There are so many different aspects of the Affordable Care Act (ACA) to explore and understand. One of the buzzwords that is flying around lately in regards to the ACA is “risk corridors”. What are they? Why are they important? Why is the Supreme Court involved? Let’s answer all of these questions and more.
What Are Risk Corridors?
Risk corridors go back to the very beginnings of the ACA, when the legislature was first put into place back in 2014. At this point, there was a lot of uncertainty among insurance companies. Many were hesitant to offer their plans through the open market.
They feared that insuring a new, sicker population would lead to them paying out more in claims than customer premiums would cover. That would create this situation…
Insurance companies paying much more out in claims because they are taking a risk and insuring a sicker segment of the population. They count on the monthly premiums paid by younger, healthier clients to offset this cost. However, rising premiums are deterring the younger population from buying health insurance.
As a way to alleviate this fear and encourage more insurance companies to enter the market place, the government put in place “risk corridors”. This means that if the plans that insurance companies provide on the open marketplace lose a significant amount of money, the government will provide a payment to offset the loss. In turn, if these plans generate more money than expected, the insurance companies must provide a payment to the government.
The Pro’s of Risk Corridors
While risk corridors are a somewhat controversial aspect of the ACA, they have succeeded in keeping the market stable. They did in fact encourage insurance companies to take the risk of offering their plans on the open marketplace.
With the new ACA guidelines, individuals that would otherwise have been denied due to the current state of their health or pre-existing conditions, were able to attain quality health insurance.
Ultimately risk corridors create a benefit for the general public. A more vulnerable segment of the population is able to get access to quality health insurance and this doesn’t drive up premiums to the point that the young and healthy avoid health insurance altogether.
The Con’s of Risk Corridors
The biggest criticism of risk corridors is that they sound like a bailout for insurance companies. If you think about it, it is easy to understand why they can be perceived this way initially. Insurance companies are in the business of taking risks, and the government is now offering them money to take these risks?
Well, on the surface that seems like the government is interfering with the private sector and paying insurance companies to do what they were already designed for. It doesn’t seem fair.
Actually, the more you understand risk corridors, the more fair they seem. This is why risk corridors are not a bail out: the payouts work both ways. If insurance companies turn a higher profit than expected, they must make a payment to the Government.
There is also no guarantee that either will have to make a payment. Plus, risk corridors were meant to be eliminated after the first three years of the ACA’s existence.
Where Does The Supreme Court Come In?
The result of the case, Maine Community Health Options v. The United States has been long awaited because it centers on risk corridors. On April 27, 2020, the Supreme Court decided on behalf of the Main Community Health Option. This means that the US government will indeed have to make a payment to this group of insurance companies on account of risk corridors.
What Does This Mean For The ACA?
This recent decision is just another indicator that the ACA is a permanent fixture in American healthcare. The more legal questions that are resolved surrounding the ACA, the more woven into our healthcare system it becomes.