Health care law's insurer stabilization fund underfunded

The temporary reimbursement program established to help insurers deal with the financial effects of the federal health care reform law is drastically underfunded, according to the U.S. Centers for Medicare and Medicaid Services.

The temporary risk corridor program — a three-year financial stabilization program built into the Patient Protection and Affordable Care Act to protect insurers from adverse risk selection and pricing volatility resulting from the law’s implementation — will only cover 12.6% of the reimbursement claims insurers have submitted for the 2014 fiscal year, CMS announced in a report issued on Thursday.

Insurers requested a total of $2.87 billion in reimbursements for costs incurred in 2014, but will receive just $362 million, based on CMS’ estimates of the risk corridor charges it will collect for the year.

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.

The U.S. Health and Human Services Department will begin collecting risk corridor charges next month, and begin making payments to insurers in December.

Underfunding of the 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 released earlier this year.

“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 released with the analysis.

“The first is whether there will be enough insurers on both sides of the corridor to balance corridor collections and payments,” Mr. Banerjee said. “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?”