The Federal Government Is No Longer Obligated To Bail Out Insurance Companies

BY – Julia Cohen

 

The federal government will no longer have to foot the bill for struggling insurance companies after a U.S. Court of Appeals for the Federal Circuit ruling on Thursday.

The “risk corridor” program under the Affordable Care Act takes leftover funds from insurance plans with less than expected claim payouts and gives those funds to plans with higher than expected claims payouts.

The problem was that more plans had higher than expected claims than lower than expected claims, so the federal government started paying the difference.

That stopped in 2015, when a new appropriations bill prohibited the use of federal funds for the program. Moda Health Plan, an insurance company that benefitted from the program, sued saying the government reneged on its contractual obligation.

The Federal Circuit Court of Appeals ruled on Thursday that the government was not under any obligation to continue to fund the program. This is good for taxpayers, who will not have to bail out insurance companies. It’s bad for insurance companies, however, and could prevent new plans and entrants to the market for fear of going under without a safety net.

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