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88–826 PDF 2014

POISED TO PROFIT: HOW OBAMACARE HELPS INSURANCE COMPANIES EVEN IF IT FAILS PATIENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, 

JOB CREATION AND REGULATORY AFFAIRS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JUNE 18, 2014 

Serial No. 113–119 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

Vacancy 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON ECONOMIC GROWTH, JOB CREATION AND REGULATORY AFFAIRS

JIM JORDAN, Ohio, Chairman 

JOHN J. DUNCAN Jr., Tennessee 

PATRICK T. MCHENRY, North Carolina 

PAUL GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

DOC HASTINGS, Washington 

CYNTHIA LUMMIS, Wyoming 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY BENTIVOLIO, Michigan 

RON DESANTIS Florida 

MATTHEW A. CARTWRIGHT, Pennsylvania, 

Ranking Minority Member 

TAMMY DUCKWORTH, Illinois 

GERALD E. CONNOLLY, Virginia 

MARK POCAN, Wisconsin 

DANNY K. DAVIS, Illinois 

STEVEN A. HORSFORD, Nevada 

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C O N T E N T S 

Page 

Hearing held on June 18, 2014 ............................................................................... 1 

WITNESSES 

The Honorable Jeff Sessions, A U.S. Senator from the State of Alabama 

Oral Statement ................................................................................................. 6 

Written Statement ............................................................................................ 9 

Mr. John R. Graham, Senior Fellow, National Center for Policy Analysis 

Oral Statement ................................................................................................. 11 

Written Statement ............................................................................................ 14 

Mr. Seth J. Chandler, Foundation Professor of Law, University of Houston 

Law Center 

Oral Statement ................................................................................................. 20 

Written Statement ............................................................................................ 22 

Ms. Cori E. Uccello, Senior Health Fellow, American Academy of Actuaries 

Oral Statement ................................................................................................. 45 

Written Statement ............................................................................................ 47 

Mr. Edmund F. Haislmaier, Senior Research Fellow, Center for Health Policy 

Studies, The Heritage Foundation 

Oral Statement ................................................................................................. 51 

Written Statement ............................................................................................ 53 

Mandy Cohen, M.D., Acting Deputy Administrator and Director, Center for 

Consumer Information and Insurance Oversight, Centers for Medicare and 

Medicaid Services 

Oral Statement ................................................................................................. 75 

Written Statement ............................................................................................ 77 

APPENDIX 

Opening Statement by Rep. Cartwright ................................................................ 94 

Data Fact Sheet Prepared by Minority Staff, submitted by Rep. Cummings .... 96 

Opening Statement of Rep. Cummings .................................................................. 100 

Opening Statement of Rep. Connolly ..................................................................... 102 

A June 17, 2014, LA Times Report on Obamacare subsidies, submitted by 

Rep. Connolly ....................................................................................................... 103 

May 2, 2014, CRS Report on ACA Risk Corridor funding for FY2015, submitted Rep. Cartwright ....................................................................................... 105 

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POISED TO PROFIT: HOW OBAMACARE HELPS 

INSURANCE COMPANIES EVEN IF IT FAILS 

PATIENTS 

Wednesday, June 18, 2014, 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ECONOMIC GROWTH, JOB CREATION

AND REGULATORY AFFAIRS, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:00 a.m. in room 

2154, Rayburn House Office Building, the Honorable Jim Jordan 

[chairman of the subcommittee], presiding. 

Present: Representatives Jordan, DeSantis, Lummis, Meadows, 

Bentivolio, Desjarlais, Cummings, Cartwright, Connolly and Kelly. 

Staff Present: Ali Ahmad, Majority Professional Staff Member; 

Melissa Beaumont, Majority Assistant Clerk; Brian Blase, Majority 

Senator Professional Staff Member; Molly Boyl, Majority Deputy 

General Counsel and Parliamentarian; Caitlin Carroll, Majority 

Press Secretary; Sharon Casey, Majority Senior Assistant Clerk; 

Katelyn E. Christ, Majority Professional Staff Member; Adam P. 

Fromm, Majority Director of Member Services and Committee Operations; Meinan Goto, Majority Professional Staff Member; Tyler 

Grimm, Majority Senior Professional Staff Member; Christopher 

Hixon, Majority Chief Counsel for Oversight; Mark D. Marin, Majority Deputy Staff Director for Oversight; Laura L. Rush; Majority 

Deputy Chief Clerk; Andrew Shult, Majority Deputy Digital Director; Tamara Alexander, Minority Counsel; Aryele Bradford, Minority Press Secretary; Jennifer Hoffman, Minority Communications 

Director; Elisa LaNier, Minority Director of Operations; Una Lee, 

Minority Counsel; Dave Rapallo, Minority Staff Director; Katie 

Teleky, Minority Staff Assistant and Michael Wilkins, Minority 

Staff Assistant. 

Mr. JORDAN. The committee will come to order. 

Senator, we appreciate your being here. You know how this 

works. We do our opening statements, myself and Ranking Member 

Cartwright. Other members are going to be joining us. We have a 

conference going on at this time and some issues that the Republican conference obviously has to deal with, so we expect members 

to be here shortly. 

Let us get started. I know how sensitive your time is. We appreciate the work you have done and your being here today. 

Today’s hearing is the committee’s second hearing examining 

Obamacare’s provisions that bail out health insurance companies. 

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Today’s hearing will also examine how the disastrous implementation of the law and the President’s extra-legal actions to unilaterally change the law have likely increased the size of the health insurance industry bailout. 

In addition to providing health insurance companies with the 

mandate for individuals to purchase their product as well as providing expensive subsidies for people who purchased coverage in 

the Obamacare exchange, the law provided large bailouts of health 

insurance companies. The American people have a right to know 

how much these backdoor bailouts will likely cost. 

One day before the committee’s last hearing on this issue in February, the Congressional Budget Office estimated there would not 

be a taxpayer bailout. Incredibly, CBO estimated that insurers 

would make so much money on their exchange plans that they 

would have to return an excess amount of the profits to the taxpayers through Obamacare’s Risk Corridor Program. 

While I have great respect for the analysts at CBO, their findings in this area do not square with the evidence presented by numerous health policy experts. However, my friends on the other 

side of the aisle trumpeted the CBO analysis at that hearing, assuring the public that there would be no bailout. 

Due to the contradiction between Administration statements, 

CBO estimates and the widespread sentiment among health policy 

experts, the committee conducted additional oversight of health insurance companies’ expectations of payments through Obamacare’s 

bailout provisions. 

The committee obtained information from 15 traditional health 

insurance companies and 23 Obamacare co-op companies that represent about three-quarters, again about 75 percent of all the individuals enrolled in Obamacare exchange plans. We talked to 15 

traditional insurance companies and 23 co-ops representing three 

quarters of the people in the exchange plans. 

While the committee is still analyzing the information provided 

by these companies, our initial review has uncovered some striking 

information. First, 13 of the 15 traditional health insurance companies expect to collect payments from the Obamacare Risk Corridor 

Bailout Program. None of the traditional insurers expect to pay 

into the program, so 13 expect to get money from the taxpayers, 

none of them expect to pay as the CBO originally estimated and 

two say it will break even. 

Eight Obamacare co-ops expect to collect payments from the 

Obamacare Risk Corridor Bailout Program. Only one co-op expects 

to pay into the program. 

Third, these health insurance companies and Obamacare co-op 

companies currently expect payments of nearly $730 million 

through Obamacare’s Risk Corridor Bailout Program. 

Finally, the health insurance industry expects its taxpayer bailout to be about 33 percent larger than it did at the start of open 

enrollment. The information provided by the insurers suggests that 

the total taxpayer bailout could, in fact, well exceed $1 billion this 

year alone. 

The information obtained by the committee shows that CMS testimony at today’s hearing is simply out of touch with the reality. 

According to CMS’ written testimony, ‘‘We anticipate that Risk 

3 

Corridor collections will be sufficient to pay for all Risk Corridor 

payments.’’ 

Now that we know that the odds of a taxpayer bailout are a near 

certainty, it is crucial for us to understand how the Administration 

plans to funnel taxpayer money to health insurance companies to 

subsidize their profits and under what legal authority—I know the 

Senator will talk about this—the Administration claims to be able 

to do that. 

In addition to examining Obamacare’s Risk Corridor Program, 

today we will also examine Obamacare’s Reinsurance Program and 

the Risk Adjustment Program. The effect of these two programs is 

to subsidize health insurance companies offering coverage in the 

exchanges with higher insurance premiums on the vast majority of 

Americans. 

The committee has learned that insurance companies directly 

lobbied the White House for the Administration to make the bailout programs more generous to insurers. In response to the insurers’ lobbying campaign, the Administration made several changes 

to increase the size of payments insurers will receive through both 

the Risk Corridor Program and the Reinsurance Program. 

Mr. JORDAN. Again, I want to thank Senator Sessions, the Ranking Member of the Senate Budget Committee, for both his work on 

this issue and for coming here this morning. Senator Sessions and 

his staff on the Budget Committee have produced an analysis confirming that the Department of Health and Human Services will 

need an appropriation from Congress to spend any money through 

Obamacare’s Risk Corridor. Again, we want to thank you for your 

work, Senator. 

First, we will recognize the Ranking Member on the subcommittee, Mr. Cartwright, the gentleman from Pennsylvania, who 

is recognized for five minutes. 

Mr. CARTWRIGHT. Thank you, Chairman Jordan. 

Welcome to you, Senator Sessions. It is good to have you here 

today. I am looking forward to a robust discussion. 

Were you ever at a social gathering where there is somebody you 

didn’t know who walks up to you and introduces himself. He is 

very pleasant and then he moves on and introduces himself to others in the gathering. Then he circles around the whole room and 

gets back to you and introduces himself to you again. 

We have had that happen and you sort of laugh it off as an innocent, honest mistake. Then that person goes around the room again 

and he circles back to you a third time and introduces himself to 

you again. I have never had that happen to me, nor have I had it 

happen 50 times because after the third time, you start to think 

wow, this guy is weird, 

Today is the 27th hearing our committee has held on the Affordable Care Act. To date, House Republicans have voted more than 

50 times to repeal, defund or otherwise undermine the law. These 

numbers are truly preposterous and a poor use of the committee’s 

and the House of Representatives’ limited resources at a time when 

our country faces immense challenges that are largely being ignored. 

I want to start out by highlighting for my Republican colleagues 

the number that matters most here today. More than 8 million 

4 

Americans have signed up for health insurance plans through the 

Federal and State exchanges. More than 8 million Americans can 

now see a doctor and get critical health services that every American should have. 

Insurance companies are no longer allowed to discriminate 

against women, people with cancer, diabetes or other preexisting 

conditions. You people are able to stay on their parents’ plans until 

they are 26. Millions of individuals can finally access free, preventive health care. 

We have seen the lowest growth in health care costs in 50 years 

and billions of dollars in rebate checks have been sent to consumers across the country. 

Unfortunately, today’s hearing is the latest in a long series of Republican attempts to criticize the Affordable Care Act. The issue 

before us today involves three risk management provisions in the 

ACA, reinsurance, risk adjustment and risk corridors. 

The committee already examined these provisions in a hearing 

on February 5 of this year. Republicans also failed to mention that 

they were the ones who first proposed the reinsurance, risk adjustment and risk corridor mechanisms in Medicare Part D where they 

have been tremendously successful. 

They discourage plans from avoiding enrollees with unusually 

high drug costs and they help lower premiums for consumers by 

stabilizing the insurance market. Now in its ninth year, Medicare 

Part D has robust participation with 39 million seniors enrolled. I 

appreciate the Senator who is here to testify before us today voted 

in favor of that legislation, as did 41 of his Senate Republican colleagues and 204 House Republicans. 

Nevertheless, Republicans continue inaccurately to describe 

these risk mitigation mechanisms as a bailout to health insurance 

companies. This is a characterization that is just plain wrong. Reinsurance is funded solely by contributions from insurance companies. Risk adjustment is funded by transfers between insurance 

companies making it budget neutral. 

Under the Risk Corridor Program, the government collects funds 

from insurers with extreme financial gains and makes payments to 

those with extreme losses. It is not a bailout. 

The reinsurance pool amount is set by statute. Payments may 

not exceed the amounts collected from insurers. In April, the nonpartisan CBO confirmed that the Risk Corridor Program would be 

budget neutral over three year life of the program. 

None of these facts sounds like a bailout to me. The Affordable 

Care Act is the law, already debated for years, passed by Congress, 

signed by the President and helping millions of Americans to obtain quality, affordable health insurance. 

Rather than continuing to look for any conceivable way to attack 

this law, as my Republican colleagues have done for years, my sincere hope is that we can start examining ways to help the program 

run more efficiently and effectively as it continues to be implemented. 

Again, I would like to thank the witness for coming to testify before us today. I look forward to an informative discussion about 

managing risk in insurance pools. 

Thank you, Mr. Chairman. 

5 

Mr. JORDAN. I thank the gentleman from Maryland, the Ranking 

Member of the full committee, and wish to recognize him. 

Mr. CUMMINGS. Thank you very much for your courtesy, Mr. 

Chairman. 

Let me extend a warm welcome to our colleague, Senator Sessions. 

This is an important topic and I look forward to hearing from all 

of our witnesses today. 

For far too long, in this country, we have been adding to the 

ranks of the uninsured. Before the Affordable Care Act, the number of uninsured Americans climbed year after year, amounting to 

what can only be described as a crisis of public health. At the peak 

of this crisis, nearly 50 million people went uninsured in America. 

