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Life Health > Health Insurance > Health Insurance

PPACA angst: Risk corridors, 'bailouts' and other scary propositions

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I am not proud of what happened.

A mere 10 days into the New Year I broke my first resolution. I have screamed at the TV and at several emails. Friends and colleagues are unsurprised by this, though they are surprised at the reason for and the target of my tirades. This time, my ire is directed at conservative and libertarian media outlets and their pundits.

I understand that cable outlets need to attract viewers and that organizations need to raise funds to further their political goals, but with all of the foibles of PPACA, there is a surfeit of suffering to spotlight. It began with an unfathomably dysfunctional multimillion-dollar website, progressed to millions of non-conformant — and ultimately cancelled — policies and has now reached whatever the opposite of enrollment critical mass is.

Carriers traded their underwriting tools for promises of massive, risk-diverse enrollments like Jack trading the cow for a handful of magic beans. Faced with today’s realities and with significant rating restrictions, they are going to have a choice: raise prices or cease to exist. If things don’t turn around, it is going to be very, very ugly indeed.

PPACA includes three mechanisms intended to offset pricing and claims anomalies. One tool is risk adjustment, which Bloomberg Businessweek described as “Robin Hood style redistribution” from carriers who had to pay out less in medical claims in a given year to those carriers who had to pay out more. Additionally, PPACA includes a reinsurance fund to help mitigate high-dollar claims.

Perhaps the pundit class has simply grown tired of discussing those facts, sad as they may be. Yet political expediency seems to have overtaken any reasonable arguments or discussions. Regardless, I just could not listen to one more commentator or Senator from Florida referring to the third PPACA cost mitigation component as “bailouts” for the insurance companies.

The part that has everyone’s hyperbole meters turned up to 11 is a section of the law called a “risk corridor.” The machinations of this program make a Rube Goldberg device look simple. In very basic terms, the government (that’s “taxpayers” in plain English) may have liability if insurers underperform against pre-defined benchmarks. Of course, if they do better than the benchmarks, money goes to the federal coffers.

Given the current state of PPACA, is that a scary proposition? You bet. Does this kind of mechanism belong in a free market? Absolutely not. Yet we are not, nor have we been for many years, in anything even remotely approaching a free market for health care. If we were, we would not likely be in the fix we are in and the pretext for an PPACA-like initiative would have been nonexistent. But that is not the point.

In the shadow of the financial crisis, the word “bailout” became a pejorative. Mega, too-big-to-fail banks engaged in (allegedly) shady deals and needed to be “bailed out” lest the economy collapse. The government had a hand in the mortgage stew that exacerbated those problems, but there was a great deal of questionable banking and investment sorcery going on as well.

Using the term “bailout” in this context, however, is disingenuous at best. First, because they aren’t bailouts and second because government is the sole creator of a scenario that anyone with two cents’ worth of brain cells knows was an unsustainable pipe dream. We don’t have to keep the insurance carriers in business, but wouldn’t allowing them to go under simply serve to hasten a single-payer system that these pundits and legislators decry?

Perhaps it is just that the PPACA rollout and the slow roll of problem after problem, complication after complication, foreseen and unforeseen consequences has everyone on edge. As Stephen Stills wrote in that great Buffalo Springfield tune “For What It’s Worth,” “paranoia strikes deep” especially when “nobody’s right if everybody’s wrong.” We need facts and fresh ideas – not hype.

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