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Health care reform stabilization program underfunded: Report

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Underfunding of the federal health care reform law's temporary “risk corridor program” could lead to increased volatility in the health insurance industry, Standard & Poor's Financial Services L.L.C. said in an analysis.

Health insurers' payments into the temporary risk corridor program — a three-year financial stabilization program built into the Affordable Care Act to protect insurers from adverse risk selection and pricing volatility within the public health insurance exchanges — accounted for less than 10% of the recoveries they reported under the program in 2014, according to S&P's report, published May 1.

Additionally, 56% of insurers that sold individual and small-group health plans through the public exchanges did not report any risk corridor receivables in 2014, which likely means that actual payments made to insurers are higher than the study indicates, S&P said.

Federal law currently requires that the risk corridor program collect its funding solely from payments made by insurers whose loss ratio on plans sold through public exchanges falls below 97%. The program ends in 2016.

Only 14% of insurers that sold insurance through the exchanges last year made payments into the risk corridor program, while 30% reported collecting risk adjustment payments.

Unable to use external money for funding, S&P's report said the Center for Medicare and Medicaid Services may be forced to use insurer payments collected this year to fund recoveries owed to insurers for their 2014 losses.

“There are really two questions that are raised by the budget-neutrality provision,” Deep Banerjee, a New York-based associate director at S&P and co-author of the report, said in a statement. “The first is whether there will be enough insurers on both sides of the corridor to balance corridor collections and payments. The second is, if there isn't even money coming into the corridor, how significant is the impact of nonreceipt of eligible corridor receivables on the credit quality of insurers and ultimately on the final premium cost of the consumer?”

S&P's report said an ongoing funding deficit in the risk corridor program likely would have a greater proportional effect on local and regional insurers, which were eight of the to 10 recipients in 2014, than it would larger national firms.

Chicago-based health insurer Health Care Service Corp., collected $115 million through the risk corridor program in 2014, the most among all insurers that reported receivables last year.