I have always believed that, as a nation, we must and can do better. It is a moral issue. This is one of the reasons I came to Congress. I am proud to say today that we are doing better. More than 

8 million people have now enrolled in health insurance through the 

Affordable Care Act exchanges. Millions more now have access to 

care through State expansions in the Medicaid Program. Young 

adults across the country now have access to care through their 

parents’ insurance plans. 

Today, I would like to place into the record new data that our 

committee has obtained on this issue. Over the past several 

months, the Majority staff of the committee has been contacting 

health insurance companies that are participating in the Affordable 

Care Act exchanges. They have been requesting data about insurance company enrollment projections before the Affordable Care 

Act went into effect, as well as data about the actual levels of enrollment after October 1. 

Although the data has some limitations, several conclusions may 

be drawn. First, at the highest level, this new data obtained by the 

committee shows that actual enrollment exceeded insurance company projections by four percent. This result was achieved despite 

significant challenges with federal and State websites. 

Importantly, the data provided by these insurance companies already removed individuals whose plans were canceled because they 

did not pay the first month premium. In addition, there has been 

a lot of concern about whether young people between the ages of 

18 and 34 were going to sign up for the insurance under the Affordable Care Act. 

The new data from these insurance companies shows that enrollment among adults in this key age group exceeded insurance company projections by nearly 11 percent. The data also shows that 

this age group represented the single largest proportion of new enrollees at nearly 27 percent. They are getting insured so that they 

can stay healthy. 

Insurance companies also provided data broken down by State. 

This data shows that enrollment exceeded projections in 18 of 31 

States for which the committee obtained data. Notably, some of the 

largest enrollment increases occurred in Republican-controlled 

States that were hostile to the Affordable Care Act. 

For example, the data obtained by the committee shows that the 

actual enrollment exceeded insurance company projections by more 

than 500 percent in Florida. This data is only a sample which is 

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one of its limitations, whether this clearly demonstrates there is 

extremely strong demand for quality affordable health care, even 

despite vocal opposition from Republican governors, State legislatures and insurance commissioners. 

Mr. Chairman, I ask unanimous consent that a fact sheet prepared by my staff setting forth this data be entered in the official 

hearing record. 

Mr. JORDAN. Without objection. 

Mr. CUMMINGS. Thank you. 

Today, we will discuss the Reinsurance Risk Adjustment and 

Risk Corridor Programs under the ACA. These programs are critical mechanisms to health insurance company transition from a 

market in which they discriminated—discriminated—against people with preexisting conditions to one in which they must compete 

on the basis of quality and efficiency. 

These programs are key features of the Medicare Part D Program, one of President Bush’s signature legislative initiatives. They 

were adopted by a Republican Congress. They have been extremely 

successful in the Part D Program and they will be successful for 

the Affordable Care Act. 

Mr. Chairman, again, I thank you for the opportunity and I look 

forward to hearing from a man I have a lot of respect for, Senator 

Sessions. 

Mr. JORDAN. I thank the gentleman from Maryland. 

The gentleman from Virginia? 

Mr. CONNOLLY. Mr. Chairman, I would ask unanimous consent, 

Mr. Chairman, that my opening statement be entered in the record 

at this point prior to Senator Sessions testimony. 

Mr. JORDAN. I thank the gentleman. 

Mr. CONNOLLY. I also welcome Senator Sessions to our committee. 

Chairman JORDAN. You beat me to the punch. 

Members have seven days to submit opening statements for the 

record who any of my Republican members who want to do that. 

The Honorable Jeff Sessions is with us today. Senator, we appreciate that. We appreciate the good work you have done on this 

issue and so many others. The gentleman from Alabama is recognized. 

STATEMENT OF THE HONORABLE JEFF SESSIONS, A UNITED 

STATES SENATOR FROM THE STATE OF ALABAMA 

Senator SESSIONS. Thank you, Mr. Chairman, Ranking Member 

Cartwright and members of the subcommittee. Thank you for your 

kind words. It is an honor for me to appear before the people’s 

House and to share some thoughts that are the product of research 

by my Budget Committee staff. 

They have identified that there are problems with the Risk Corridor Program in the President’s health law but the issue is broader than health care because it impacts the constitutional power of 

Congress. 

As you know, President Obama’s healthcare law created a Risk 

Corridor Program in an effort to mitigate risk for private companies that participate in the federally-controlled health insurance 

market. The government would collect a portion of the profits if a 

7 

company makes money and pay off a portion of the losses if a company loses money. 

Under our constitutional system of government, HHS must receive an appropriation from Congress before it can make payments 

to insurance companies that lose money under this law. It seems 

quite clear that the healthcare law left any funding of the Risk 

Corridor Program to a future Congress by not appropriating such 

money as part of the original law. 

According to our own Congressional Research Service, ‘‘Under 

longstanding GAO interpretations, an appropriation must consist of 

both a direction to pay and a specified source of the funds.’’ The 

law does not meet those requirements. 

This principle flows from the plain language of Article I, Section 

9, Clause 7 of the Constitution which the House jealously guards 

and the Senate should, which states ‘‘No money shall be drawn 

from the Treasury but in consequence of an appropriation made by 

law.’’ 

Already this year, CRS has twice issued this statement seeming 

to accept the GAO interpretation. Yet it does appear that HHS intends to make risk corridor payments without congressional appropriations. The regulations and statements to insurance companies 

and the budget they have submitted suggest that. 

Without an explicit appropriation, any money spent on this program would be an illegal transfer of funds. It is bedrock constitutional law. 

It has been suggested that the Obamacare Risk Corridor Program is the same as the Risk Corridor Program for Part D of Medicare. This is plainly false. That law, Part D, included a mandatory 

appropriation for just that purpose. President Obama’s healthcare 

law contains no such language. 

To carry out their plans, the President’s fiscal year 2015 budget 

requests the authority to collect and spend money from authorized 

user fees. HHS would also apparently use the authority as justification to redistribute money collected from profitable plans or to 

even raid other funds for this purpose. Such authority from the 

budget is unlikely to happen. 

If approved, this would give HHS unchecked discretion over 

these funds creating a multibillion dollar slush fund. Our research 

indicates that if Congress does not either provide a funding source 

through appropriations or grant the Administration new authority 

to shift around funds, then any risk corridor payment HHS makes 

would be illegal. 

Should the Administration persist in doing so, it would be subject 

to prosecution under the Antideficiency Act. Of course, we hope 

they will avoid taking that step. Your hearing today could help impact their decision. 

Although they seem to have clearly indicated they intend to do 

so at this date, the implementation of the President’s health law 

has been marked by a series of unilateral actions by the President 

and the Executive Branch officials that undermine the rule of law, 

in my opinion, and public confidence. This is far the larger pattern 

of executive lawlessness and unilateralism that has caused great 

unease throughout the country. 

8 

Sadly, the Senate has failed to defend Congress’ congressional 

prerogative. The House, by contrast, is to be applauded for its defense of the Constitution as exemplified by the hearing today. I 

would urge lawmakers in both parties to act in defense of Congress 

and the authorities delegated to it by the Constitution. James 

Madison would expect no less. 

Thank you, Mr. Chairman, for the opportunity to share these 

thoughts with you. 

[Prepared statement of Senator Sessions follows:] 

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Mr. JORDAN. Thank you, Senator. Again, we appreciate your 

work on this issue and so many others, and your focus here today 

on the importance of adhering to the Constitution and the rule of 

law. 

Senator Sessions, thank you again very much. 

We will now take a short recess to get ready for our first panel. 

[Recess.] 

Mr. JORDAN. The committee will come to order. 

We want to welcome our distinguished panel: Mr. John R. 

Graham, Senior Fellow, National Center for Policy Analysis; Mr. 

Seth J. Chandler, Foundation Professor of Law, University of Houston Law Center; Ms. Cori E. Uccello, Senior Health Fellow, American Academy of Actuaries; and finally, Mr. Edmund F. Haislmaier, 

Senior Research Fellow, Center for Health Policy Studies, The Heritage Foundation. 

Pursuant to committee rules, all witnesses will be sworn before 

they testify. Please rise and raise your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[Witnesses respond in the affirmative.] 

Mr. JORDAN. Let the record show everyone answered in the affirmative. We will start with Mr. Graham. 

Mr. Graham, you are recognized for five minutes. You know how 

the light system works. Make sure microphone is on and fire away. 

STATEMENT OF JOHN R. GRAHAM 

Mr. GRAHAM. Thank you, Chairman Jordan, Ranking Member 

Cartwright and members of the committee. 

My name is John R. Graham, Senior Fellow at the National Center for Policy Analysis, a nonprofit, nonpartisan, public policy research organization. I welcome the opportunity to share my views 

and look forward to your questions. 

Despite the President’s assurance that if you like your health 

plan, you can keep your health plan, Obamacare has caused significant disruption to peoples’ coverage. As the health insurance exchanges prepared for their first open enrollment, which began last 

October, insurers knew that they would struggle to price policies 

in the exchanges accurately. 

Obamacare includes three mechanisms to backstop insurers’ risk: 

risk adjustment, reinsurance and risk corridors. I will focus on the 

last two. These last two, reinsurance and risk corridors, are politically motivated tools that are critical to insurers’ ability to profit 

in the exchanges through the end of 2016. Both persist only 

through the first three years of Obamacare. 

The first is reinsurance. Each year, Obamacare levies a special 

premium tax on all insurers, as well as self insured plans. This tax 

revenue is supplemented by a little extra from the general revenues to add up to a total of $25 billion over the three year period. 

For each of the three years, the U.S. Department of Health and 

Human Services must publish a notice explaining how it will distribute this money to insurers. In March 2013, HHS issued its first 

notice. My written testimony goes through the arithmetic which 

12 

concludes that the maximum payout per expense of policyholder 

would have been $150 to $1,000. 

However, at the end of 2013, HHS changed that rule, increasing 

the maximum payout to $164,000 by changing the attachment 

point. HHS asserts that it changed the attachment point because 

there would be fewer extraordinarily expensive claims than originally anticipated. This is a remarkable claim. 

Evidence suggests that the exchanges are attracting older and 

sicker applicants than originally anticipated. For example, Express 

Scripts, the country’s largest provider of pharmacy benefits has released an analysis of medication utilization in the exchanges. 

‘‘Increased volume for higher cost specialty drugs can have a significant impact on the cost burdens. Specialty medications now account for more than a quarter of the country’s total pharmacy 

spend and total spend six of the top ten costliest medications used 

by exchange enrollees have been specialty drugs. 

‘‘In commercial plans, only four of the top ten costliest medications were specialty. More than 6 in every l,000 prescriptions in the 

exchange plans were for medication to treat HIV. This proportion 

is nearly four times higher in exchange plans than in commercial 

health plans.’’ 

Further, the exchanges need so-called young invincibles who are 

between the ages of 18–34. However, these comprise only 28 percent of enrollees in Obamacare plans, almost one-third fewer than 

the 40 percent previously expected. 

Even worse, our understanding of the characteristics of the beneficiaries in the exchanges is deteriorating because HHS appears to 

have decided to discontinue its monthly announcements that describe these important factors. 

The Reinsurance Fund is primarily financed by a tax levied on 

unassumed approximately 191 million insured people in the United 

States. If 2014 sees significantly fewer insured people, then assumed revenues will fall short. It is likely the Reinsurance Fund 

will fall short of satisfying insurers’ claims and they will look elsewhere to be made whole which brings us to the risk corridors. 

This is an unlimited taxpayer obligation that compensates insurers and the exchanges according to the formula I describe in my 

written testimony. A quick read of this corridor suggests they are 

revenue neutral, but this is not the case. Payments are based on 

premiums paid, not claims incurred. 

At the risk of over simplification, if the premium of all insurers 

is $10,000 and the average of all claims is $10,000, the risk corridor is revenue neutral, but if the average of all claims is greater 

than that, taxpayers are on the hook for the difference. 

Health insurers appear to understand that the exchanges contain 

more risk than initially appreciated and HHS has responded to 

their concerns in a series of communications that have promised in 

somewhat veiled language that it will adjust the risk corridors, 

quoting from a letter, ‘‘modify the Risk Corridor Program final 

rules to provide additional assistance.’’ 

Also, the HHS has increased the administrative costs that it will 

compensate plans for if they incur too many claims in the risk corridors. 

13 

In its most recent communication, the HHS appears to have accepted the need for appropriations as the Congressional Research 

Service has suggested and I would conclude by encouraging Congress to use whatever tools and powers available to it to ensure the 

taxpayer liabilities in these risk corridors are limited and precisely 

quantified. 

Thank you. 

[Prepared statement of Mr. Graham follows:] 

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Mr. JORDAN. Thank you, Mr. Graham. 

Mr. Chandler? 

STATEMENT OF SETH J. CHANDLER 

Mr. CHANDLER. I am Seth Chandler, Professor of Law, University 

of Houston. My credentials are set forth in my written testimony. 

I live with and am friends with many people whose politics probably align better with those of the House Minority. I suspect I don’t 

need to work as hard today to persuade members of the Majority 

as to the merits of my written testimony. Let me see if I can articulate what I have said in a way that aligns with some shared values 

and that speak to a broad segment of my friends. 

All of you ought to be very concerned about the way risk corridors is being implemented. First, about the Obama Administration’s sabotage of its own delicate mechanisms for adverse selection 

containment by what it calls a transitional policy by violating the 

law you passed and permitting insurers in many States to sell policies that fail to provide essential health benefits and that otherwise 

violate the ACA. 

That action increased the cost of risk corridors substantially, 

even as it challenged separation of powers. 

