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GOP Lawsuit Would Take Out Vital Leg of ACA

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Much of the reaction to the Republican Congressional contingent’s lawsuit against the Obama administration over the Affordable Care Act’s rollout of the program has focused on the delay in imposing requirements on employers.

Many of the opinions question whether the administration overstepped its bounds in the delays or the irony of Republicans suing over the late implementation of a law they detest. But not much attention has been paid to what might be a more significant part of the lawsuit. That targets the reinsurance aspect, payments made to insurance companies to offset losses.

We covered this issue a bit in our monthly magazine earlier this year. The ACA rests on three Rs: risk adjustment, risk corridors and reinsurance. They are designed to work together.

Risk adjustment restricts insurers’ ability to exclude or raise premiums on certain risks. It does this by moving money from plans with lower-risk enrollees to plans with higher-risk enrollees. This is meant to help stabilize premiums.

Risk corridors are also meant to stabilize premiums to encourage insurers not to raise rates because of uncertainty of who will enroll.

Reinsurance makes all this work by subsidizing losses. Without this, insurers would be exposed to significant risk in the first few years as the ACA is implemented. The subsidy was pegged to be $10 billion in 2014, $6 million in 2015 and $4 billion in 2016.

Risk adjustments are meant to be permanent. Risk corridors and reinsurance are temporary to help the transition to the ACA marketplace.

Reinsurance has been criticized as an insurance company bailout. And, in essence, it is. Insurance companies often rely on some kind of reinsurance, mostly on the property and casualty side of things and usually it is a private enterprise.  But sometimes that risk is too great for the business sector and government steps in, as in the Terrorism Risk Insurance Act (TRIA).

In the case of the ACA, it was a backstop for insurance companies promising universal coverage and throwing the usual risk calculations out the window. Carriers needed some reassurance that they could sustain a complete reversal of how they do business.

The lawsuit is another Republican effort to chip away at the foundation of the ACA. As I have asked before, what will come next? Many people have differences with the ACA, but it did preserve the insurance company role in the market. Reformers, such as Rep. Barney Frank, did not even entertain proposing a single-payer system, which would have cut insurance companies out of the business. Some might argue that a single-payer system is still the objective for reformers, but the fact remains that the ACA as its stands ensures the survival of insurance companies.

Some say a post-ACA road would lead to a single-payer system, which Republicans would not want. Would the answer be to go back to the pre-ACA days? Or perhaps, dialing it back even further to everybody is on his or her own. That was suggested by a commenter on my earlier post on this.

 

I have trouble with this vision for America. I fully understand the arguments against government interference and control, but that should not lead to people not being able to get health care. What kind of work force does that program leave for American businesses?

Could people really be wistful for the Victorian days of oligarchs lording over a poor underclass living and dying in deplorable conditions? I suspect not. Or, I hope not.

So, what is the Republican vision for the future of health care? One of those answers was Romneycare, but that obviously is not acceptable because it is the model for Obamacare. The few proposals so far nibble around the edges and provide some market reforms that probably would not substantially change the system.

We need a better answer than tossing out the ACA and figuring it out later.

 

 

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Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Connect with Steve →

  • Crazy

    I wish people would stop calling the ACA health care. It is not healthcare to have health insurance. Insurance only helps absorb some of the cost and depending on how much coverage you have, most people are not in any better position than they were before. A bronze style coverage has such a high deductible, that most costs are still out of pocket and unaffordable to the average person. Platinum coverage with a low deductible is impossible to afford without some sort of subsidy. We need actual health care reform to make the cost of care affordable, not insurance subsidies and penalties for the uninsured.

    • http://www.insurancenewsnet.com Steve Morelli

      All good points. The only proposal so far to replace the ACA also includes subsidies. What is the better answer? Where do we go from here?

  • Aaron F Park

    The conclusion of this article is frustrating and a very disappointing show of political bias by the author. Republicans won control of congress on a platform that consisted of repeal and replace. Second, The author ignored the unilateral actions of the administration and gave the admin a free pass for doing things without the authorization of congress. This is called Bias. Third, the author ignored that the industry whored itself out for premium welfare and with delusions of millions more insureds because of the fines.

    the author is dead wrong. It is better to ditch ACA in its’ entirety — only government could make a broken system look good — Steven’s ideological compatriots in the federal government did just that. That would be point #4. This editorial was a thinly veiled defense of incompetence and totalitarian rule. I expect better from an insurance industry publication.

    • http://www.insurancenewsnet.com Steve Morelli

      Thanks for sharing your opinion. I understand your reservations about the ACA and the Obama administration’s handling of the program. I have my own reservations, but that was not the point of this post. I am asking that when you and others say repeal and replace, what is the replacement?

      • Guest

        Indeed.

      • Aaron F Park

        Steve — a couple of the sinister provisions in this bill are the hidden taxes. Instead of taxes — how about tax refunds to ordinary smallbusiness owners for providing coverage? How about undoing the slashing of HSA /MSA / HRA accounts… those were some of the most effective tools there were
        under the old regime. Secondly, the #ACA includes a TON of social engineering that is expensive — such as forcing Sex-Change operation coverage… forcing Abortion Coverage (but not covering contraception, btw). When government seeks to tell the insurance carriers how to do business, doctors get paid less and insurance customers pay higher premiums.

        This gets me back to the original premise — this is a deliberate attempt to break the system. We need to go back to market-based coverage, where people can buy what they need, tax credits for businesses and open warfare amongst carriers for business.

        • Steve Morelli

          Tax credits are still subsidies. When government forfeits funding, it is paying from something else. Also, the subsidies in the ACA are credits. And, of course, small businesses do already get a tax credit for health coverage. In fact, that rate went up this year.
          As far as social engineering, insurance companies are “forced” to offer all sorts of coverage they would prefer not to. So, it is not intrinsically an issue. The provision on abortion in the ACA actually prohibits requiring abortion coverage in a federally established plan, allows states to prohibit exchange plans from requiring abortion coverage but does require the exchange to include at least one plan that does not have abortion coverage. I would think someone opposed to abortion would be delighted about that. But if you are uneasy with government imposing one constituency’s dogma on another, I can see why it would bother you.
          I am not sure why transgendering surgery is covered while other things are not. If I were designing ACA, I think I would have made other choices.

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