S&P: Risk corridor program significantly underfunded

Standard & Poor's Rating Services Thursday warned the Affordable Care Act risk corridor program will continue to be significantly short on cash, which could be fatal for some insurance plans.

Under the three-year risk corridor program — which aims to offset the effects of taking on the newly insured under the ACA — insurers pay if their premiums exceed claims and other costs by a set amount. That money is funneled back into the program and given to payers whose claims surpass premiums by a certain amount, effectively evening the risk of covering the newly insured.

However, in 2014, the program's first year, it fell short by more than $2.5 billion. CMS announced in October insurers would only receive 12.6 percent of the payments they requested. It planned to pay out the shortfall from 2015 collections and 2016 collections if necessary.

S&P said it expects the program to continue to be strapped for cash in 2015 if external funding is not added. S&P said the program will likely be just as underfunded as it was in 2014, and will likely not be able to cover the 2014 deficit.

According to S&P, the major deficit is due to two main reasons. First, the ACA did not originally require the risk corridor to be net neutral, or self-sufficient. This was changed after-the-fact. Second, the first two years of covering the newly insured have created a "volatile cocktail of blind pricing and aggressive pricing," because payers did not have adequate data on the newly insured population.

"We believe that it will take at least three years for the ACA exchange market to stabilize," the report reads.


More articles on payer issues:

White House challenges 20 cities: Which can get most insurance sign-ups?
Uninsured rate continues to decline: 7 things to know
Over 50% of ACA insurance co-ops have closed

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