Second, you ought to be concerned about the revisions this spring 

to 45 C.F.R. Section 153.500, a decision to fiddle with the risk corridors formula it had earlier written not in a way that has anything to do with a reappraisal of real costs, but as just about taking 

care of everybody’s friend, big insurers. 

Having started down the road of tampering with the delicate balance contained in the ACA, for which some of you in here voted, 

the Obama Administration, instead of backing off, has to keep 

scrambling to go beyond the statute or normal precepts of administrative law in order to keep propping it up, this time at the taxpayers’ expense. 

When you let precedents like this stand, when you say it is all 

for the greater good or for temporary political advantage, before 

you complain again that this is all some tiresome political stunt, 

think about what happens when the future Cruz Administration or 

some other Executive Branch leader not to your taste, has the 

same sort of powers over the purse and over the law that this Executive Branch is claiming. 

Finally, you ought to be concerned about the state of your own 

House. In my written testimony, I go through the bizarre history 

of the Congressional Budget Office’s accounting for risk corridors. 

I have studied it with every tool I have and I cannot make mathematical sense of what they did in February or their about face in 

April. 

The latter time was the worst. The CBO simply capitulated to 

the assertion of the Executive Branch that it would balance risk 

corridor books by paying off any deficiencies in one year’s risk corridor bill with proceeds from what it hoped would be the following 

year’s surplus. 

CMS admitted in its April 11 fact sheet not having an answer 

to the obvious question of what happens when it has borrowed so 

much against future receipts that there is not enough money to pay 

off in year three. Scoring risk corridors as budget neutral, CBO 

21 

simply capitulated to this vacuous response that relied on vapor 

dollars and an unlawful withholding of money to the insurance industry to balance the books. 

It should have and it could have done much better. If you want 

to enact interventionist, complex, delicate laws, okay. I understand 

that. Perhaps that is sometimes what it takes. If you are going to 

go down that path, you must have independent and technically 

adept information on the benefits and costs of doing so. 

No matter the minor transitory benefits today of looking the 

other way, when congressional majorities come and go, you ought 

to be very concerned about a precedent in which at least the appearance of politics starts to infect the CBO. 

What I want to do in the 52 seconds remaining is to go where 

the CBO feared to tread. I want to estimate for you the real cost 

of risk corridors before the transitional policy, after the transitional 

policy and after the CMS fiddled with the computation of the risk 

corridors ratio. I am going to do so using the same software that 

underlies my written testimony. 

What you see in the blue line is what risk corridors would have 

cost the Federal Government under various levels of profitability 

for the insurance industry. More profitable is to the left; less profitable is to the right. 

The orange line is what happens—at least a decent scenario of 

what happens after the transitional policy is enacted. You can see 

that for all levels of insurer profitability, the cost of risk corridors 

goes up. 

The green line is the add-on created by the fiddling with 153.500 

and adding what are in effect phantom costs to risk corridors. 

You can see the bill increasing. I would add this estimate is 

roughly in conformity to what the committee investigation found in 

its speaking to insurance companies. 

I see my red light is more than on, so I will quit. Thank you. 

[Prepared statement of Mr. Chandler follows:] 

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Mr. JORDAN. Thank you, Mr. Chandler. Well done. 

Ms. Uccello. 

STATEMENT OF CORI E. UCCELLO 

Ms. UCCELLO. That is a tough act to follow. 

Good morning, Chairman Jordan, Ranking Member Cartwright 

and members of the subcommittee. 

I am Cori Uccello, Senior Health Fellow, American Academy of 

Actuaries, which is the non-partisan public policy and professionalism association for actuaries in the U.S. Thank you for inviting me to speak today. 

Millions of Americans have obtained health insurance under the 

Affordable Care Act. However, the law poses some financial risks 

for insurers which could limit competition and plan choice. 

To address these risks, the ACA includes three risk sharing programs: risk adjustment, reinsurance and risk corridors. My remarks will provide a framework for understanding these programs. 

Taken together, they encourage plan choice and competition and 

reduce the incentives for insurers to avoid high cost enrollees. 

I will first discuss the permanent Risk Adjustment Program. Requiring insurers to accept all applicants, regardless of preexisting 

conditions, and prohibiting premium variations based on health 

status exposes insurers to adverse selection risk which occurs when 

individuals who anticipate high health care needs are more likely 

to purchase coverage than those who anticipate lower needs. 

The ACA’s individual mandate and premium subsidies reduce 

the adverse selection effect in the market, although some risk remains. Such adverse selection risk could encourage insurers to 

avoid enrolling people with high health costs. 

The Risk Adjustment Program aims to reduce these incentives by 

shifting money among insurers based on their enrollee risk profiles. 

Insurers with larger shares of low cost enrollees will contribute to 

a fund that will make payments to insurers with larger shares of 

high cost enrollees. 

All ACA compliant plans in the individual and small group market will participate in the Risk Adjustment Program, whether they 

are inside or outside of the exchanges. The program is designed to 

be budget neutral. 

Next, I will turn to the Reinsurance Program. From 2014–2016, 

the ACA includes a transitional Reinsurance Program which further reduces the incentives for plans to avoid high cost individuals 

and help stabilize premiums. 

The Reinsurance Program will offset a portion of the cost of high 

cost enrollees in the individual market. This will reduce the risk 

to insurers, allowing them to offer premiums lower than they otherwise would be. 

In 2014, $10 billion will be collected from health plans, which 

will then we used to pay plans in the individual market for a portion of an individual’s claims exceeding $45,000. The program is 

budget neutral. If necessary, reinsurance payments will be adjusted to ensure that payments do not exceed contributions collected from plans. 

Contributions to and reimbursements from the program will decline over the program’s three years. The transitional nature was 

46 

designed to address the likelihood that the earliest enrollees would 

be those with higher costs, including those transitioning from high 

risk pools whereas healthier individuals may delay enrolling. 

The third program is the Temporary Risk Corridor Program effective from 2014–2016 for qualified health plans in the individual 

and small group markets. The ACA risk corridor is similar in concept to that in Medicare Part D. 

Risk corridors mitigate the pricing risk that insurers face when 

they have only limited data to estimate the health spending of the 

newly insured. An objective of risk corridors is to encourage health 

plan choice and competition by limiting the risk for insurers participating in the market during its early years. 

The ACA Program includes two-sided risk corridors which limit 

not only insurer losses but also insurer gains. Actual claims are 

compared to the expected claims that were assumed in the insurer’s premiums. 

If actual claims are within three percent of expected, insurers either keep the gains or bear the losses. A portion of losses exceeding 

three percent are reimbursed by the Federal Government. A portion of gains exceeding three percent are paid to the Federal Government. 

Insurers do not have full protection against losses. They bear a 

share of the risk even if losses exceed the thresholds. Such a design 

encourages insurers to set premiums so that they are adequate to 

pay claims. 

In closing, I want to highlight the importance of these programs. 

The Risk Adjustment and Reinsurance Programs reduce the incentives for insurers to avoid high cost enrollees. By limiting insurer 

losses due to pricing uncertainty, risk corridors encourage insurer 

participation in the market which in turn increases competition 

and plan choice for consumers. 

Because the risk corridors are two-sided, the Federal Government will receive payments from insurers if their gains exceed the 

threshold. 

Thank you. I look forward to your questions. 

[Prepared statement of Ms. Uccello follows:] 

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Mr. JORDAN. Thank you. 

Mr. Haislmaier. 

STATEMENT OF EDMUND F. HAISLMAIER 

Mr. HAISLMAIER. Mr. Chairman, Ranking Member Cartwright 

and members of the committee, thank you for inviting me to testify 

today. 

My name is Ed Haislmaier, Senior Research Fellow in Health 

Policy Studies at the Heritage Foundation. 

As I am sure you already aware, this is a complicated and sometimes an opaque topic. I would hope to maybe put it into a perspective that you could use in evaluating it. 

The perspective I suggest is to approach this from the same perspective that a mechanic would approach trying to fix something. 

That is, what is the problem, given the problem, what is the right 

tool? Do I use a screwdriver, a pair of pliers, a wrench or a hammer? 

In the case of risk in insurance, there are all different types of 

risk. Let me briefly describe what I see as the three types of risk 

being addressed by these three risk mitigating strategies. I think 

that might give us a way to evaluate the programs separately. 

The first is what could be called a market selection risk. There 

are many changes that this law makes to existing markets and it 

is very uncertain how people will sort themselves out when they respond to those changes with respect to people who already have insurance, including those with employer group coverage who may 

continue it or may not, with respect to the uninsured, et cetera. 

When people have choices of markets, it is oftentimes difficult to 

predict who is going to wind up where. The underlying assumption—I think it is a valid assumption—behind the Reinsurance Program is that there will be a shift due to market selection of less 

healthy individuals towards the individual market, particularly 

through the exchanges. 

Therefore, the Reinsurance Program, based on that premise, essentially taxes the other 90 percent of the market to subsidize that 

10 percent of the market on the expectation that there will be more 

people of lower risk moving into that smaller individual subset. 

That is a market selection risk, which markets are people going to 

wind up in, individual, employer groups, self insured, uninsured, 

that is the uncertainty. 

The second uncertainty is sort of a wholesale risk is the retail 

level, the individual selection risk. Even if you take a pool of people, all of whom are committed to buying insurance, we don’t know 

who is going to pick which insurer and which plan. There are many 

different factors that will go into their decision, something as simple as brand name. Maybe they will pick Blue Cross because they 

know it as opposed to an insurer they don’t know. 

In that market, the concern is—this is true of any market—that 

the insurers may not get a statistically even distribution of all the 

risk profiles. The Risk Adjustment Program is there really for the 

insurers to sort out among themselves that market selection risk. 

That brings me to the third and most contentious and this is the 

risk corridors. Essentially, the Risk Corridor Program functions as 

52 

a profit or loss risk mitigation. Will the insurers be profitable or 

not in this market? 

This is where I think it is very important to consider what is and 

isn’t applicable about the often mentioned experience with Medicare Part D. Medicare Part D was an entirely new product design 

in an entirely new market. The insurers were being asked to do 

something they had never done before. 

They had never offered standalone drug coverage to senior citizens. Furthermore, the closest they could get in approximating that 

wasn’t really very good which was employer group drug coverage 

but it was not really the equivalent. 

It was sold on a group basis, on an individual basis, so there was 

less risk there. It was integrated with the plans, not standalone. 

That made it very different. Also, it was sold to a population that 

used only one-fifth as many drugs as the senior citizens do. It was 

a very difficult market for the insurers to try to figure out. 

In comparison, the market that we have created in the individual 

market, yes, does make changes, does elevate risks for carriers but 

it is not an entirely new market. I detail in my testimony where 

insurers could get experience they can go on. 

Finally, I think any argument in favor of the Risk Corridor Program is really undercut by the very design because everything that 

you could say about why the exchange market is riskier, also applies to the individual market outside the exchange which, in fact, 

was recognized in the Reinsurance Program that applies to both in 

and outside exchange. 

In this case, in the Risk Corridor Program, it only applies inside 

the exchange. I think that really undercuts it because the risk 

would be the same inside and outside. 

I would finally note that I think there is enough money in the 

system already. As I said in my testimony, there is about $28 billion in the individual premiums in the market today, absolute 

outer bounds, upper estimates I come up with would be an additional $35 billion of premium in an expanded market. 

When you compare that to the $10 billion available in reinsurance funding this year, the insurers could be off by as much as 28 

percent in their premiums and you could still make them whole 

through reinsurance. 

In conclusion, I think for this and for a number of other reasons 

mentioned by others about the legal questions, it might be best for 

Congress to simply scrap the program. 

Thank you, Mr. Chairman. 

[Prepared statement of Mr. Haislmaier follows:] 

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Mr. JORDAN. Thank you, Mr. Haislmaier. 

Mr. Chandler, in February of this year, the CBO estimated the 

risk corridor provision would produce $8 billion for the government. 

‘‘The CBO projects the government’s risk corridor payments will be 

$8 billion over three years and that its collections will be $16 billion over that same time period.’’ Do you agree with that statement? 

Mr. CHANDLER. No, I do not agree with that. 

Mr. JORDAN. You do not agree with that. At the time, did you 

disagree with that statement as well? 

Mr. CHANDLER. Yes, I did. I disagreed at the time. 

Mr. JORDAN. Your research says there is going to be a cost, correct? 

Mr. CHANDLER. My research says that it is most likely that there 

will be a cost. 

Mr. JORDAN. In April of this year when CBO revised their estimates and said, no, no, it is not going to result in $8 billion windfall for the taxpayers; it is going to be a budget neutral break even 

proposition, do you disagree with that statement as well? 

Mr. CHANDLER. Yes, I do. I think it is unlikely to be a break even 

proposition, nor do I see what happened between February and 

April that would warrant an $8 billion change in the estimate. 

Mr. JORDAN. The staff on this committee actually contacted the 

people who participated in the program. Imagine that. We went to 

the insurance companies and the co-ops who participated in the 

program and asked them what they expect. Guess what they told 

us. They expect to get paid by the taxpayers to the tune of ‘‘approaching $1 billion.’’ 

The actual participants and what they expect the people who are 

operating in this arena with this law, they are actually supporting 

your research. What do you think it is going to cost the taxpayer 

in the end? 

Mr. CHANDLER. It depends on a number of factors. 

Mr. JORDAN. You do believe it is going to cost the taxpayer? 

Mr. CHANDLER. I believe it is very likely to cost the taxpayer. 

Mr. JORDAN. This is the point I want to stress. That is consistent 

with the insurance companies and the costs participating in the 

program? 

Mr. CHANDLER. That is correct as I understand what your committee has found. 

Mr. JORDAN. Now you can elaborate. 

