The Absence of Risk Corridor Payments and a King Victory could trigger a death spiral for ObamaCare Premiums

From PostPartisan in today’s Washington Post:

“But these issues are tiny compared to the implications of another Obamacare number the government released recently: 6.5 million. That’s the number of HealthCare.gov customers who, as of Feb. 9, the Health and Human Services Department reckons will be due government help in paying their insurance premiums. The number will rise significantly as HHS adds data from this month’s brisk enrollment. For now, HHS estimates the average benefit to be $268 per person per month, enabling some 80 percent of HealthCare.gov users to buy health plans for $100 or less per month out of pocket. This assistance could vanish with a hostile Supreme Court ruling this year.

Revoking this aid would deal a devastating blow to insurance markets that, as this week’s 11.4 million enrollment figure indicates, are just establishing themselves. The Urban Institute has already gamed out the results: Healthy people would drop coverage, raising costs for the sicker people who stay in the insurance system. The number of uninsured would go up, insurance premiums would go up, the quality of insurance that people had would decline, and the law’s finely tuned marketplaces would teeter near collapse.

The perceived (and actual) price increase for ACA beneficiaries in their premiums as a result of a King victory, which will eliminate their subsidies (assuming Congress and the President do not immediately restore them) will propel many healthy insureds to drop their ACA health insurance because it will be too expensive — so says the Urban Institute. This, in and of itself, could cause a dreaded ACA premium “death spiral” (see bold portion of the Washington Post quote above).

But a King victory and its premium increase effect will be compounded if most ACA insurers report losses from 2014.

For example, the vast majority — 20 out of 23 — of the much hailed ObamaCare start-up co-ops are financially upside down right now. If the financial losses the co-ops have experienced track even somewhat with losses the other mainline ACA participating insurers report, then these widespread insurer losses will have to be made up in some manner other than the just-banned-by-Congress risk corridor payments — aka, the ObamaCare Insurer Bailout payments.

This means a second, separate reason which could cause health insurance premium price increases for ACA enrollees. Stromberg and the Urban Institute are concerned that a King victory alone could cause a death spiral, but they are not factoring in the same effect the absence of risk corridor payments will have on insurers if they paid more claims than premiums in 2014, just as the upside-down ObamaCare co-ops are facing.

We will know more once there is a clearer picture of the mainline ACA insurers’ claim and payment data from 2014 and the expected King decision in June of this year by the Supreme Court.

It could be that the majority of ACA insurers have no losses from 2014 and King is defeated in the Supreme Court, leaving the subsidies in place and no reason that the absence of risk corridor payments matters.

On the other hand, the worst case scenario for ObamaCare is a loss in the Supreme Court and significant ACA insurer losses in 2014 with no offsetting risk corridor payments, which will mean significant and dramatic ACA health insurance premium price increases, accelerating the onset of an ACA premium death spiral — exactly what the Urban Institute is warning about.

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