The federal government’s unpaid balance for the Affordable Care Act (ACA) risk corridor program has ballooned to $12.3 billion. Simply put, that's a large sum of money that's not likely to get any smaller. With the federal government required to reimburse payers for their coverage, the risk corridor program is in a troubling place.
Let me explain. Under section 1342 of the ACA, the secretary of the Department of Health and Human Services (HHS) must establish a temporary risk corridors program to provide payers in the individual and small group markets additional protection against uncertainty in claims costs during the first three years of Exchange operations.
Thus, HHS established a three-year payment framework – detailed in an Apr. 11, 2014, guidance entitled Risk Corridors and Budget Neutrality. According to the Center for Medicare & Medicaid Services (CMS), when risk corridor collections for a particular year are “...insufficient to make full risk corridors payments as calculated for that benefit year, risk corridors payments are reduced pro rata to the extent of any shortfall." The plan being that HHS would use collections for the subsequent year toward balances owed for the previous benefit years. Issuers are to be reimbursed in full for the previous benefit year before payments could be made for the current one.
That’s the problem. There hasn’t been enough cash in subsequent years to pay the debt from previous years. HHS announced in November 2016 that all 2015 benefit year risk corridors collections would be applied toward 2014 benefit year risk corridors payment balances.
However, HHS recently made a similar announcement that “...because 2015 benefit year collections were insufficient to pay 2014 benefit year payment balances in full, HHS will use 2016 benefit year risk corridors collections to make additional payments toward 2014 benefit year payment balances.”
That's a bad situation to be in. The scheme seems a lot like a payday lender, where the amount borrowed never gets ahead of the payments owed for the debt. Moving forward, HHS says it plans to collect the full 2016 risk corridors charge amounts, however the 2014 payment amounts would be reduced pro rata based on collections received. Collecting 2016 charges in November 2017, HHS will begin remitting risk corridors payments to issuers in January 2018 as collections are received.
Data released by CMS shows that insurers are owed about $4 billion for the 2016 benefit year. Meanwhile, the government owes insurers $5.8 billion for 2015, on top of a $2.5 billion for 2014. The expected payment toward the 2014 balance was $25 million. Both the 2015 & 2016 collected amounts went toward paying down the original deficit from 2014.
According to Fierce Healthcare, the issues with the program started with a provision tucked into an omnibus spending bill three years ago, which restricted it from paying out more than it receives in collections. Because what the government owes insurers has always exceeded what it collects, the debt keeps piling up.
Now, insurers are suing the federal government for the unpaid risk corridors debt. Per the Health Affairs Blog, there are three dozen such lawsuits including a class-action case involving about 150 insurers. Humana recently filed a suit seeking $611 million in unpaid funds.
A lot of money owed, means a lot of attention will focus on a program that many say is failing. As the report from HHS and the lawsuits from insurers seem to suggest, the corridors program was not meant to be a winning proposition for tax payers.