Mr. CHANDLER. It depends on a number of factors. It depends on 

how many people enroll in the exchanges. 

Mr. JORDAN. They quit telling us how many are in there. They 

quit telling us that a few months ago. 

Mr. CHANDLER. It depends on how insurers price their policies 

going forward. It depends on exactly how the transitional policy 

that lets people buy policies outside the exchange persists. That 

being said, I think it is most likely that the Risk Corridors Program will cost somebody—because I am not sure where the money 

comes from—it will cost somebody in the end. 

Mr. JORDAN. It all comes from the taxpayers, Mr. Chandler. 

59 

Mr. CHANDLER. That would be my best guess. If Senator Sessions 

is correct that there is no constitutional authority to spend that 

money, I don’t know what will happen. 

Mr. JORDAN. That is another problem. That is the whole constitutional concern and we will get to that sometime this morning in 

our hearing as well. 

Mr. Graham, let me run you through the same thing. Did you 

agree with the February assessment from CBO? 

Mr. GRAHAM. I did not. I did not have the skill. I didn’t do the 

analysis. I was quite skeptical of it and then so soon to change it. 

The estimate is moving in the wrong direction. 

Mr. JORDAN. Exactly the trend line is not where we want to be. 

Mr. Haislmaier, did you agree with the February assessment? 

Mr. HAISLMAIER. I did not look at it as closely as Mr. Chandler, 

but my reaction was that I thought CBO had essentially cribbed off 

what they had come up with on Medicare Part D and just plugged 

it in there. Frankly, to be fair to CBO, you guys ask them to do 

a lot of stuff very quickly. I have seen this behavior before, to just 

sort of take what is on the shelf. 

I did not put a lot of weight on their estimate one way or another 

or on their revision, frankly. 

Mr. JORDAN. Ms. Uccello, what did you think if CBO’s February 

and then two months later, their revision to the risk corridor provision? 

Ms. UCCELLO. I did not have a particular reaction one way or another on the February numbers. I think those were reflecting some 

of the experience with Part D which I think factored into the CBO’s 

numbers. 

I cannot speak for CBO but my understanding was that the April 

numbers were produced and revised based on some information 

from CMS that stated they were going to implement the risk corridors in a budget neutral way. That is how I read their April estimate. 

Mr. JORDAN. Here is how I see it as I indicated to Mr. Chandler. 

First, we say $8 billion pro taxpayer, two months later, we say no, 

break even. Now that we have talked to the people actually involved, they said it is going to cost the taxpayer. 

As Mr. Graham indicated, the trend line is in a direction that is 

not real good looking for the taxpayers. Do you agree with that 

trend line that we see? 

Ms. UCCELLO. I think it is too early to say. There is still so much 

uncertainty about this. I think the complicating factor is that not 

just the transition rule and the changes that were made because 

of that and how that all else equal would have increased the likelihood of risk corridor payments being made, but at the same time, 

when they are implementing this, they lower the attachment point 

for the Reinsurance Program and that could have reduced the likelihood of risk corridor payments being made. There are a lot of factors that we need to integrate. 

Mr. JORDAN. I have five seconds left. 

Mr. Chandler, do you think the liability for taxpayers is in the 

millions of dollars or potentially in the billions of dollars? 

Mr. CHANDLER. I think they are most likely in the billions of dollars. 

60 

Mr. JORDAN. With that, I will yield to the gentleman from Pennsylvania, the Ranking Member. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

What I find most troubling about labeling the ACA’s risk management programs as a bailout to insurers is that these same three 

mechanisms have been in use in Medicare Part D for the past nine 

years as several of you mentioned. 

Let us not forget that Medicare Part D was signed into law 

under the George W. Bush Administration, supported by Senators 

Sessions, McConnell and others, Speaker Boehner, Majority Leader 

Cantor, Budget Chairman Ryan and the chairman of our full committee, Chairman Issa, all voted in favor of that bill, Medicare Part 

D. 

Ms. Uccello, thank you for coming here and explaining your 

world, the world of actuary science, to us mere mortals. 

You mentioned the word uncertainty and that is a word you deal 

with as part of your profession, isn’t it. You said that it is too soon 

to be casting these opinions and statements about this program because we don’t have enough experience with it yet. You said there 

was too much uncertainty for us to make these conclusions. 

Ms. Uccello, can you explain why insurers face uncertainty in 

new programs like Medicare Part D and the ACA and how these 

risk management programs we are here talking about operate to 

reduce the uncertainty? 

Ms. UCCELLO. As I mentioned, in Part D, there was that uncertainty regarding new coverage for a new population and a lot of 

those same uncertainties exist under the ACA. There is uncertainty 

regarding who will purchase coverage and what their health spending will be. That creates a lot of pricing uncertainty for insurers 

when they are determining their premiums. 

There is also the issue of whether or not a particular plan is 

going to get a disproportionate share of high cost people relative to 

the market as a whole. 

Mr. CARTWRIGHT. Mr. Haislmaier, you stated in both your written and oral testimonies, that you believe insurers in the individual 

market face less pricing uncertainty than the Part D plans faced 

at the outset of the Part D program. You explained that was because we had no experience in Medicare Part D, whereas with 

health insurance under the ACA, there is a lot more data to give 

us guidance. Am I correct in that? 

Mr. HAISLMAIER. Yes, sir, that is exactly the point I was making. 

Mr. CARTWRIGHT. Ms. Uccello, I want to ask, do you agree with 

that? 

Ms. OCCELLO. I think there is just as much if not more uncertainty with the ACA premiums as there was for Part D in part because the variability of Medicare medical spending is a lot higher 

than that for prescription drug spending so that can increase the 

uncertainty. 

Mr. CARTWRIGHT. Do I go too far then to say, Ms. Uccello, that 

in your opinion, the need for risk corridor programs is even greater 

than with the Medicare Part D program? 

Ms. UCCELLO. I would say that it is just as much, if not greater. 

61 

Mr. CARTWRIGHT. How did reinsurance, risk management and 

risk corridors impact the participation of insurers and the cost of 

premiums in Medicare Part D, Ms. Uccello? 

Ms. UCCELLO. I think we have to look back and recall the environment when Part D was first created. There was a lot of concern 

that insurers would not participate in the market. There was even 

a fallback provision in there if plans did not participate in certain 

markets. 

What we are actually seeing now is that consumers have a wide 

array of Part D plan choices. I think that does not prove but it suggests that the risk corridors were successful in encouraging plan 

participation. In terms of reinsurance, those did help lower the premiums. 

Mr. CARTWRIGHT. Do the ACA’s risk mitigation programs work 

the same way to increase participation by insurers and stabilize 

the cost of premiums? 

Ms. UCCELLO. Yes. The Risk Corridor Program’s primary goal is 

to mitigate the pricing uncertainty to encourage plan participation. 

Mr. CARTWRIGHT. Why is that important to encourage more insurers to participate in the exchanges? 

Ms. UCCELLO. If you have more competition, you have more 

choice among consumers and more competition could also mean 

more competing on price and quality of insurance as opposed to 

risk selection. 

Mr. CARTWRIGHT. Thank you. 

I yield back. 

Mr. DESANTIS. [presiding] The gentleman’s time has expired. 

The Chair now recognizes himself for a period of five minutes. 

Mr. Graham, with respect to the Risk Corridor Program, if insurers systematically set their prices too low, is it correct that basically the taxpayer is on the hook for that mispricing? 

Mr. GRAHAM. Yes. 

Mr. DESANTIS. As Chairman Jordan mentioned, our committee 

asked the 15 largest insurers in the country about what they expected in terms of taxpayer payments and 13 insurers expected 

they would get paid out of the program. Knowing how this is structured, is that something that came as a surprise to you? 

Mr. GRAHAM. The specific numbers came as a surprise to be but 

not really because I think those of us who examined it know when 

it was promoted by the Administration as budget neutral, that was 

not a likely reality as it happens. 

Mr. DESANTIS. The taxpayer is implicated by this program. Mr. 

Graham, is it correct that this reinsurance provision is financed by 

a fee or tax, however you want to term it, on all health insurance 

plans? 

Mr. GRAHAM. Of the $25 billion, $20 billion is the premium tax 

and $5 billion is general revenue. 

Mr. DESANTIS. Basically, you have the vast majority of individuals with health insurance are paying higher premiums to finance 

the Obamacare Reinsurance Program, correct? 

Mr. GRAHAM. Yes, sir. 

Mr. DESANTIS. Essentially, the Reinsurance Fund is a transfer 

from those Americans to a very smaller subsection of Americans 

who have Obamacare plans? 

62 

Mr. GRAHAM. Yes, sir. 

Mr. DESANTIS. You mentioned in your testimony that higher 

than expected reinsurance claims indirectly affect taxpayer exposure to risk corridor bailouts. Can you discuss what you meant by 

that? 

Mr. GRAHAM. I am thinking it is clear from the communications 

between the Administration and the insurers that the insurers 

really are looking to the risk corridors and as your research tells 

us, 13 out of 15 are expecting a payout. 

If they run out of the money in the reinsurance plan, the more 

incentive is for the insurers to focus on the risk corridors and make 

sure they up their money coming out of that through various communications and relationships with the Administration. 

Mr. DESANTIS. Mr. Chandler, the Risk Corridor Program, how 

does that impact health insurance pricing? Can you explain that 

for us? 

Mr. CHANDLER. In theory, it might slightly lower health insurance pricing because insurers are basically getting what one might 

call a derivative security issued by the government that hedges 

their risk. 

Mr. DESANTIS. What do you think will happen to insurance premiums after 2016, following my train of thought, if both the risk 

corridor and the reinsurance provisions are no longer in effect? 

Mr. CHANDLER. On the reinsurance provisions, I want to separate those. On the reinsurance provision, there is no question in 

my mind that insurance premiums will go up in the exchanges and, 

in fact, we should see an effect as early as this coming year because the size of the reinsurance goes down as we move through 

time. 

For risk corridors, one would expect to see a modest increase in 

insurance prices because insurers who want to hedge that risk are 

going to have to go to the market rather than having the government issue a derivative security for them. 

Mr. DESANTIS. You mentioned in your opening statement the Administration’s transitional policy in November and the background 

for those who do not know, the famous promise that if you like 

your plan, you can keep it, is probably going to rank alongside read 

my lips, no new taxes and the Lewinsky promise. 

That really shocked Washington. People were losing their plans. 

Congress was going to act to basically grandfather these in. The 

Administration decided—is this how you understand it—the law 

has not changed. The law says Obamacare plans, it sets out what 

needs to happen and they have administratively relieved States of 

having to comply with that. 

You actually have insurance policies being issued, which a State 

like Florida runs from, which are illegal under the law but are simply not being enforced. Is that the way it is working? 

Mr. CHANDLER. In one word, yes. 

Mr. DESANTIS. In your judgment, knowing the problem that 

came in November, knowing that people were losing their plans, 

that had to be addressed legislatively by Congress in terms of the 

way our separation of powers system operates, correct? 

Mr. CHANDLER. Yes. 

Mr. DESANTIS. Very good. I have no further questions. 

63 

The Chair will now recognize the gentleman from Virginia, Mr. 

Connolly, for five minutes. 

Mr. CONNOLLY. I thank the Chair, although I would be happy to 

yield to the distinguished Ranking Member if he wishes to go first. 

Mr. CUMMINGS. Thank you very much. 

Ms. Uccello, you described the state of the individual market 

prior to the establishment of the Reinsurance Program. What kinds 

of medical underwriting practices were common place in the individual market? 

Ms. UCCELLO. Prior to 2014 in the individual market, in most 

States, insurers were allowed to underwrite, they were allowed to 

deny coverage to applicants with preexisting conditions, they were 

allowed to charge higher premiums to individuals with preexisting 

conditions or they were allowed to exclude preexisting conditions 

from coverage. The ACA now prohibits those activities. 

Mr. CUMMINGS. They were allowed to charge people higher premiums for preexisting medical conditions, is that correct? 

Ms. UCCELLO. That is correct. 

Mr. CUMMINGS. What about women? Were insurers allowed to 

charge women more for coverage than men? 

Ms. UCCELLO. Premiums were allowed to vary by gender. 

Mr. CUMMINGS. I know from the title of this hearing, my counterparts on the committee believe that Obamacare ‘‘fails patients’’ but 

to me it is clear that the system that existed prior to the Affordable 

Care Act is one that failed patients. 

Ms. Uccello, can you describe the market reforms the ACA made 

to the individual market? 

Ms. UCCELLO. Under the ACA, there is guaranteed issue which 

means that consumers who apply for coverage cannot be denied. 

There are also limits on how much premiums can vary across people. They can vary by a limited range by age. They can vary by geographic location, smoking status and family size, but they cannot 

vary by health status. 

Mr. CUMMINGS. Again, they can no longer decline to offer coverage to individuals, is that right? Is that what you are saying? 

Ms. UCCELLO. That is correct. 

Mr. CUMMINGS. They cannot charge people higher premiums for 

preexisting conditions. By the way, I am talking about our constituents. 

Ms. UCCELLO. Correct. 

Mr. CUMMINGS. I want to underscore the importance of these reforms for the millions of our constituents living with preexisting 

conditions. For them, health insurance may be a matter of life or 

death. 

I also think it is important to emphasize that this represents a 

fundamental change in how insurers do business. Instead of competing to avoid the sickest or costliest enrollees, insurers must shift 

their focus to competing on the basis of quality of care they deliver 

and how efficiently they deliver it. 

Ms. Uccello, how do the three R’s help insurers bridge the transition from a medically underwritten individual market to one in 

which everyone is guaranteed coverage and cannot be charged 

more due to preexisting medical conditions and why are they important? 

