111 K Street NE
Washington, DC 20002
- Toll Free 1.888.564.6273
- Local 202.783.3870
The ObamaCare bailout provision is leading some health insurance companies to low-ball premiums to attract consumers during the open enrollment period, but they could be setting up enrollees for sharp cost spikes once the transitional section of the law expires after 2016.
Earlier this week, The New York Times noted the disparity in insurance premium pricing on Colorado's individual market, where the monthly cost of coverage decreased substantially in some areas of the state but rose by a stunning percentage in others. Insurers are setting rates as low as they can to attract consumers, hoping to shore up the state-based risk pools to spread costs.
"But it is not at all clear that the low prices will be sustainable, so prices may well swing sharply upward as time goes on. Nationwide, some of the plans that offered the least expensive prices for 2014 raised premiums sharply for coverage this year," the Times explains. "One insurer, CoOportunity Health, has been taken over by state regulators because of losses."
"The variations in premium prices are also a direct result of what the insurer-friendly health care law permits. Insurers can target territories, choosing areas within a given market where they can attract enough members and put together provider networks that will negotiate on price. In addition, insurers were given some protection by the federal government to reduce possible losses in the early years, so some are experimenting with very low prices that may not be sustainable over the long term," the paper added.
ObamaCare incentivizes this behavior through "risk corridors," a transitional, three-year provision to offset insurers losses and mitigate premium hikes. This provision is more appropriately labeled as a bailout for insurers. FreedomWorks has endorsed the ObamaCare Taxpayer Bailout Protection Act, introduced by Sen. Marco Rubio (R-FL) and Rep. Andy Harris (R-FL), which would eliminate this rent-seeking part of the law.
What happens when the provision expires at the beginning of 2017? It depends on the size of state-based risk pools and whether enough millennials enroll to offset costs of older, less healthy consumers. No longer able to bank on a bailout, insurers could raise premiums, they may further narrow already skimpy provider networks, or they could pull out of rural parts of states, leaving consumers with fewer choices on ObamaCare exchanges.