The big rating agencies should now classify the United States as a country that makes selective defaults on its obligations.
That’s what the country is really doing with the Patient Protection and Affordable Care Act of 2010 (PPACA) risk corridors program.
The drafters of PPACA included the program in PPACA as a mechanism for protecting insurers against unexpected problems with PPACA exchange claim risk during the first three years of exchange operations. The program is supposed to use money from insurers with good underwriting results to protect insurers with bad underwriting results.
Details are scarce, but it looks as if insurers might ask for a few billion dollars from the risk corridors program, and as if the insurers with good results might pay in only about 10 percent of the amount needed to satisfy the insurers “with receivables.”
Opponents of PPACA have called the program a “bailout for insurers,” and, in December 2014, they succeeded at putting a ban on use of taxpayer money to fund the program in a spending measure that President Obama signed into law.
The ban on use of federal money to fund the program does not include any grandfathering provision for insurers that were depending on the risk corridors program to exist when they set their 2014.
In other words: PPACA opponents succeeded at taking away a program that insurers were counting on to make the numbers for 2014 work about 18 months after the 2014 coverage was priced, and after 2014 was pretty much over.
On the one hand, PPACA critics make many reasonable arguments against the general ideas behind PPACA, specific PPACA provisions, and PPACA implementation. In the long run, it may well be that the Association of American Physicians and Surgeons (AAPS) is correct, and that any government involvement in routine civilian health care does more harm than good, and even that efforts by insurers to “manage care” generally do more harm than good.
In the early 1900s, insurance industry leaders always told the editors of National Underwriter (one of the publications behind LifeHealthPro.com) that writing sustainable health insurance would be extremely difficult. Their ghosts might have the last laugh.
But, on the other hand: The risk corridors program was part of the law of the land when insurance companies priced their 2014 coverage. PPACA critics were threatening the program even then, but the U.S. Department of Health and Human Services (HHS) told insurers it thought it could make good on program obligations for 2014.
Even if everyone assumes, as a given, that the program is terrible and expensive, it’s not that expensive. The tab would be a few billion dollars, not tens of billions of dollars. HHS could scrape up the money to make good on the obligations for 2014. The only reason Congress didn’t grandfather insurers in for 2014 is that the critics of the program hate the program, and hate many of the smaller, newer, PPACA-backing insurers that based their pricing strategies on the existence of the program.
The simple solution would be to go back and add a grandfathering clause for 2014: Agree to pay insurers what the government told them insurers would get when the insurers were pricing their coverage for 2014. Don’t punish insurers for going by what the law books say, rather than by pouring over the Congressional Record.
On the third hand, as simple as retroactively adding a grandfathering provision might be, making that fix won’t do anything to fix a fundamental financial problem our country faces: Our government is so dysfunctional that no one can trust it to honor any commitment of any kind.
When the U.S. Treasury Department issues bonds, it might as well print them with tap water. Tap water would express the evaporating nature of the government’s promises as well as vanishing ink, and it might be a little better for the environment than whatever chemicals happen to go into the production of vanishing ink.