64 

Ms. UCCELLO. Because of the guaranteed issue and prohibitions 

on varying premiums based on health status, there could be an incentive for insurers to avoid some of these high cost people. The reinsurance and the risk adjustment programs reduce those incentives. 

The Risk Adjustment Program shifts money, transfers money between plans based on what the risk profile looks like. Those insurers who enroll a less healthy population, presumably their costs are 

going to be higher, they will be getting some money from those 

plans that enroll a lower cost population. 

Those programs just transfer money between insurers based on 

average market risk. They don’t really help if the market, as a 

whole, experiences adverse selection or there is more uncertainty 

in pricing in the market as a whole. That is where the risk corridors come in to mitigate that pricing uncertainty. 

Mr. CUMMINGS. Do these programs also play a critical role in discouraging insurance companies from cherry picking the healthiest 

enrollees and competing on the basis of quality and efficiency rather than risk selection? That is one question. My time is running 

out. 

How do these programs help insurers provide affordable coverage 

to sicker individuals with preexisting conditions? Finally, do you 

believe these programs constitute a taxpayer bailout to insurance 

companies? 

Ms. UCCELLO. The Risk Adjustment Program and the Reinsurance Program do get at the issue of avoiding high cost people. The 

Risk Corridor Program, by reducing that price uncertainty, can encourage more competition which could lead to higher consumer 

value. 

Mr. CUMMINGS. Is it a bailout of the insurance companies? 

Ms. UCCELLO. The mechanisms are risk sharing programs. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Mr. JORDAN. [presiding] Risk sharing programs of taxpayer 

money. 

The gentleman from North Carolina is recognized, Mr. Meadows. 

Mr. MEADOWS. Thank you, Mr. Chairman. 

I thank each of you for your testimony. 

I want to go a little bit further into this because anytime that 

you guarantee against losses, there is a cost assumed with that. It 

also manipulates markets, which is very concerning to me. 

All of you have said that right now there is a greater tendency 

for unhealthy or those who have not had health insurance to enroll 

now, is that correct? 

Ms. UCCELLO. I think that earlier on, it is more likely that the 

higher cost people but as time goes on, I think the healthier people 

will come in. 

Mr. MEADOWS. As time goes on, the healthier will do that. What 

would preclude an insurance company today from keeping their 

premium a little higher than their competition in order to make 

sure their market mix is healthier right now or vice versa, lowering 

that to make sure they can increase their market share, i.e., setting their premium at a lower rate to compete with Blue Cross and 

Blue Shield. 

65 

What would stop them from doing that if their losses are mitigated? 

Mr. CHANDLER. Can I answer that? 

Mr. MEADOWS. Sure. 

Mr. CHANDLER. I think you have hit on a key point which is that 

by backstopping the losses, there is somewhat of an incentive for 

insurers to underprice, get the business, if things go badly, risk 

corridors bails them out and if things go okay, well, great. 

It is not 100 percent guaranteed because risk corridors is not a 

100 percent back stop but it shifts the incentives in a subtle way 

to cause insurers to have a greater likelihood of risking a low price, 

bringing people into their network and seeing what happens. 

Mr. MEADOWS. As I sit here listening to you, I would say if I 

were getting into the insurance business right now and competing 

against a big boy, that is what I would do. I would keep it close 

but I would make sure when they go on healthcare.gov that my 

premium was slightly lower. 

Based on that premise, would you all agree there is potential for 

that? 

Mr. CHANDLER. Yes, I would. Let me say I read in the news this 

morning, I haven’t checked the actual source, that if you look at 

consumer behavior, they are seeking out either the first lowest or 

the second lowest price policy in the exchange. 

I understand perfectly well why consumers would do that but 

that exacerbates the possibility that it will be those insurers who 

are under-pricing who get the business and that will necessitate 

the sort of risk corridors payments in the end. 

I suspect that is why we are getting the response that the Chairman referred to of 13 out of 15 insurers they polled saying we expect to get money out of risk corridors. Nobody expects to pay in. 

Mr. MEADOWS. If that is the case, then is it fair to make the assumption that the rates that many people are paying today are artificially lower than what they may be after the risk corridors run 

their course? 

Mr. CHANDLER. Yes and that is why I said I thought risk corridor 

disappearance would have an effect on pricing. I do not think it is 

as great as an effect as the elimination of transitional reinsurance. 

That is a pure subsidy that runs from a whole variety of health 

care plans to plans sold in the exchange. It is probably on the 

order, depending on the policy, of $500 to $600 per policy. 

Mr. MEADOWS. As we see this, how can we make sure that this 

is revenue neutral? 

Mr. CHANDLER. The Administration is saying it is revenue-neutral, CBO says it is revenue-neutral. I have found very little in 

Washington, D.C. that is ever revenue neutral. 

Mr. MEADOWS. How can we make sure of that? 

Mr. HAISLMAIER. The answer, Congressman, I think is Congress 

would have to change the statute to specify that and to clarify that. 

It was not clarified and the Administration in response to the concerns raised in Congress came out and said they would run it on 

a revenue neutral basis but then later changed in the most recent 

regulations and backed away from that. 

Absent statutory clarification, I am not sure how you would do 

that but I would defer to those such as Senator Sessions. 

66 

Mr. MEADOWS. There needs to be a bipartisan effort to pass legislation that this should be revenue neutral in keeping with the 

original intent of the law? 

Mr. CHANDLER. Representative Meadows, can I add to that? 

Mr. MEADOWS. Go ahead. 

Mr. CHANDLER. The reinsurance provisions actually have a 

failsafe mechanism in them that calls for pro rata reductions in 

payments. Such a thing could be done with the risk corridors provision that might make insurance companies unhappy because they 

may have banked on having that backstop. 

If Congress wanted to make sure that risk corridors was revenue 

neutral, it would not, in my opinion, be particularly hard to add 

that into the statute. 

Mr. MEADOWS. I thank the indulgence of the Chair. 

Mr. JORDAN. You bet. 

We have had Cartwright, Cummings and now Connolly, the 

three Caesars. Mr. Connolly is recognized. 

Mr. CONNOLLY. Thank you, Mr. Chairman and thank you to our 

panel. 

Professor Chandler, I think you just put on the table a very productive idea for Congress’ consideration. Surely, however, we have 

to acknowledge that would be the first bipartisan effort. 

Mr. CHANDLER. After you got rid of the class act. 

Mr. CONNOLLY. Yes, but in terms of actually trying to make it 

work, there was no bipartisanship and still isn’t. It would be a 

novel thought and welcome one. 

My friend from North Carolina, I am delighted to hear his enthusiasm for trying to put together a bipartisan coalition to make the 

bill better. I certainly would be glad to work with him in that effort 

because that is really what we ought to be doing with legislation, 

trying to make it better, trying to make sure it is working and trying to make sure it is efficacious. 

Mr. MEADOWS. Would the gentleman yield? 

Mr. CONNOLLY. Yes, of course I would yield to my friend. 

Mr. MEADOWS. I would note that you were my first bipartisan cosponsor on my bills, so I thank the gentleman. 

Mr. CONNOLLY. It is just who I am I would say to my friend from 

North Carolina. Mr. Chairman, I am going to run out of time and 

I do have some questions. 

Mr. JORDAN. Is the gentleman proposing some legislation that 

will limit taxpayer liability? 

Mr. CONNOLLY. Actually, it was Professor Chandler who was proposing that and Mr. Meadows who picked up on it and I am simply 

chiming in saying, the whole blowout about bipartisanship with respect to this bill is a welcome shift here in Congress. See what you 

have started Professor Chandler. 

Professor Chandler, did I understand you to say in your testimony and previous questioning that your prediction is insurance 

premiums actually are going to go up under the ACA, correct? 

Mr. CHANDLER. They will go up relative to what would have happened because of the phasing out of the transitional reinsurance 

provisions as well as the risk corridor provisions. 

Mr. CONNOLLY. On that point, it is early on but there is a preliminary report which was just issued, I guess, today by the DeVerDate Aug 31 2005 15:23 Jul 30, 2014 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\DOCS\88826.TXT APRIL
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partment of Health and Human Services, a 28-page report, that 

suggest that premiums were actually lower than we expected and 

there was more competition which primarily contributed to that 

and a healthy subsidy as envisioned by the ACA. 

Have you had a chance to look at that report? It is either today 

or yesterday. 

Mr. CHANDLER. I scanned something in the news this morning. 

I have not had an opportunity to look at it. 

Mr. CONNOLLY. I would urge you to take a look at it because I 

would welcome your feedback. The early on data, which is not dispositive, seems to suggest we are actually lowering costs for consumers and health insurance premiums. 

Ms. Uccello, Christopher Holt of the American Action Forum, 

talking about risk corridors, said, ‘‘The risk corridor reinsurance 

provisions made policy sense at the time of the law being drafted, 

make policy sense today and protect consumers. They do not constitute a bailout.’’ Do you agree with Mr. Holt’s statement? 

Mr. UCCELLO. I agree that they make sense, yes. 

Mr. CONNOLLY. You agree that it makes sense and that they do 

not constitute a bailout? 

Ms. UCCELLO. Correct. 

Mr. CONNOLLY. I am sorry, we have to hear you for the record. 

Ms. UCCELLO. Yes. 

Mr. CONNOLLY. In your view, why were these risk management 

provisions necessary when the law was drafted? 

Ms. UCCELLO. Again, I think with the risk corridors, there was 

a lot of pricing uncertainty regarding who was going to purchase 

a plan, what their health spending would be and the fear was that 

insurers would be hesitant to participate in the market. Mitigating 

some of those risks is what the risk corridors do. 

Reinsurance and risk adjustment help reduce incentives that insurers may have to avoid high cost enrollees. 

Mr. CONNOLLY. An expert from the Manhattan Institute, Mr. 

Femen, called risk mitigation strategies ‘‘a virtuous cycle.’’ He said, 

‘‘Risk adjustment mechanisms get you the buy in of insurers, they 

also help keep premiums at manageable levels while insurers develop enough experience to properly price plans of their own. This 

helps encourage people to enroll and in turn, helps insurers develop necessary pricing experience resulting in a virtuous cycle.’’ 

Do you share Mr. Femen’s point of view? 

Ms. UCCELLO. I think he is right in terms of the risk mitigation 

programs encouraging participation, yes. 

Mr. CONNOLLY. Do you also agree that risk adjustment mechanisms such as that help keep premiums at manageable levels while 

insurers develop experience to properly price their product? 

Ms. UCCELLO. I think that, yes, over time, insurers will have 

more certainty and will be able to price their premiums with more 

confidence and in doing so, be able to reduce the risk margin they 

include. 

Mr. CONNOLLY. Finally, with respect to risk corridors, is that a 

novel idea unique to the ACA? Did we just come up with it or had 

that been floating around before in academic and economic circles? 

Ms. UCCELLO. I think a lot of us have mentioned that it was included in Part D. 

68 

Mr. CONNOLLY. Ah, under the Bush Administration? 

Ms. UCCELLO. Yes. 

Mr. CONNOLLY. Thank you. 

Mr. MEADOWS. [presiding] I thank the gentleman from Virginia. 

Mr. CONNOLLY. I would like to submit for the record a Los Angeles Times report that would indicate that the premium subsidy is 

actually going to be about 65 percent higher than CBO originally 

estimated. 

Mr. MEADOWS. Without objection, so ordered. 

Mr. CONNOLLY. If I could, Mr. Chairman, I would also like to put 

in the record maybe something that suggests otherwise. 

Mr. MEADOWS. Without objection, so ordered. 

Mr. CONNOLLY. I thank the Chair. 

Mr. MEADOWS. The Chair would like to recognize the gentlewoman from Wyoming, Ms. Lummis. 

Ms. LUMMIS. Thank you, Mr. Chairman. 

I am so delighted this panel is here. 

Ms. Uccello, I think actuaries are probably the most under-appreciated and unknown group of people that make things tick in this 

difficult risk management environment, whether it is financial resources or social spending. 

I wish the Social Security Administration was turned over to actuaries instead of politicians. I think we would have a more fiscally 

sound program. When I was on our Wyoming Retirement Board, 

our actuary’s name was Flick Fornia. He was a really funny guy 

and was able to explain to lay people like me the importance of actuarial soundness. Thanks for what you are doing. 

The committee’s survey shows that insurance providers expect to 

receive payments. These are exchange plans, so they think they are 

going to receive payments, not make payments. How is it possible 

that given that the Administration thinks the program’s receipts 

and outlays will be equal? 

Ms. UCCELLO. I would say a couple of things to that. First is that 

not having seen this data, it is difficult for me to comment on it. 

I would also caution that the risk corridors apply to qualified 

health plans or QHPs regardless of whether they are on or off the 

exchange. 

If this data was collected just reflecting on the exchange, it may 

be missing some of the off exchange QHP enrollment. That enrollment might be different from that on the exchange. That is one 

thing I would highlight. 

I think over time, again as I mentioned before, there is still a lot 

of uncertainty, so we are not going to know really for sure until 

after the end of the year how everything actually shakes out. 

Ms. LUMMIS. Mr. Haislmaier, could you respond to that as well? 

Mr. HAISLMAIER. Actually, the Risk Corridor Program only applies on the exchange. The Reinsurance Program applies both on 

and off the exchange. In fact, that was one of the interesting 

things, that the risk corridor does not apply off the exchange. 

Ms. UCCELLO. It applies off the exchange to QHPs. 

Mr. HAISLMAIER. A QHP is only on the exchange. That is how 

the law works. 

