Hidden Insurance Company Bailout Exposed in Health Care Law

November 20, 2013

By Wesley Coopersmith

Yesterday, Florida Senator Marco Rubio introduced legislation into the Senate that would prevent a taxpayer funded bailout of insurance companies under the President’s health care law. The ObamaCare Bailout Prevention Act (S.1726) would eliminate section 1342 of the Patient Protection and Affordable Care Act (PPACA). Section 1342, commonly referred to as the “risk corridor” provision, gives the Department of Health and Human Services (HHS) broad power to stabilize health care premiums.

Shortly after passage of the PPACA, insurance companies were asked to estimate, without adequate information, their costs of insurance through the newly-created exchanges. Due to the failed rollout of the law, specifically the botched website, many younger and healthier Americans have not opted into the exchanges. Premiums are too expensive or the website takes too long to navigate. Only 100,000 individuals have signed up through the exchanges mostly older and sicker Americans who have an increased incentive to gain immediate access to health care. An older and sicker risk pool than expected will dramatically increase premiums.

According to the President’s health care law, HHS has the power via taxpayer money, to reimburse insurance companies up to 80% of their additional cost in the first three years of the law’s existence. If the cost of insuring individuals under the PPACA is 3% higher than estimated, insurance companies receive a 50% taxpayer reimbursement of the difference. If the cost of the ACA is 8% higher than estimated, which is a significantly more likely outcome, insurance companies receive an 80% taxpayer reimbursement. This bailout of insurance companies could end up costing taxpayers billions of dollars.

According to the Congressional Budget Office (CBO), the PPACA has already committed $1.075 trillion to insurance companies through exchange subsides and other related government spending. Additionally, insurance companies benefit from the unpopular individual mandate provision, forcing every American to purchase their product. Despite this unprecedented mandate and over a trillion dollars’ worth of subsides, insurance companies are still likely to receive additional taxpayer money because of the current administration’s failed attempt at providing health insurance to the entire nation.

Americans for Prosperity agrees with Senator Marco Rubio who wrote in the Wall Street Journal:

“When ObamaCare was debated and passed in 2009 and 2010, none of its proponents, including the president, told the American people that the law granted the federal government the authority to bail out insurance companies at the expense of taxpayers. But now their dirty little secret is out, and it should be wiped out from the law.”

Back in August 2011, Americans for Prosperity highlighted this issue in a letter to the Department of Health and Human Services. Taxpayer dollars should not be used to bailout well-connected, politically-favored industries. The risk corridor provision is another in a long list of bailouts for insurance companies.

Like this post? Chip in $5 to AFP