$5.5 Billion for Obama’s Contested Risk Corridors
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The Fiscal Times
March 4, 2014

The president’s 2015 budget proposal includes $5.5 billion in new spending for a controversial Obamacare provision that Republicans have dubbed a “bailout” for insurance companies.

Here’s how it works: If signups and pay-ups fall short of the administration’s anticipated goals of getting 6 – 7 million people to pay for Obamacare, with about 40 percent being young and healthy, the cost to insurers would explode. They would, in turn, pass those costs on to consumers in the form of increased premiums and deductibles.  

The “risk corridor” program establishes a safety net for insurers that don’t earn enough revenue in order to stabilize those premium prices under the health care law. If insurance companies beat earnings expectations, they are required to pay the government back.

Related: Insurers Could Get Multi-Millions in Obamacare Bailout

Administration officials have said that the risk corridors were created to be budget neutral. However, Republicans argue that the provision could leave taxpayers on the hook for insurers’ shortfalls.

A handful of Republican lawmakers including Sen. Marco Rubio (FL) have introduced legislation to repeal the risk corridors. They retreated, however, when the Congressional Budget Office projected last month that the government could actually earn about $8 billion between 2015 and 2017 through the provision.

The CBO said insurers will likely see a savings of about $16 billion in 2014, which they will be required to give back to the government. Since CBO estimated the insurers would receive about $8 billion in risk corridor payments--that would give the government a net savings of $8 billion.

This new line item in the president’s budget, however, could also suggest that some insurers stand to record unanticipated losses under the new law, since the pool of enrollees has tended to skew toward older, sicker individuals. Of course, it is too early to know, and Americans still have nearly a month to sign up for health coverage before the March 31 open enrollment deadline.

The president’s proposed budget includes $77.1 billion in discretionary spending for the Department of Health and Human Service, which oversees Obamacare. In the request, the White House said it needs $1.8 billion to continue to maintain the federal insurance exchange portal-HealthCare.gov. HHS Secretary Kathleen Sebelius estimated about $1.2 billion of that will come from user fees imposed under the new law.

Related: The Cost Explosion of Obamacare Begins to Hit Home

The president’s budget also calls for increased spending for physician training programs, including $5.23 billion for a graduate medical program that would provide training to more than 13,000 new doctors over the next decade. It also includes an additional $600 million for a pediatrics care provider training program.

The proposal increases spending for research at the National Institutes of Health –which would get $30.2 billion in 2015, up from $29.9 billion this year. The increase in funding is specifically focused on Alzheimer’s disease research as well as implementing a new research arm modeled after the Defense Department’s Defense Advanced Research Agency (DARPA), which is responsible for innovations like GPS, artificial intelligence, robotics, and the Internet, among other things.

Factoring out the mandatory budgets of Medicare and Medicaid, the HHS budget proposal declined by nearly $800 million from this fiscal year. The newly released documents do not include details on the two behemoth health care programs, Medicare and Medicaid, which account for the majority of the department’s spending.

However, administration officials said proposed changes to the federal health programs would reduce the deficit by $402 billion over the next 10 years.

More from the president’s FY2015 budget proposal for HHS:

  • $25 million over two years to beef up fraud prevention within the health insurance exchanges.
  • An eight percent increas for the Food and Drug Administration to $4.7 billion to implement the new food-safety law, known as the Food Safety and Modernization Act.
  • Eliminate block grant programs that are estimated to save $80 million, and certain payment programs to nursing facilities.

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Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.