69 

Ms. UCCELLO. Larger plans that are very similar to QHPs on the 

exchange. I think the next panelist can probably provide more information on that. 

Ms. LUMMIS. I will pursue that line of questioning with him. 

For anyone on the panel, do you find it surprising that on October 1, 2013, 6 out of 15 insurers expected to receive payments from 

the Risk Corridor Program? Does that surprise anyone? 

Mr. HAISLMAIER. That is all I would know—not particularly. 

Ms. LUMMIS. If insurance or pricing plans actuate, shouldn’t 

their risk corridor payment expectations be zero? 

Ms. UCCELLO. I guess I would want to know exactly when. Was 

it truly October 1 or was it a little time afterwards that they were 

retrospectively looking at because remember in the early days of 

the program, there were enrollment problems. That may have 

played into that. It is not clear without knowing more about the 

data. 

Ms. LUMMIS. Fair enough. I think that is a legitimate point. 

Does a positive risk corridor payment prior to the start of open 

enrollment indicate that insurers may be planning on under pricing 

their plans, expecting they might get bailouts under the 3R Program, Mr. Chandler? 

Mr. CHANDLER. It would not be, in my view, an irrational business strategy for a health insurer to deliberately under price its 

plan in order to hook people into their network, get them excited 

about their doctors and if worse came to worse, they would be back 

stopping most of the way by the Federal Government. 

Ms. LUMMIS. Mr. Haislmaier? 

Mr. HAISLMAIER. I have looked at the insurers participating in 

the exchange and written on this. One of the things I am always 

telling people, including my friends, is that this is not a monolith, 

they are not all the same. 

Other members have asked questions about these kinds of strategies. It is important to realize that different companies will approach this differently based on the kind of company they are. 

With that said, I would expect a smaller company, a less well 

known company, because there are a number of regional HMOs, for 

example, in these plans—WINhealth in your own State, for example. That is the kind of company that might use a strategy of discounting to gain market share. A more dominant company like 

Blue Cross in your State probably would not do it. 

I found it interesting that a company like Aetna where 60 percent of their business is self insured employer plans, they are in 

more exchanges than any other company in the country. They are 

in 17 States and yet, as the CBO said, that is no more than three 

percent of their business. 

Interestingly enough, Aetna took the opposite approach. Aetna, 

from everything I can see, actually withdrew from four or five 

States at the last minute when their higher rates were not approved. Basically, from what I can tell, they took the strategy of 

we are willing to try it but we are not willing to lose money on it. 

We are going to price the premiums higher. 

Depending on the kind of company you are, they are going to 

come in in different ways. That is all I would point out. 

Ms. LUMMIS. Thank you, panel. My time has expired. 

70 

I yield back. 

Mr. MEADOWS. The Chair would recognize the gentleman from 

Michigan, Mr. Bentivolio. 

Mr. BENTIVOLIO. Thank you very much, Mr. Chairman. Thank 

you for holding this hearing. 

Over the past few years, we have argued that Obamacare was 

going to disrupt the insurance markets. This health care law has 

become a perfect example of how not to do health insurance reform. 

We should not bailout insurance companies to mask the fact that 

Obamacare is a disaster and hurts Americans. This hearing shows 

exactly why. 

Reinsurance is funded by an assessment of each of the roughly 

158 million people who do not get their insurance coverage from 

the exchanges, some through union-backed plans and others 

through plans sponsored by employers. The government is assessing such plans $63 for each member which adds to $10 million, 

then giving that money to insurers that sell through the exchanges. 

Mr. Graham, is it correct that the reinsurance provision is financed by a fee or tax on all health insurance plans? 

Mr. GRAHAM. Yes, sir. 

Mr. BENTIVOLIO. You made it clear and accurate earlier, if I am 

not mistaken, that the vast majority of the individuals with health 

insurance will be paying higher premiums to finance this reinsurance fund, am I correct in this understanding? 

Mr. GRAHAM. Yes, sir. 

Mr. BENTIVOLIO. Essentially, the reinsurance fund is a large 

transfer from the vast majority of Americans without an 

Obamacare insurance plan to the few Americans with an 

Obamacare plan? 

Mr. GRAHAM. Agreed. 

Mr. BENTIVOLIO. You mentioned in your testimony that higher 

than expected reinsurance claims indirectly affect taxpayer exposure to risk corridor bailouts. Can you again discuss what you 

mean by that? 

Mr. GRAHAM. The risk corridors are such a moving target, I 

think that is one thing that has come out here. The reinsurance is 

a fixed target, a maximum of $25 billion over the three year period. 

If they do not collect the revenue expected, they cannot go anywhere else. 

If they only collect $18 billion over the three years, as Professor 

Chandler said, most of it is front end loaded, then the insurer has 

to look somewhere else. He is going to look for the risk corridor and 

there is a lot of latitude within the calculation of how you adjust 

the numerators and denominators to get your target versus your 

allowed costs that unless Congress steps in, as some of the other 

panelists suggested, and gets a precise definition and closes the 

loop on this thing, HHS could really drive a lot through the risk 

corridor payments. 

I think that is where you are getting the idea that 13 out of 15 

of the insurers your staff surveyed, we are going to get money out 

of it. It must be because they are being very creative in how they 

are thinking they are going to liaise with HHS over the next three 

years. 

71 

Mr. BENTIVOLIO. Earlier, Mr. Meadows and Mr. Connolly were 

talking about making some fixes, correct, to Obamacare. I just 

want to assure you the only person I want to hear—should pass it 

before we can see what is in it—is from my doctor, so be assured 

I am going to read that bill before it is even voted on. 

With that, I yield back. Thank you very much. 

Mr. MEADOWS. I thank the gentleman from Michigan. 

The Chair would recognize the gentlewoman from Illinois. 

Ms. KELLY. Thank you, Mr. Chairman. 

First, I want to say I join in Ms. Lummis’ statement about how 

important actuarial are and how we should definitely use their 

services. The only actual actuary here is you, Ms. Uccello, is that 

correct. 

It is my understanding that the payment formula for the ACA 

Risk Corridor Program is less generous to insurance companies 

than the one utilized in Medicare Part D. Specifically, the threshold at which risk sharing payments kick in is higher in the ACA 

risk corridors and the percentages of losses covered is lower. Do I 

have that right? 

Ms. UCCELLO. Yes. In the initial years of the Part D Risk Corridor Program, I think the thresholds were plus or minus 2.5 percent whereas under ACA, it is plus or minus 3 percent. 

Ms. KELLY. When the Republicans passed risk corridors as part 

of Medicare Part D, the program was even more favorable to insurance companies than it is under ACA, correct? 

Ms. UCCELLO. Yes. The corridors were smaller so the threshold 

at which they had to bear the losses or keep the gains was more 

narrow. 

Ms. KELLY. Do you consider the risk management programs in 

Medicare Part D to be successful? Please explain your answer. 

Ms. UCCELLO. Under Part D, the Risk Corridor Program is intended to encourage plan participation by mitigating the pricing 

risk because there was fear that there would not be a lot of plans 

that wanted to participate in this program. 

If we look at the experience or even back then, the consumers 

had and have a wide array of plan choices. I think that suggests 

that the risk corridor at least helped encourage plan participation. 

The Reinsurance Program I think did help reduce premiums 

below where they would otherwise be without that program. 

Ms. KELLY. Is there just as much of a need for these three programs in the ACA as there was in Medicare Part D? 

Ms. UCCELLO. I think the risks for ACA are similar to those that 

existed for Part D, so I think the need is just as much, if not more, 

under ACA as they were for Part D. 

Ms. KELLY. Thank you. 

I yield back. 

Mr. MEADOWS. I thank the gentlewoman from Illinois. 

The Chair recognizes the gentleman from Tennessee, Mr. 

Desjarlais. 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

I thank the panel for being here today. Mr. Chandler, if you do 

not mind, I will start with you. 

As you know, in November 2013, President Obama offered a one 

year extension to allow individuals whose coverage was being canVerDate Aug 31 2005 15:23 Jul 30, 2014 Jkt 000000 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 C:\DOCS\88826.TXT APRIL
72 

celed by Obamacare to keep their coverage. What kind of effect did 

this have on the average health of exchange plan risk pools? 

Mr. CHANDLER. It deteriorated the health of those pools because 

it provided an alternative for healthier individuals or people with 

less broad needs to seek out alternatives that Congress had 

banned. 

Mr. DESJARLAIS. Did the Administration make both the Reinsurance Program and the Risk Corridor Programs more generous to 

insurers in the fall? 

Mr. CHANDLER. Not by statute. In effect, by increasing the per 

member claims within the exchange plans, they increased the likely bill for the Transitional Reinsurance Program and they increased the likely amount that would be paid out to the Risk Corridors Program. 

Mr. DESJARLAIS. Have you estimated how much of a windfall insurers will receive from the Administration’s changes to these programs? 

Mr. CHANDLER. I have made a series of estimates as to the likely 

increase in the cost of the Risk Corridors Program. I have not done 

so with respect to the Transitional Reinsurance Program. 

Mr. DESJARLAIS. You discussed in your written statement that 

risk adjustment contains incentives for insurers, fraud and manipulation that need to be carefully monitored. What did you mean by 

this? 

Mr. CHANDLER. We have not spoken much about risk adjustment. Risk Adjustment requires the insurer to attach some code or 

set of codes to people. There is a score for each code. If you have 

cancer, that is a 10. If you have the sniffles, that is a 1. 

The insurance industry then gets paid based not on how much 

they actually paid but on that score. There are occasions in which 

those scores can be fudged. There are occasions in which an insurer 

might have an incentive to try to get away with a little more than 

fudging. 

In my view, because of the amount of money involved, and because not all insurers are saintly, that needs to be monitored quite 

carefully by Congress. 

Mr. DESJARLAIS. How does this relate to privacy concerns for the 

individual? 

Mr. CHANDLER. In order to see whether insurers are accurately 

coding peoples’ conditions, including things like prior miscarriages, 

cancer or HIV, someone has to actually look at the medical records. 

Yes, there are deidentification procedures that can be used but 

it may be that in some instances, those will be advertently or inadvertently breached, so there are at least concerns about privacy 

that are implicated by risk adjustment. 

Mr. DESJARLAIS. Would this privacy concern only be for those on 

the exchange or for people who do not go on the exchange as well? 

Mr. CHANDLER. No, people who are in small groups who are not 

on the exchanges are also covered by risk adjustment and therefore, even if you did not volunteer to participate in the Obamacare 

exchanges, there are issues with respect to privacy there too. 

Mr. DESJARLAIS. Thank you. 

Mr. Graham, with regard to Risk Corridor Program, what happens if insurers systematically set their prices too low? 

73 

Mr. CHANDLER. The risk to the taxpayer increases proportionally. 

Mr. DESJARLAIS. The taxpayer is on the hook? 

Mr. CHANDLER. Absolutely. 

Mr. DESJARLAIS. This law would not exist today if the Supreme 

Court had not ruled that Obamacare is indeed a tax. When this bill 

was originally passed, the taxpayer, the average person out there, 

did not know they were going to be on the hook for this, did they? 

Mr. CHANDLER. Probably not. 

Mr. DESJARLAIS. Furthermore, if the system does not work as 

well as it was supposed to, which we are seeing—in fact, the only 

thing we have been wrong about to this point about the new 

healthcare law is that it is even worse than we could have imagined in terms of cost, access and quality of care. 

The people basically were sold a bill of goods when this 

healthcare law was passed. What are the risks of this deteriorating 

into a single payer system if we cannot afford the bailouts of the 

insurance companies like we are discussing today? 

Mr. CHANDLER. I think the risk is present. I think it is very 

present because one of the objectives that have been discussed here 

is that this means insurers will not shun the sick but we are not 

seeing that. We are still seeing plan design that is causing cancer 

patients, for example, to have huge out of pocket costs. We are not 

seeing the market arise like Medicare special needs plans. 

The neediest patients are going to be let down by Obamacare and 

that will perhaps increase the political pressure you are alluding 

to. 

Mr. DESJARLAIS. In my practice of medicine for 20 years before 

coming to Washington, when we first saw this law, a lot of people 

were concerned, including myself, that this whole law was simply 

a funnel into socialized medicine. This hearing today kind of points 

it more in that direction. 

My time has expired. I yield back. 

Mr. JORDAN. [presiding] I thank the gentleman. 

Mr. Chandler, in one of your responses to Mr. Desjarlais, he 

talked about the rule changes made are going to result in additional dollars in the risk corridor provision, additional dollars going 

to insurance companies. You said yes to that. 

Can you hazard a guess as to how much that might be? 

Mr. CHANDLER. I have not been playing with my computer in the 

last hour. I cannot give you a point estimate. There are just too 

many variables involved. However, I think the order of magnitude 

we are talking about for this year, it would not surprise me to see 

it between $500 million and $1 billion. 

For subsequent years, it gets more difficult to estimate. 

Mr. JORDAN. I would just point out, that range, $500 million to 

$1 billion, is exactly what the committee determined the range 

was, around $730 million, by talking to the participants, talking to 

the insurance companies in the exchange. 

Mr. CHANDLER. Apparently so. 

Mr. JORDAN. I have one last point I would make and then I will 

recognize the Ranking Member if he has a last point before we got 

to our next panel. 

This comparison with the risk corridor provision and Part D, it 

seems to me as I look at the two, first, Medicare Part D is a funVerDate Aug 31 2005 15:23 Jul 30, 2014 Jkt 000000 PO 00000 Frm 00077 Fmt 6633 Sfmt 6633 C:\DOCS\88826.TXT APRIL
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damentally different program in many ways. There has not been a 

bailout there and there is a specific appropriation which is not contained in this risk corridor provision we have been talking about. 

