A new analysis of the PPACA’s Risk Corridor program by Standard & Poor’s (S&P) indicates that the program may not be self-sufficient and that it may actually be considerably underfunded. The program, under Section 1342 of the health law, provides a three-year temporary transition period for insurers to experiment under the new market conditions created by the law without having to assume too much risk. Insurers that take on greater risk and face corresponding losses are designed to be offset by insurers who take on less risk and reap higher profits. In doing so, the program should be deficit neutral and not require any federal funding as some pay in while some get compensated. So far, it looks like the first year of the program in 2014 will not work out as intended.

The S&P projection indicates that funding for the program in its introductory year will fall short, with transfers to insurers with losses about 10% greater than the payments made by insurers with profits. Insurers who fall on the short end of the stick in this deal will cause greater instability in the marketplace as they seek to offset their losses by raising premiums, which will only lead to more market volatility, with consumers facing the brunt of the instability through pricier health insurance. NAHU supports the program as a means to keep markets stable and insurers in the marketplace during the first few uncertain years of the health law’s implementation.

As the program is designed to be budget neutral, the Administration does not have much leeway in bailing it out and keeping these insurers engaged. Originally the program allowed the government to step in should it prove not to be self-sufficient, but that power was taken away late last year in the government spending agreement (CRominbus), which required the government to act solely as escrow between the insurers and prevents it from injecting any capital into the program over this current fiscal year. This provision was seen as a compromise to some who have called for the program to be defunded entirely, a position that NAHU strongly opposed.