One of the headlines out of yesterday's Congressional Budget Office report
was that the risk corridor provision of the Affordable Care Act, which
Republicans have assailed as a "bailout" of insurance companies, is
actually expected to save taxpayers $8 billion through 2016.
Maybe. Maybe not. Don't put too much stock in this prediction from CBO.
Remember: The risk corridor is a program through which the government
assumes, for the first three years of Obamacare, much of the risk of
selling health insurance through the exchanges. If people who buy
insurance in are sicker than expected, and therefore consume lots of
health care, the government will pay insurers to cover much of the
excess cost. If costs come in below expectations, insurers will make
payments to the government.
This program exists because the cost of providing insurance to a new
pool of customers is hard to predict. Insurers did their best to predict
the costs when they set their premiums, and they have big incentives to
get it right: If they price too low, they'll lose a bunch of money,
even after the partial offset from the risk corridor. And if they price
too high, they'll lose customers (and they'll end up sending the
government much of the excess revenue from the signups they do get,
through the risk corridor).
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