Is that accurate, Mr. Graham, those three points? 

Mr. GRAHAM. Yes, sir. 

Mr. JORDAN. Mr. Chandler? 

Mr. CHANDLER. I am not familiar with how Medicare Part D was 

funded, so I do not feel competent to answer that question. 

Mr. JORDAN. Ms. Uccello? 

Ms. UCCELLO. I also do not know how the appropriations worked 

for that. 

Mr. JORDAN. Mr. Haislmaier? 

Mr. HAISLMAIER. As to the first part, yes, there has not been a 

bailout. As to the second, I have not looked closely at the statute 

recently, so I will pass on that. 

Mr. JORDAN. Thank you. 

Mr. Cartwright, one last word? 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

I thank Representative Kelly for highlighting the fact that we do 

have the one actuary here today, Ms. Uccello. Thank you so much 

for coming and making things plain for us in the non-actuary 

world. 

Mr. Graham, I did not mean to leave you out. One thing you 

mentioned was you are a Senior Fellow at the National Center for 

Policy Analysis, a non-profit, non-partisan, public policy research 

organization. 

You said that but in your written material, you said that is an 

organization that is dedicated to developing and promoting private 

alternatives to government regulation and control. Is that what it 

says in your written material? 

Mr. GRAHAM. Yes, sir. 

Mr. CARTWRIGHT. Professor Chandler, the one question I had for 

you was in your written material, you explained that you are the 

principal of a blog and the blog’s name is http/acadeathspiral.org. 

Have I got that right? 

Mr. CHANDLER. Yes, you do. 

Mr. CARTWRIGHT. Mr. Haislmaier, you are from The Heritage 

Foundation, am I correct? 

Mr. HAISLMAIER. I am the Senior Research Fellow there, yes, sir. 

Mr. CARTWRIGHT. Those are all the questions I had. 

Thank you, Mr. Chairman. 

Mr. JORDAN. I thank our panel for being here today and for your 

fine answers and testimony. 

We will take a short recess and get ready for our next panel. 

[Recess.] 

Mr. JORDAN. The committee will be back in session. 

Dr. Cohen, thank you for joining us. Dr. Mandy Cohen is Acting 

Deputy Administrator and Director, Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid 

Services. 

Dr. Cohen, you know how this works. I think you caught some 

of the previous panel. You are recognized now for your five minutes. 

75 

STATEMENT OF MANDY COHEN, M.D., ACTING DEPUTY ADMINISTRATOR AND DIRECTOR, CENTER FOR CONSUMER INFORMATION AND INSURANCE OVERSIGHT, CENTERS FOR MEDICARE AND MEDICAID SERVICES 

Dr. COHEN. Thank you so much. Good morning, almost afternoon, Chairman Jordan, Ranking Member Cartwright and any of 

the members who might be listening elsewhere. 

I appreciate the opportunity to testify before you today on the Affordable Care Act’s Premium Stabilization Program. 

Mr. JORDAN. Dr. Cohen, I made a mistake, which happens from 

time to time. We are supposed to swear you in. Please rise and 

raise your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[Witness responds in the affirmative.] 

Mr. JORDAN. Let the record reflect Dr. Cohen answered in the affirmative. I am sorry for the interruption. You may continue. 

Dr. COHEN. The health insurance market in 2014 looks drastically different than it did in the years before the Affordable Care 

Act was passed. It has created consumer protections from the worst 

industry abuses. 

Insurers are now prohibited, as you heard earlier, from charging 

higher premiums to enrollees because of their health problems and 

from charging women more than men, making prices fairer. 

Insurers can no longer refuse to accept consumers because of a 

preexisting health condition. With limited exception, plans are required to enroll enrollees regardless of health status, age, gender 

and other factors. They are also prohibited from refusing to renew 

coverage because an individual becomes sick. 

Insurance coverage is there when people need it because plans 

can no longer impose annual or lifetime dollar limits on essential 

health benefits. Americans, therefore, no longer have to worry 

about hitting a prohibitive dollar amount which could force a consumer into bankruptcy or to forego necessary care. 

Thanks to the Affordable Care Act, millions of Americans, many 

for the first time, are able to purchase high quality affordable 

health coverage, but access to affordable coverage for the uninsured 

is also beneficial to the millions of Americans who already had 

health insurance coverage. 

When the uninsured receive uncompensated care, the cost is 

passed along to every American family at a bill of about $1,000 as 

reflected in higher taxes, higher premiums and higher health care 

costs. Thus, creating successful, viable insurance marketplaces is in 

the interest of all Americans, no matter where they get their health 

insurance. 

Because the consumer protections required by the Affordable 

Care Act dramatically changed the insurance market, Congress 

also created the premium stabilization programs we have been 

talking about today. 

These programs help ease the transition. The reinsurance, risk 

adjustment and risk corridors all work together to stabilize premiums for consumers and stabilize the marketplace for insurers by 

76 

reducing insurer uncertainty about how the market reforms will 

play out for them. 

For example, the Risk Adjustment Program shifts funds from 

issuers with healthier populations to issuers with sicker populations, protecting against the potential effects of adverse selection. 

The Reinsurance Program, a temporary program, mitigates the 

cost of those high cost enrollees with pent up medical demand. The 

Risk Corridor Program, another temporary program, mitigates but 

does not fully compensate issuers with unexpected high claims 

costs due to unexpected gains and losses. 

Together, these three programs help stabilize premiums for consumes, while allowing insurers time to gain experience competing 

in a changed health insurance marketplace. The first payments for 

these programs do not begin until a full year from now. 

The Premium Stabilization Program was enacted by Congress to 

ease insurers entrance into a new and different market and in that 

new market has been long overdue for Americans. The Affordable 

Care Act contains several requirements that greatly restrict or end 

previous insurance practices that were not good for consumers. 

Insurers are subject also to new scrutiny and to regulation. They 

are required to issue insurance coverage to all applicants, regardless of their medical history and age and can no longer rely on annual or lifetime limits to avoid paying for consumers when they get 

sick. 

The medical loss ratio, something we have not talked about yet 

today, also caps their profits and administrative expenses. Rate review is helping to provide more transparency into these rates these 

companies charge. 

Despite these tough requirements, what we are seeing is that insurers are eager to enter the new marketplace offering competitively priced plans that over 8 million Americans have selected. 

On the whole, we are seeing that insurance plans offer stable 

market plan premiums for the 2015 benefit year. In a recent public 

report to the financial sector, Wellpoint and Aetna have both expressed confidence in their 2015 pricing environments predicting 

premium increases in only the single digits. We are also seeing 

that insurance plans plan to expand into the marketplace for the 

first time. 

Because many people enrolled during the end of open enrollment, 

at the end of March, with insurance coverage beginning on May 1, 

insurers likely only had at most six weeks of meaningful claims 

data to analyze in order to understand where they are in risk order 

payments. 

The first quarter claims are likely to be unrepresentative of 

claims over the course of the year for the full 2014 benefit year. 

Insurers’ early projections about 2015 suggest that they are finding the health insurance marketplace to be a competitive new market and that the Affordable Care Act is working as intended to give 

Americans access to high quality, affordable health insurance coverage. 

With that, I thank you and look forward to your questions. 

[Prepared statement of Dr. Cohen follows:] 

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Mr. JORDAN. Thank you so much, Dr. Cohen. 

The Chair recognizes the gentleman from North Carolina. 

Mr. MEADOWS. Thank you, Mr. Chairman. 

Thank you, Dr. Cohen, for being here and testifying. 

Let me pick up on a couple of words I guess I heard just now 

in your testimony. The insurers, in terms of increased premiums, 

are only going to see increases in premiums in the single digits. Is 

that what your testimony said? 

Dr. COHEN. That is correct. 

Mr. MEADOWS. The way I guess the ACA was supposed to reduce 

health care costs, now we are happy that the increases are only in 

the single digits, so we need to say that relatively, it is not double 

digits. That is why we are happy about it? 

Dr. COHEN. We are extremely happy. Again, what we are seeing 

right now are proposed rates in the single digits. That means the 

process needs to go forward at the State level around rate review. 

The Departments of Insurance at the State level will certainly 

scrutinize those. 

Mr. MEADOWS. Single digits being low single digits or high single 

digits? 

Dr. COHEN. We are seeing some places where there is even a decrease. 

Mr. MEADOWS. I mean overall. Overall, what are you anticipating? 

Dr. COHEN. We are looking at single digits. I think time will tell. 

We are early in the process. We are very happy to see proposed 

rates that are in the single digits. 

Mr. MEADOWS. We are happy that our rates were supposed to go down by $2,500 a family and we are happy they are only going up 

by single digits? 

Dr. COHEN. If you look at what rates were prior to the Affordable 

Care Act and the rate increases historically, we are very happy. 

Mr. MEADOWS. You mentioned competition in your testimony. 

How do you think we have additional competition? Let me tell you 

the reason why. My son is looking potentially to start a family, get 

married, so I said I would like you to go out and get some quotes 

for medical insurance to make sure you are providing for your family. 

The insurer said we cannot really give you quotes, you need to 

go on healthcare.gov. How do you see that as competitive? 

Dr. COHEN. With the health insurance market launching this 

past year, it is the first time that consumers were able to go to one 

place and compare apples to apples, the types of insurance products that would be available to them. 

Obviously that is the portal where many folks, more than 85 percent of those 8 million Americans, got financial assistance to make 

premiums even more affordable. 

Mr. MEADOWS. But they are not, Dr. Cohen. I am on Obamacare 

now. My premium is not less than it was, my coverage is not as 

good in some places and honestly, some of my coverage, I have to 

buy things that we would never use like maternity coverage just 

because of our age. 

Is that part of what you factored in, that we will have to buy 

things that we will never use and that is how we pay for this? 

84 

Dr. COHEN. As you know, part of the intent of the law is to give 

access to affordable coverage for millions of Americans and setting 

a floor for coverage where we have folks who can purchase plans 

that provide essential benefits for everyone. 

Mr. MEADOWS. That does not answer my question. It is a great 

answer but that was not my question. My question is do Americans 

have to buy coverage on things they will never use like maternity 

coverage that we will never use? Do you have to do that in order 

to make this thing pay? 

Dr. COHEN. I think the great thing about the marketplace is the 

transparency that it brings. 

Mr. MEADOWS. I did not ask about transparency, I asked, yes or 

no, do you have to buy a product that you will never use to make 

it work, yes or no? 

Dr. COHEN. We have ten essential health benefits, maternity is 

one of those. 

Mr. MEADOWS. You have to buy maternity even though you may 

never have a child? 

Dr. COHEN. That is correct. 

Mr. MEADOWS. Are there other things that you have to buy that 

you may never use? 

Dr. COHEN. It depends on your personal family situation and 

your medical situation. As an internist, a primary care doctor, 

sometimes you do not know what that medical situation will be 

going forward. 

Mr. MEADOWS. Maternity is one that you can probably analyze 

pretty well for somebody that is in their fifties? 

Dr. COHEN. It is a minimal essential benefit that we wanted to 

make sure all Americans have access to. 

Mr. MEADOWS. You wanted to make sure they had a benefit they 

would not use? 

Dr. COHEN. We wanted to make sure that all Americans had access to some essential health benefits. 

Mr. MEADOWS. I yield back. 

Thank you, Mr. Chairman. 

Mr. JORDAN. I thank the gentleman. 

I now recognize the gentleman from Pennsylvania. 

Mr. CARTWRIGHT. Thank you, Dr. Cohen, for coming here today. 

I took note of the fact that you testified you are happy. We frown 

on that sort of thing here in the Oversight and Government Reform 

Committee. 

Dr. COHEN. Yes. 

Mr. CARTWRIGHT. I gather what you are happy about is these 

things we read about, that health cost increases in this country are 

the lowest they have been in the last 50 years. Have you seen those 

things? 

Dr. COHEN. Yes. 

Mr. CARTWRIGHT. Is that contributing to your sense of happiness, 

Doctor? 

Dr. COHEN. There are many things, but yes, that is one of them. 

Mr. CARTWRIGHT. I remember, as an employer, and my friend 

from North Carolina was also an employer before joining me here 

in the Congress, paying annual premium increases for our staff of 

85 

10, 15, 20 and sometimes 25 percent. Sometimes it was staggering, 

some of the increases we were paying over the last 15 years. 

That is what made me decide we have to do something different 

with health care in this country. I was not sure what it was but 

something different has happened. 

I thank you for your testimony. 

The premise of today’s hearing is that the ACA’s reinsurance, 

risk adjustment and risk corridor programs are taxpayer bailout 

programs for insurance companies. Is this accurate? The Republicans point to recent regulatory changes made by HHS as support 

for their argument that these programs are going to result in a 

bailout for insurance companies. 

It is my understanding that the Risk Adjustment Program is 

funded by transfers between insurance companies, is that correct? 

Dr. COHEN. That is correct. 

Mr. CARTWRIGHT. The Risk Adjustment Program is budget neutral by statute, am I correct in that? 

Dr. COHEN. That is correct. 

Mr. CARTWRIGHT. Any claims that regulatory changes to the Risk 

Adjustment Program will result in greater costs to the taxpayer are 

false, am I correct? 

Dr. COHEN. That is correct. 

Mr. CARTWRIGHT. The department has announced two sets of 

changes to the Reinsurance Program centered on lowering the attachment point for enrollees’ high cost claims and changing how 

potential collection shortfalls are addressed. 

Dr. Cohen, can you describe the changes the department has 

made to the Reinsurance Program? 

