Had the federal risk corridor program not ended in 2017 and been defunded even earlier by Republicans in Congress, individual market premiums would not have risen so sharply, according to new research.
The risk corridor program—one of three premium-stabilization programs put in place by the Affordable Care Act—subsidized insurers whose medical costs exceeded a set target and taxed insurers with costs below that target.
The program was set to expire in 2016, but it was hobbled early on by an omnibus spending bill provision championed by Sen. Marco Rubio, R-Fla., which prohibited it from paying out more than it receives in collections. In fact, previous media reports noted that Rubio claimed he “killed Obamacare” by cutting pivotal funding for insurers.
But how did that fuel the rising individual market premiums that led some to call for an ACA repeal? To find out, researchers examined insurers’ financial filings as well as a dataset that recorded the prices and characteristics of all plans in the marketplaces from 2015 to 2017.
As outlined in a study published by the National Bureau of Economic Research, those researchers found that insurers making risk corridor claims in 2015 had 7% higher premium increases over the next two years than did non-claiming insurers. There was also evidence of a “spillover effect” to non-claiming insurers: in other words, those with more competitors making risk corridor claims in 2015 also saw larger premium growth from 2015 to 2017.
By extrapolating their findings, researchers estimated that ending the risk corridor program accounted for 86% of all premium growth between 2015 and 2017. If the program hadn’t ended, they estimate premiums would have risen by only 10% between 2015 and 2017, instead of the actual 37% observed.
This suggests that a risk corridor program may be useful tool for policymakers hoping to reduce insurance premiums, the study authors wrote. Yet they also cautioned that the desirability of such a program depends on more than just its effect on premiums, adding that “we leave the full evaluation of the RC program to future research.”
What the study didn’t find, meanwhile, was any real evidence of the risk corridor program’s effect on insurer participation in the marketplaces. Even so, researchers noted that it’s possible that the program did encourage insurer participation—for example, by protecting them from uncertainty over enrollee composition.