For months, there have been assertions that the mechanisms embedded in Obamacare, designed to offset losses that insurance companies will take this year on their exchange business, amount to a bailout of the insurance industry.
At the same time, it wasn’t clear where the money to pay for these “risk adjustments” would come from in the first place.
One scheme had the Obama Administration using money that it clawed away from profitable health plans to offset the losses incurred by the less fortunate insurers.
This, at least, was the way the so-called “risk corridors” were supposed to work, according to the original legislation. Problem is, it’s not clear that there will be enough health plans this year (or any at all) with excess profits that could be used to offset the losses incurred by insurers who were less fortunate.
Another scheme — the one that gave influence to the specter of a bailout– had the Obama team using taxpayer funds to directly offset the losses taken by exchange health plans. This approach had obstacles as well. Chief among them is that the money for the bailout doesn’t exist. It was never set aside.
Even if the Obama team tried to re-program slush funds that it surfaced inside the Department of Health and Human Services, a recent analysis by the Congressional Research Service makes clear that first, Congress would have to separately appropriate the funds in order for any money to be spent on the Obamacare plans.
Now we know where the “bailout” money is going to come from. It will be paid for by a new tax levied on the insurance companies.