Legislation

New GOP Attack on Obamacare Threatens Flood Insurance, Too


Three years of votes to repeal the Affordable Care Act didn’t end well for the Republican Party, so it has chosen a new approach. Obamacare is so bad for insurers, the argument goes, that the federal government will have to bail them out. Bailouts are unacceptable, so the ACA should be stripped of provisions that protect insurers from losses.

If this is all true, we have a much bigger problem than Obamacare. The federal code is dripping with insurer bailouts.

All of insurance is a guess made more educated with experience. Any time an insurer takes on a new risk, it’s likely to guess wrong at first. The insurance industry calls this “getting your hands around” a new risk, a euphemism for “trial and error.” The Affordable Care Act includes two programs, both set to expire in 2017, that are designed to help insurers get their hands around two new groups of people: the young and the very sick.

The first program directs every state to create a not-for-profit reinsurance pool. Reinsurance is insurance for insurers, which, just like people, can get overwhelmed with a big loss. Every health insurer has to pay into the pool and in turn has access to it if things go pear-shaped. The second program creates “risk corridors,” another fund, this time maintained by the Department of Health and Human Services. If an insurer pays out claims less than 97 percent of its target, it has guessed well, is making money, and pays into the fund. If an insurer pays out claims greater than 103 percent of its target, it has guessed poorly, is losing money, and gets help from the fund to make up the difference. These are not new ideas. Both programs were included in the Medicare Part D legislation in 2003.

In November, Republicans introduced twin bills in the Senate and the House to repeal the risk corridors. In case their intention is unclear, both bills are called “The Obamacare Taxpayer Bailout Prevention Act.” Last week Marco Rubio, a presidential aspirant from Florida and the author of the Senate bill, explained in an op-ed on Fox News that the risk corridors were “government favoritism and corporate cronyism at its worst. … If the only way ObamaCare works is with a taxpayer-funded bailout of insurers, it’s yet another clear sign that the law can’t survive and isn’t worth saving.” Charles Krauthammer, writing in the Washington Post, would eliminate the reinsurance program, too, just to be sure.

Rubio and Krauthammer are right. Government-sponsored reinsurance, including loss corridors, is a subsidy. It has been for insurers and for homeowners since 1968, when Congress established the National Flood Insurance Program—the program that enables private home owners to get insurance for coastal houses by providing a financial backstop for insurers.

At the state level, insurers and building owners in densely-packed urban cores have received a similar subsidy since 2002, when Congress passed the Terrorism Risk Insurance Act. After 2001, insurers dropped terrorism coverage altogether, and tall commercial buildings would have gone without insurance for terrorism were it not for the new federal guarantee. The law, designed to end in 2005, has been extended to the end of 2014. The last time the Congressional Budget Office looked at the program, it found that the program “does not lower the total costs of terrorism risk but rather shifts more of the burden from commercial property owners and their tenants to taxpayers.” Pretty much what Rubio said.

In theory, these programs have all been either temporary, self-funding or both. In practice, all subsidies have a way of becoming permanent. And if an insurance backstop were ever truly self-funding, there would be no reason for a government program. Private reinsurers would be eager to step in. I’d bet good money that Congress extends one or both of the Affordable Care Act’s programs past 2017, unless President Rubio objects.

But it’s hard to argue that Obamacare’s reinsurance and risk corridors present an unacceptable taxpayer bailout without voiding a whole lot of other laws, too. Taxpayers accept the cost of reinsurance because we have collectively decided that some risks are worth encouraging, even though the risk experts at private insurance companies disagree. We want office towers in our cities. We want homes and vacation rentals near the coast. We believe that extremely sick people should have access to health insurance. Rubio points out that the Affordable Care Act would not survive without loss corridors, to which the only appropriate response is, “Duh.” It’s not necessarily a bad thing.

To say you are against state-subsidized reinsurance for Obamacare is to say, basically, that you are against Obamacare. The simplest explanation for Rubio’s bill is the most likely. He has found a new way to say that he doesn’t like the Affordable Care Act. But if he and Tim Griffin, his counterpart in the House, are well and truly set against subsidies for insurers, this could be a fun year. Maybe they’ll start in Rubio’s home state of Florida. Lot of waterfront property down there.

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Greeley is a staff writer for Bloomberg Businessweek in New York.

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