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Risk Sharing Setup

The ACA is has a requirement for insurance companies and Co-Ops to take part in HIEs, as a way to return part of their profits to the Federal government when their profit amount is thought to be excessive. The excess money is put into a Federal pool and made available towards the reimbursement of those plans, which lost more money than lawfully deemed appropriate.

Law requires these payments to be “revenue neutral,” which means that the amount paid out to loss-making plans must match the amount of money brought into the pool from profitable insurance companies.

The risk sharing setup is to be instated for the first three years that the Affordable Care Act operates, which is from the year 2014 to 2017. The Risk Corridor program, while theoretically sensible, has been disappointing in the applications it had in a real-world setting. QHPs reporting losing money in 2014 came up with figures far exceeding the “excess” profits. Financially loss-making QHPs reported losing $2.7 billion, which is and extra over what the government deems an acceptable loss.

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Risk Corridor Program

Meanwhile, the excess profits reported that year only reached $300 million. A revenue neutral program ensured that there was only this much money to cover losses of $2.7 billion. Insurers ended up receiving about 13% of their legal entitlement with regard to recoupment from the pool, and the shortfall was announced in October, a long time after the QHPs had turned in their 2016 rates. This essentially meant they ceded the authority to charge premiums for 2016 top make up for losses in 2014.

Many of these insurance providers have the financial clout to bear these losses, owing to established cash reserves from decades of continual operation. But Co-Ops, which are non-profitable in nature, and which were created with millions in federal loans and grants, did not have the same level of reserves, and were forced out of business due to this reason. BankruptCo-Ops will also be unable to repay the startup loans drew from the government, and many physician’s claims are going unresolved due to the closure of the Co-Ops.

HHS Has Hinted that Health Plans will eventually be paid what they are owed, but ACA bars them from drawing money From Any other source than the federal pool.