Yet another ObamaCare problem needs to be cleaned up by Trump

Yet another ObamaCare problem needs to be cleaned up by Trump
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The Trump administration recently announced a pause in the Affordable Care Act “risk adjustment” program. The action came in response to lawsuits and conflicting court rulings, one of which enjoined the Department of Health and Human Services (HHS) from continuing to operate the program using the Obama administration’s methodology.

Some defenders of the program suggest the pause will “sabotage” ObamaCare. Others argue it will drive up premiums and reduce choice, since the decision comes at a time that insurers are calculating 2019 premiums. But the reality is that the Trump administration is simply trying to clean up yet another mess created by ObamaCare.

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It is far from certain this change will have any effect at all on insurance costs and choices. The program works as follows: In each state and market segment, it imposes assessments on health insurers whose enrollees are lower than average risks and provides payments to health insurers whose enrollees are higher than average risks.

The goal here is to have insurers compete on the basis of plan benefits and quality, not on the basis of whether their customers are sicker or healthier than those of other insurers. This creates an efficient market driven by customers, where they can choose the insurer, as opposed to the other way around, or having coverage chosen by their employers or the federal government.

Not only is the program not funded by tax dollars, the statute does not contemplate any federal financing of the program. Rather, the statute specifies that “each state shall assess a charge” on insurers whose book of business is “less than the average actuarial risk” and that “each state shall provide a payment” to insurers whose book of business is “greater than the average actuarial risk.” But problems arose from the Obama administration’s regulations that fleshed out the details of the program’s design and operation. Almost from the beginning, outside analysts argued that the design set up by these regulations had significant flaws.

While the critics do not agree as to exactly how and why the design produced the results that it did, publicly available data on insurer finances indicate that the program transferred more money than it probably should have from insurers with small market shares to insurers with large market shares. That precipitated the collapse of several of the ObamaCare co-op insurers and induced others to exit the market.

In 2016, surviving co-op insurers in New Mexico and Massachusetts sued the Obama administration over the risk adjustment program. In January, a judge ruled in favor of the government in the Massachusetts case, but then at the end of February, a separate court ruled in favor of the insurer in the New Mexico case. With the necessary data and calculations now complete for making the billions of dollars of risk adjustment collections and payments for the 2017 plan year this fall, the Trump administration is putting the program on hold pending a resolution of the legal conflicts.

Some insurers are claiming that the pause is disrupting the market, meaning premiums could rise and fewer plans could be available. However, that is far from a given as different insurers would be affected differently. Plans that are “winners” under the current system would be worse off if they receive less in risk adjustment payments, but plans that are “losers” under the current system would be better off if they have to pay less in risk adjustment assessments.

Furthermore, because of the nature of the program, assessments and payments are inherently delayed, making it difficult to predict what, if any, effects suspending the program might have on premiums for the 2019 plan year. The transfers do not occur until the second half of the year following the plan year. Thus, HHS suspending the program now affects charges and payments for the 2017 plan year.

Suspending the program temporarily disadvantages insurers that will get payments for the 2017 plan year, while advantaging insurers that will be assessed charges for the 2017 plan year. How insurers might factor that into their 2019 plan year rate requests is highly speculative and uncertain. It is difficult to see how temporarily suspending a program that produces offsetting results would somehow “sabotage” all of ObamaCare. The insurers who filed these lawsuits, and those that were driven out of business at least in part by large and unaffordable ObamaCare risk adjustment assessments, do not share that view.

Edmund Haislmaier is the Preston Wells senior research fellow at the Center for Health Policy Studies at The Heritage Foundation.