to dealing with prior authorizations and formulary restrictions.” One of PHNP’s most consistent arguments is that a single payer system in the US would save approximately $400 billion annually in administrative costs alone leaving more for direct spending on health care. This savings more than offsets additional estimated annual costs of insuring the uninsured through ACA.
The problem is that ACA’s conservative assumptions, that profit must remain as key to health care insurance as it is to the rest of the economy, are fundamentally flawed. Profit considerations are what makes ACA unworkable not government involvement itself. ACA isn’t “socialist” but is instead a reform designed to preserve the capitalist basis of our health care system and insurance industry profits. Competition through cost reduction leads not to better plans at better prices but to fewer insured and bloated profits for big insurance companies. ACA never addressed traditional insurance company profit maximizing strategies. It therefore left the way open for out of control cost increases in pursuit of private profit maximization. The US insurance industry is intimately linked to the financial sector and it is financial sector profits and its linkage to our health care system, not the delivery of health care itself, that is the real problem! Its time to completely separate private finance from health care.
PHNP explains this clearly by defining a successful health care system as one that is utterly universal in scope, no prior exclusions, little or no cost sharing, physician screening for treatment based only on medical considerations and, most importantly, “financing is provided by publicly accountable, transparent, not-for-profit agencies.” The growing connection between health care and the financial system, particularly the stock market since the 1980s and ‘90s has been much elaborated upon for years. The fact that medical costs and health care insurance premiums have been running well ahead of inflation for years has shown the negative effects of the intimate connection between health care and private finance in the US. There is a basic contradiction between providing quality health care for all and private insurance. Let’s separate them once and for all with single payer.