Obamacare bailouts prove that the law is flawed and lousy

This week, as part of the reconciliation bill, Congress may vote on bailing out health-insurance companies losing money from their participation in the Affordable Care Act exchanges. With an $18 trillion national debt, Congress should stand firm and say no to the bailouts.

Sen. Marco Rubio is leading the fight against the bailouts. In a letter to congressional leaders, he wrote: “The reason these health-insurance companies are enduring a financial loss is that ObamaCare is a disastrous law. It broke the promise to lower health-insurance premiums and allow Americans to keep their health care. Now the very architects of this law are attempting to place taxpayers on the hook.”

Last year Rubio limited the bailout of the insurance companies with the ObamaCare Bailout Prevention Act. Some of the provisions were included in last year’s spending bill. The result of the measure was that, in October, the Department of Health and Human Services transferred $362 million to the losing insurance companies, rather than the $2.9 billion that they requested. That’s $2.5 billion more for taxpayers.

The Health Insurance Association of America, under the leadership of Karen Ignagni, lobbied heavily in favor of the Affordable Care Act. Insurance companies shouldn’t get government money now that their bet is going the wrong way.

Insurance companies thought they would have a captive market of young, healthy people who would be forced to sign up for expensive policies with the threat of penalties. But it was a cynical scheme. The premiums from young people, who do not use much health care because they are rarely sick, would be used to pay for the care of the old and the chronically ill. The Affordable Care Act was structured so that younger, healthy Americans would pay for everyone else, even though the young have higher unemployment rates, less disposable income, more student loans and fewer assets.

Little did these insurance companies know that enrollment would fall far short of predictions. Enrollment in the exchanges is estimated by Health and Human Services Secretary Sylvia Burwell to be 10 million in 2016, compared with 22 million predicted by the Congressional Budget Office in May 2013. Insurance companies are not getting enough premiums to cover the costs of treating enrollees.

The problem is that the Affordable Care Act is simply unsustainable, as I predicted in December 2009. It mandates a generous, comprehensive plan that is also expensive. Young, healthy people do not want to sign up because the premiums are far higher than their health-care costs. They rightly do not see why they have to buy a plan with pediatric dental care if they have no children, and mental-health and drug-abuse coverage if they do not need it. Many would buy a simple plan, covering major catastrophic expenses, but such plans are not allowed to be sold on the exchanges. People who are signing up for Obamacare are not the young. They are sicker than average and have chronic health conditions that make them more expensive to insure.

Insurance companies were relying on payments from the federal government to constrain their losses as part of a device known as “risk corridors.” Risk corridors allow the government to bear a portion of the costs if they become too high. Section 1342 of the Affordable Care Act states that the secretary of HHS can reimburse insurance companies if the costs of covering sick people exceed the premiums received. However, the act did not provide an appropriation for these funds. In order for risk-corridor funds to be distributed, Congress has to appropriate them.

Some legislation that includes risk corridors includes an appropriation. For instance, payments for losses under the Medicare Part D plan come from a permanent appropriation from the Medicare Prescription Drug Account. However, the ACA did not include such an appropriation.

Both the Congressional Research Service and the U.S. Government Accountability Office have ruled that a congressional appropriation is required before federal agencies can make risk-corridor payments for losses incurred under the Affordable Care Act.

Enter Rubio, who has figured out that the best way to get rid of the Affordable Care Act is simply to prevent Congress from appropriating the money to pay insurance companies’ losses. If the companies are not reimbursed, they will withdraw from the exchanges. Companies estimate that they will need $2.9 billion next year to stay in business, and they cannot manage without the government subsidy.

Sure enough, after HHS announced that companies would receive only $362 million, UnitedHealth Group UNH, +3.15% covering 550,000 people on the exchanges, said it may withdraw. UnitedHealth’s action follows the closure of numerous health-care cooperatives, such as the Kentucky Health Cooperative (51,000 members), Health Republic Insurance of New York (150,000 members), CoOportunity Health in Iowa and Nebraska (120,000 members), the Louisiana Health Cooperative (17,000 members) and Nevada Health CO-OP (14,000 members).

Some thought Obamacare would collapse because Congress could not require people to buy health insurance. But the Supreme Court, in “NFIB v. Sebelius” in 2012, decided otherwise. Then people thought Obamacare would collapse because health-insurance subsidies were not available on federal exchanges, according to the letter of the law. But the Supreme Court, in “King v. Burwell” in 2015, decided otherwise. Now Obamacare might collapse for a far simpler reason: The health-insurance companies might go out of business because more sick than healthy people are signing up.

If Congress holds its ground during the appropriations process and refuses to bail out the insurance companies for fiscal 2016, more of them will withdraw from the exchanges, and Obamacare will not last. Premiums are rising in some markets by 20% in 2016, leading to more healthy, young people dropping out of plans or not enrolling, and accelerating the financial imbalance.

While all Republican presidential candidates talk about repealing Obamacare, Rubio is the only one who is actually doing something about it. If UnitedHealth is any indication, then the senator from Florida is on the right track.