The new incoming controversy surrounding the Affordable Care Act, colloquially known as ObamaCare, concerns its provision about ‘risk corridors.’ This provision requires the government to split losses over certain amounts with insurance companies in an attempt to keep them from going under.
Here is what you need to know about the next ObamaCare battle:
1. The Government Will Split Big Losses With Insurance Companies
The risk corridors provision of the Affordable Care Act is a bit of a “sorry” from the government to insurance companies. Those companies, who were forced into accepting the new legislation, will split their newly acquired losses with the federal government.
According to Forbes, if the insurance company spends over their “target” amount of money, 103% of it to be exact, the government will split those costs with them 50/50. If the costs go higher than that and exceed 108% of the company’s “target” amount, than the government will take 80% of the cost. This is, theoretically, to keep the new helpful legislation from causing insurance companies to go bankrupt.
2. Insurance Companies Will Loose Money if too Many ‘Unhealthy’ People Sign Up
Because insurance companies can no longer turn down people for pre-existing conditions, and because a number of those signing up for insurance through ObamaCare are in need of medical treatment, insurance companies may have to spend more money than they are receiving. Insurance companies make money from healthy people who put more money into insurance companies than, theoretically, the insurance companies will have to spend on them.
Under the new law, insurance companies are afraid they will fold under the cost of its new policy holders.
3. Marco Rubio Introduced a Bill to Eliminate the Section
On November 19, 2013, Senator Marco Rubio of Florida introduced a bill called the “ObamaCare Taxpayer Bailout Prevention Act” to the senate.
The bill summary is listed as:
Obamacare Taxpayer Bailout Prevention Act – Repeals the provision of the Patient Protection and Affordable Care Act that directs the Secretary of Health and Human Services (HHS) to establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016 under which a qualified health plan offered in the individual or small group market is required to participate in a payment adjustment system based on the ratio of the allowable costs of the plan to the plan’s aggregate premiums.
4. Conservative Pundits are Calling it a ‘Bailout’
Yes, it is true that government money will go toward helping insurance companies from going under, but in many ways this is different from the government bailout’s we’ve seen in the past.
Unlike the banking industry which required bailing out after the 2008 financial collapse, the insurance industry did not cause this predicament on their own. It is also not a lump sum payment and, unlike a bailout of the banking industry, the average citizen can see some immediate benefits of insurance companies supplying coverage.
5. The Risk Corridors Close After 3 Years
One small but important detail about the controversial risk corridor provision of the Affordable Care Act is that the “corridor” closes after 3 years. The provision is just an attempt to keep the shock of instituting the law from forcing any insurance companies to close.
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