Saturday, February 22, 2014

Will the Federal Government Turn a Profit on Risk Corridors? That Can Be Stopped

I have written twice about the “risk corridors” in Obamacare’s health-insurance exchanges. The first post described how risk corridors will work in the exchanges. Risk corridors exist for three years and are designed to partially immunize insurers from losing money in the exchanges.

Originally, the Congressional Budget Office (CBO) had estimated (“scored”) that the risk corridors would be revenue neutral. That is, the amount of money that the federal government takes from the health insurers will be equal to the amount it has to pay out to the losers.

A few days ago, however, the CBO issued a new budget outlook that anticipates the government turning a profit of $8 billion during the risk corridors’ existence: $16 billion of revenue versus $8 billion of spending (see especially pp. 114-115). I find the CBO’s reasoning difficult to accept, and expect the risk corridors to lose taxpayers’ money. However, that does not matter: Congress is bound to take CBO’s estimates seriously.

Read the entire column at The Independent Institute's Beacon blog.

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