Marco Rubio’s New Plan to Unravel Obamacare

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from Bloomberg Businessweek,

Republican Senator Marco Rubio of Florida introduced a bill on Nov. 19 that represents a potentially crippling line of attack against the Affordable Care Act. Republicans first tried to repeal the law outright. That failed. Then earlier this month came bills from Republicans and Democrats to allow people whose insurance plans were canceled to extend them. Doing this would keep an important group of mostly healthy people from participating in the federal exchanges, driving up costs. These bills are in limbo. President Obama’s own proposed fix—allowing insurers to extend canceled plans—could have a similar effect.

Rubio’s bill takes a new approach, seeking to abolish “risk corridors,” one of several mechanisms in the law meant to hold down premium costs and entice insurers to participate in the exchanges, by protecting them from big losses if they draw a costlier applicant pool than anticipated. Risk corridors function a lot like Major League Baseball profit-sharing: Insurers who wind up with an unexpected number of healthy applicants and lower costs will “pay in” money to the government, which in turn will “pay out” to insurers with costlier applicants, thereby stabilizing the nascent market.

When Obamacare was being written, the winners and losers were expected to balance out, making the risk corridors budget-neutral. But if too many insurers lose money, the text of the law (in Section 1342, for those following at home) makes clear that the government will step in with additional funds to pay companies whose costs end up being significantly higher than anticipated. This is what Rubio is seizing on in his new bill: He’s calling the potential payment a “bailout” and trying to stop it.

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