The failure of federal guarantees

Many health insurers got a nasty surprise on October 1, 2015 when the federal government announced it would only pay 12.6% of money owed to them through the risk corridor program for losses incurred in the first year of the ACA.

Share this article!

While that program is being phased out at the end of this year, another federal measure designed to stabilize premiums, the risk adjustment program, will likely undergo changes to improve financial stability in the health insurance market.

The risk corridor program was meant to be a temporary backstop for health insurers that made excessive losses from policies in the individual and small group markets. Insurers that made more than a certain amount in premiums paid into the program while carriers that incurred costs over a certain threshold could collect from the program.

The risk corridor was dealt a serious blow when Congress passed legislation in December 2014 that prevented the fund from paying out in full. That legislation, known as the Cromnibus Budget Bill, included an amendment provided by Republican Senator Mark Rubio that limited payments into the program.

The change to the law was fatal for thinly capitalized health insurers in Oregon. Health Republic Insurance and Oregon’s Health CO-OP, recently formed non-profit insurance cooperatives, were forced out of business because of smaller than expected payments.

Moda Health needed a capital infusion to shore up its finances after learning that it would not receive full compensation from the fund. In 2014, the government paid  $11,238,708 of the $89,426,430 owed to the company. For 2015, the government owes Moda $101,842,405, says a spokesman.

Both Moda and Health Republic Insurance are suing the federal government for reneging on payments.


The risk corridor program and a federal reinsurance mechanism designed to protect insurers against high-cost claims are both being phased out at the end of this year. But the federal risk adjustment program remains and is expected to undergo changes in 2018 to make it more effective.

The risk adjustment program collects funds from insurers in the individual and small group markets that have enrolled lower-risk enrollees and transfers the money to carriers that have taken on higher-risk policyholders.

The industry is in discussions with the federal government on how to tweak the system. 

Kraig Anderson, chief actuary at Moda Health, said the government is considering including prescription drug claims to the risk adjustment program as well as including coverage for catastrophic claims.

Changes are also happening at the state level. Patrick Allen, director of the Oregon Department of Consumer and Business Services, says the department plans to propose several reforms to the state legislature in November to expand health insurance coverage.

One proposal is to extend and broaden the Oregon Medical Insurance Pool, a state program that provides health insurance to high-risk residents.