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CBO Scored 'Risk Corridors' as Budget Neutral

One of the promises Democrats made over and over in 2009-2010 which hasn’t yet been violated is that Obamacare would lower the deficit slightly over 10 years. 

Conservatives have said all along that the history of big government social programs has always been to underestimate the true cost of the program in the early stages. But Democrats claimed to believe it will be different this time.

Monday Philip Klein at the Examiner pointed out one looming factor which might lead to this promise being violated:

Under Obamacare, before each year from 2014 to 2016, insurers have to
estimate to HHS how much they expect to pay out in medical claims
relative to premiums. If an insurer has lower-than-expected claims, it
has to pay HHS. If an insurer’s losses exceed a certain amount, HHS pays
that insurer.

A 2012 HHS report
that explained the program noted that “CBO did not score the impact of
risk corridors and assumed collections would equal payments to plans and
would therefore be budget neutral.”

Budget neutral. But as I pointed out last week, Obamacare’s proponents assumed 38% of the enrollees in qualified health plans would be be under 35 (2.7 million of the expected 7 million) in order to help support the cost of older, sicker enrollees.

So far that expectation does not seem to be happening anywhere in the country, which means the cost to insurers will likely be higher than expected. And if insurers go over their 2014 estimates the federal government will be on the hook for that extra money.

Indeed, as Heritage pointed out last week, HHS already seems to be signaling that they are prepared to expand the “risk corridor” program to help out insurers who go along with the President’s proposed “fix” to the program.

So, to summarize, the risk corridor part of the law was considered budget neutral by CBO but that assumption was based on other assumptions about who would sign up. So far those assumptions are not proving true. If the feds end up subsidizing a significant number of 2014 policies, it would be expensive. At least some portion of Obamacare’s supposed deficit reduction would evaporate.

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