The ObamaCare 'Risk Corridors' Are STILL An Insurance Company Bailout
Jan 31, 2014 at 12:33 PM
David Hogberg in ObamaCare, ObamaCare Exchanges, Retirement, bailout, insurance company bailout, obamacare exchanges, risk corridors

Two more noted writers, both in Forbes and both conservatives, have argued that the “risk corridors” in ObamaCare are not an insurance company “bailout.”  (If you don’t know what a risk corridor is, go here and scroll to the end.)

Dr. Scott Gottlieb writesIn Obamacare, these schemes [including the risk corridors] are an unlimited taxpayer lifeline, designed to reimburse complicit insurers for the many laws of economics and common sense that Obamacare deliberately violates. The three R’s [including the risk corridors] aren’t a bailout. They’re an inevitable form of financial aid..”

Yevgeniy Feyman writes:

The main reason the program exists is because insurers generally have less experience in how to accurately price policies in the individual market than the group market, and have virtually no experience pricing policies for the new demographics under Obamacare. Risk corridors serve as a “bridge over troubled waters….[A]ny conservative reform plan for universal coverage will have to use similar methods of risk adjustment. The point here is simple – if you want insurers to participate more broadly in the individual market, you’ll need to offer a carrot to offset the unavoidable uncertainties. And railing against risk corridors now will make them a hard sell further down the road. Risk adjustment mechanisms get you the buy-in of insurers, but they also helps keep premiums at manageable levels while insurers develop enough experience to properly price plans on their own.

The problem with both of these analyses is they fail to define the term “bailout.”  If you want to show that a particular policy is not a bailout, you need to provide a definition of the term and then explain why the policy doesn’t fit the criteria of the definition.  Neither Gottlieb or Feyman do that.  Jonathan Cohn of the New Republic did provide a definition in his attempt at arguing that the risk corridors were not a bailout.  The problem was that the risk corridors actually do fit his definition of bailout.

Running the terms “bailout” and “definition” through Google returns “an act of giving financial assistance to a failing business or economy to save it from collapse.”  If one accepts that as a definition, then the risk corridors are a bailout.  They are financial assistance given to insurance companies on the exchanges.  Few insurers will probably collapse without the risk corridors.  But the business they do on exchanges could very go under with that financial assistance.  As history shows, health insurers leave markets that are regulated the way the ObamaCare exchanges are.

Article originally appeared on A Conservative Blog (http://www.conservativeblog.org/).
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