7/18/2019 Chamber of Commerce letters on risk corridor program

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February 4, 2014

TO THE MEMBERS OF THE UNITED STATES CONGRESS:

The U.S. Chamber of Commerce, the world’s largest business federation representing theinterests of more than three million businesses of all sizes, sectors, and regions, as well as stateand local chambers and industry associations, and dedicated to promoting, protecting, anddefending America’s free enterprise system, urges you to consider the harm that would be caused by the repeal of the risk mitigation programs as contained in the Patient Protection and

Affordable Care Act (PPACA).

Recently, certain policymakers have been examining the purposes of the programscollectively known, as contained in the PPACA, as “the 3 Rs,” that is, the risk corridor program,the transitional reinsurance program, and the risk adjustment program. As our business memberscontinue to struggle with the market disruption associated with the implementation of thePPACA, the Chamber urges you to carefully consider the wide-ranging ramifications that anychanges to these market stabilization mechanisms may have. If the market is disrupted, it wouldlead to higher costs and fewer choices for small business owners and the self-employed.

These risk mitigation programs were collectively created to mitigate the financial risk and

uncertainty facing private sector businesses as they offer products in the newly restructured smallgroup and individual markets. Facing a host of new rating limitations, mandated coveragerequirements, and a likely influx of new consumers, these companies relied on the safeguardsthat the risk mitigation programs were designed to provide. Businesses chose to offer productsin these markets based on the understanding that financial harm or benefit would be moderated both in circumstances where the prices they set far exceeded the costs they incurred and incircumstances where the prices they set fell far short of the costs they incurred.

The purpose of these provisions is to help stabilize the new markets and provide some protection to consumers and businesses enrolled in and offering coverage for the first few yearsin particular. The provisions were deliberately included in the law to protect businesses offering

 products in these new markets with no valid historical data in the initial years to guide them insetting the price of products that consumers could buy regardless of pre-existing conditions.Without these provisions, consumers would have seen much higher premiums and far fewer products offered in the individual and small group markets.

Beyond the practical importance of these risk stabilizing provisions, they have alsosuccessfully encouraged private sector engagement and participation in other new and/or highrisk insurance programs. A little over a decade ago, the legislation enacting Medicare Part D

7/18/2019 Chamber of Commerce letters on risk corridor program

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included similar risk stabilization programs to encourage choice and competition for the first sixyears of the 2003 stand-alone prescription drug program. Other programs, such as floodinsurance, crop insurance, and terrorism risk coverage, similarly rely on these types of mitigating provisions.

Further, according to a newly released Congressional Budget Office (CBO) report, thegovernment will in fact collect more money than it pays out under this program. In an estimatereleased today, CBO projects that under the new risk corridor program insurers will pay in $16 billion while the government will pay out only $8 billion, resulting in $8 billion in netgovernment revenue. 

The problem with repealing these provisions is that it would effectively harpoon the ratesthat were established based on the very protections these provisions promised. It would changethe rules of the game in the middle of the game and cause some private businesses to lose bigand others to potentially win big. Repeal would make it harder and less likely that companieswill offer products to small businesses and individuals in the future and would certainly lead to

significantly higher premiums for coverage offered next year without these protections. It wouldlimit choice, increase premiums, and hinder the development of a robust private insurancemarket. And as the American Action Forum points out in its February 4, 2014, backgrounder,“[I]t is worth noting that the provisions keeping premiums lower will also reduce federalspending on the exchange subsidies. In the absence of the risk mechanisms, higher healthinsurance premiums would result in more households qualifying for subsidies and increased costfor those who are subsidized.” 

Therefore, to protect both consumers and business, the Chamber urges you to considerthe extreme harm that eliminating these programs during the most critical phase ofimplementation would cause. It is crucial that additional reforms strengthen and protectindividuals, business, and the health care system at large, not harm it further. Repealing the riskmitigation programs would clearly be a step in the wrong direction.

Sincerely,

R. Bruce Josten