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Obamacare’s Risk-Corridor Short $2.5 Billion in 2014, With 2015 Looking Bleak; Bailout Imminent?



Since its inception in 2014, Obamacare’s Risk-Corridor was meant to offset excessive losses by insurance companies with excessive gains from profitable health insurance providers. In its third and final year, the Risk Corridor has nothing to show. What’s next?

Obamacare's Risk-Corridor Short $2.5 Billion in 2014, With 2015 Looking Bleak; Bailout Imminent?

Obamacare has no funds to cover insurer losses. As a result, insurance companies are now lining up to sue the federal government over excess losses in 2014-2015 from the Risk-Corridor plan. The program was designed to lower risk for insurance companies who were hesitant in pricing premiums for new plans offered through Obamacare. However, in 2014, insurers totalled $2.87 in losses, and profitable insurers could only produce $367 million, leaving a shortfall of $2.5 billion.

In fact, the shortfall from 2014 is so large that all profits from 2015 will be funneled into the 2014 deficit, and no funds will be available for a 2015 benefit year Risk-Corridor payments. Obviously, insurance companies are not happy about it. Humana Health says it’s owed $542 million under the program, and HealthNet is owed $212.5 million between 2014-2015. One insurance company isn’t waiting around for 2016.

Health Republic Insurance Company of Oregon on Wednesday filed a $5 billion class action lawsuit on behalf of all insurance companies shorted by the federal government’s Risk-Corridor program. Because it is a class-action, other insurers could benefit from the lawsuit, such as Moda Health, the once-dominant Oregon firm that was recently the subject of state intervention to ensure continued solvency.

Health Republic was one of 23 federally backed startups set up to increase competition in selected markets. Last fall it announced that as a result of not receiving the federal funds expected, it would wind down operations in an orderly manner rather risk insolvency later and leave members and providers in a jam. Dawn Bonder, president and CEO of Health Republic, said in a prepared statement that her company gambled on the new Affordable Care Act market while assuming the federal government would follow through on its obligations.

The Department of Health and Human Services anticipates collections from the 2016 year will still be used towards remaining 2014 benefit payments, then onto 2015 if there is anything left. Realistically, there are only two sources of funding; receipts from profitable insurers – which are nonexistent …. And tax revenue.

A taxpayer bailout seems imminent at this point.The only questions remaining are; when, and how much?

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