Dr. COHEN. The Reinsurance Program, by law, we are obligated 

to pay out $10 billion. Again, we modeled this early on and as we 

had better information around premiums and additional data, we 

were able to modify both our attachment point and our co-insurance rate on the program in order to make sure that we were fulfilling our statutory obligation of paying out the $10 billion. 

Mr. CARTWRIGHT. By statute, the Reinsurance Program is funded 

solely by contributions from insurance companies, the reinsurance 

pool amount, am I correct? 

Dr. COHEN. That is correct. 

Mr. CARTWRIGHT. That is set by statute, right? 

Dr. COHEN. Correct. 

Mr. CARTWRIGHT. Reinsurance payments cannot exceed what is 

collected from insurers, right? 

Dr. COHEN. That is right. 

Mr. CARTWRIGHT. Can you explain the department’s changes to 

the Risk Corridor Program? 

Dr. COHEN. The Risk Corridor Program is designed to interact 

with all of the other programs and protect the insurance companies 

as they transition to this new marketplace from the uncertainty of 

pricing. 

We have made two changes to the Risk Corridor Program. The 

first was related to the transitional policy as mentioned before. In 

States that have chosen to take that transitional policy, we have 

made an adjustment to the risk corridor formula. 

86 

The second applies to all States. That is related to the administration costs and the ongoing cost related to transitioning to the 

marketplace for the insurers. 

Mr. CARTWRIGHT. In April, the Congressional Budget Office, nonpartisan, estimated that the Risk Corridor Program would be budget neutral over its three year life. Then in May, the department 

stated that it continues to project that risk corridor collections will 

be sufficient to pay for all risk corridor payments. 

Dr. Cohen, do you have any reason to doubt the accuracy of 

CBO’s estimates and HHS’ statement? 

Dr. COHEN. No. That is where we believe we will be with the program. 

Mr. CARTWRIGHT. I am almost finished. 

Dr. Cohen, you went to Cornell and then you went to the Yale 

Medical School. You are an Internal Medicine specialist. You are 

a physician, right? 

Dr. COHEN. Correct. 

Mr. CARTWRIGHT. In your opinion, is it accurate to characterize 

the reinsurance, risk adjustment and risk corridor programs as a 

‘‘bailout’’? 

Dr. COHEN. No. Again, these are temporary programs meant to 

transition folks to the new marketplace. As a physician, making 

sure that folks have access to affordable, high quality care is really 

the goal here and mitigating any transition to that has been the 

goal. 

Mr. CARTWRIGHT. Do you call it a bailout? 

Dr. COHEN. No. 

Mr. CARTWRIGHT. Thank you. I yield back. 

Mr. JORDAN. I thank the gentleman. 

Doctor, again, thank you for being here. 

How many people are in the exchange program today, how many 

Americans? 

Dr. COHEN. Eight million. 

Mr. JORDAN. They used to give us a periodic update on the numbers. It seemed for a while it was every hour they were telling us 

how many folks were enrolling. Now we do not hear from them. 

Is there a reason why we do not hear from the Administration 

on what is happening with how many people are enrolled and what 

the overall number is? Is it just staying right at 8 million or is 

there some difference between that number that was announced a 

while back and what is happening today? 

Dr. COHEN. As you know, open enrollment, that period, ended at 

the end of March. The vast majority of folks cannot enroll at this 

point until we open enrollment again later this fall. 

If folks have a change in life circumstances, they can come in 

and apply for coverage—if they are graduating from college or lose 

a job etc. Again, it is a more I think a moment in time where we 

are outside of the enrollment time period. 

Mr. JORDAN. In answer to one of Mr. Cartwright’s questions, you 

mentioned you have confidence in the CBO’s April assessment that 

this was going to be budget neutral, the risk corridor. 

Even though just two months prior to that, the CBO estimated 

it was going to be a windfall for the taxpayers to the tune of about 

$8 billion. In the previous panel, Mr. Chandler indicated that he 

87 

anticipates an actual cost, this is not going to be budget neutral, 

that it is going to cost the taxpayers. Do you agree with that? 

Dr. COHEN. I think we are in a highly speculative time. We are 

very early on in the year. As mentioned with open enrollment closing at the end of March, I think most of the enrollees are only just 

starting to use their coverage and thus, we do not really know how 

the rest of the year is going to pay out. 

Mr. JORDAN. What I tried to stress was Mr. Chandler’s prediction 

squares with what insurance companies are telling this committee, 

that they do anticipate receiving a payment from the taxpayers to 

the tune of about $700 million. That squared with what Mr. Chandler anticipates as well, somewhere between $500 million and $1 

billion. Do you agree with that? 

Dr. COHEN. I think we are all in a period of time for estimates. 

As you saw, there is a lot of differing opinions on those estimates. 

We believe that the program will ultimately be budget neutral. 

Mr. JORDAN. I am talking about now though. Again, we went 

from $9 billion to zero to now, I think and what people in the program tell us, that they are going to receive money, so it is moving 

in this direction, not in the right direction for taxpayers. 

Let me turn to another subject. If, in fact, it does cost, do you 

think you have the authority to cover those costs and make those 

payments? 

Dr. COHEN. I am not the lawyer, but my understanding is that 

our authority to make those payments comes from our ability to 

levy user fees. I do believe we have that authority. 

Mr. JORDAN. How would that work exactly? 

Dr. COHEN. Again, not the lawyer, but we just recently provided 

legal analysis to GAO on this. I would be happy to share that with 

the committee. 

Mr. JORDAN. We look forward to getting that. 

Say it costs more than $700 million, is there a point where if the 

cost is so high, say it is $9 billion or $10 billion, is there any point 

where you think you do not have the authority, you cannot do the 

user fees, and you have to actually talk to the Legislative Branch 

and something has to be worked out with the Legislative Branch 

before you can proceed? 

Dr. COHEN. Again, we believe the program will operate in a 

budget neutral manner. 

Mr. JORDAN. My question is you believe you have the ability to 

pay, you say you are going to do that via user fees. We think there 

is a constitutional concern there as outlined primarily by Senator 

Sessions a little bit ago. You think you can do it and use user fees. 

I am asking is there a point where you do not think that works, 

where this is so big that the amount you have to pay out is at such 

a level that you cannot do that? 

Dr. COHEN. Talking about our legal analysis about user fees, my 

understanding from our lawyers is that we have the authority to 

do that. 

Mr. JORDAN. I would yield to the gentleman from Florida. 

Mr. DESANTIS. I thank the Chair. 

Dr. Cohen, in terms of the power of the purse issue, as you look 

at the text of the 2010 health care law with respect to risk corVerDate Aug 31 2005 15:23 Jul 30, 2014 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6633 C:\DOCS\88826.TXT APRIL
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ridors, in that law, did Congress appropriate a sum to be spent in 

the Risk Corridor Program? 

Dr. COHEN. I do not believe so. 

Mr. DESANTIS. I do not believe so either. The way this typically 

works, according to the Constitution, Article I, Section 9, Clause 7, 

‘‘No money shall be drawn from the treasury but in consequence 

of appropriations made by law.’’ 

As I read it and you agree with me about what the law said and 

then as I read the Constitution, that tells me these payments need 

to be appropriated by Congress. Yet I think the Administration’s 

position is they can simply make these payments without Congress 

making a single dime’s worth of appropriations by law, is that correct? 

Dr. COHEN. Again, I believe that we are using our authority to 

levy user fees to make those payments. 

Mr. DESANTIS. User fees on what? 

Dr. COHEN. User fees on the insurance companies who need to 

pay to us or make the collections to us before we pay out. 

Mr. DESANTIS. What are they using exactly, to make it a user 

fee? 

Dr. COHEN. We are providing a service to stabilize market premiums. 

Mr. DESANTIS. I think at the end of the day, we have the power 

of the purse. They could have appropriated money for this in there 

but it sounds to me that there is just a slush fund and somehow 

that can be put out however CMS sees fit. I do not think that is 

the way the founding fathers envisioned it working. 

Let me ask you this. The New York Times recently reported that 

HHS is having difficulty verifying the information of about 25 percent of people currently enrolled in the exchanges under 

Obamacare. 

Has the government sent subsidies to insurance companies for 

anyone that has not been able to verify coverage for it to your 

knowledge? 

Dr. COHEN. The way the statute is written and the way we do 

eligibility determinations, when someone goes through the 

healthcare.gov process, they put in several pieces of information, 

one of which is income, which we immediately verify through our 

federal data hub. We verify through the IRS and we verify through 

a private source. 

If we cannot immediately verify their income, then they are 

asked to provide documentation for that income and by statute, are 

given a presumptive eligibility based on that and have a 90-day 

window to submit documentation to us. 

Mr. DESANTIS. Is the answer no, then, that any subsidy money 

that has gone to an insurance company for a particular individual, 

all of those individuals have been verified so there is not an issue 

of people getting subsidies who, in fact, are not entitled to them? 

Dr. COHEN. Again, by statute, if we cannot immediately verify 

them through the electronic mechanism of healthcare.gov and the 

federal hub, then they are, by statute allowed a 90-day period in 

which to submit documentation and are given a presumptive eligibility and allowed to enroll on that plan. 

89 

Again, we need that documentation and allow them to continue 

on in that plan but there is a 90-day period there. 

Mr. DESANTIS. The 90-day window has not elapsed for anybody 

yet? 

Dr. COHEN. The statute also contemplated that in the first year 

of this program, it is going to be new for us, it is going to be new 

for the consumer and that submitting documentation was going to 

be a new process and allowed us to have the flexibility to give folks 

extra time. We have given folks some extra time but that is not 

limitless. 

Mr. DESANTIS. How will the Administration go about actually recouping unlawful subsidy payments received by insurance companies? Assume that as the year goes on, it is clear—the New York 

Times says 25 percent—you have not been able to verify or have 

had difficulty, say 10 percent of the people are having subsidies directed to insurance companies and are not eligible for those, how 

do you get the money back for the taxpayer? 

Dr. COHEN. In the law, there is a reconciliation process the IRS 

is in charge of in terms of making sure we recoup the costs at the 

end of the year of verifying income at the time. 

Mr. DESANTIS. Is the IRS going after the individual? 

Dr. COHEN. That is correct. There is a true up with the individual on your tax bill. 

Mr. DESANTIS. Wow. When we want emails from the IRS, they 

are lost but they are going to be going after people for their health 

insurance. 

Let me clarify the 8 million number because I know CMS has 

stopped putting out the updates. Does the 8 million mean 8 million 

people who have logged on through the website or does it mean 8 

million people who actually have insurance they have paid a premium for? 

Dr. COHEN. It means $8 million people who have selected a plan 

through healthcare.gov. 

Mr. DESANTIS. You are not saying that 8 million have actually 

paid premiums at this point? 

Dr. COHEN. We are still trying to understand that number and 

we will have that later in the year. 

Mr. DESANTIS. I have heard different estimates, Mr. Chairman, 

about the number of people who have paid their first months and 

there could even be a dropoff after that. I appreciate the 8 million 

number but in the interest of being honest and transparent to the 

American people, I think we should explain what that means. 

I yield back. 

Mr. JORDAN. I thank the gentleman. 

That raises the question was the CBO estimate based on 8 million or some other number, do you know, Dr. Cohen? 

Dr. COHEN. Sorry, which CBO estimate? 

Mr. JORDAN. The CBO estimate that this went from the windfall 

for the taxpayers to the budget neutral number in April. Was that 

based on an 8 million person enrollment? 

Dr. COHEN. I am not sure how the CBO did their analysis. I only 

know how we did our own estimates. I would say we were very 

pleased with going beyond what CBO estimated we would enroll in 

90 

the marketplace in terms of the 8 million. Again, we are still early 

on in the year. 

Mr. JORDAN. Do you believe that 8 million is high or do you think 

it is lower than that based on what Congressman DeSantis just 

talked about? 

Dr. COHEN. The eight million who have enrolled? 

Mr. JORDAN. Yes. 

Dr. COHEN. Again, those are the number of folks who have chosen a plan. 

Mr. JORDAN. I understand. 

Dr. COHEN. We have heard from the insurance companies who 

have given financial reports at various industry conferences that 

they have seen a high rate of paying their premium and continuing 

on that plan. 

Mr. JORDAN. When will you have a more definitive number? 

Dr. COHEN. Later in this year. 

Mr. JORDAN. Later meaning when? 

Dr. COHEN. I do not know exactly when. 

Mr. JORDAN. You said on the user fee issue, you sent a report 

to GAO. When did you send that report? 

Dr. COHEN. I think recently, in the last several weeks, but I can 

get that for you. 

Mr. JORDAN. This is news to the committee, news to the staff, 

that you have a user fee analysis for how this is constitutional. We 

would like to see that and we have not. 

Dr. COHEN. Certainly. 

Mr. JORDAN. Mr. Cartwright? 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

Maybe I can weigh in on that very topic. In May 2014, an analysis by the Congressional Research Service suggested that the Secretary of HHS does have authority to make such payments in the 

unlikely event they would have to be made and that authority 

could be derived from appropriations language in the President’s 

budget for fiscal year 2015 giving the Centers for Medicare and 

Medicaid Services, CMS, the general authority to collect ‘‘such 

sums as may be collected from authorized user fees which shall be 

credited to this account and remain available until expended.’’ 

Are those the user fees you were discussing, Dr. Cohen? 

Dr. COHEN. I believe so, but again, I would want the committee 

to review our legal analysis. 

Mr. CARTWRIGHT. I am going to ask, Mr. Chairman, that we 

make the CRS May 2014 report a part of the record. 

Mr. JORDAN. Yes, and you referenced the President’s budget. 

What is that? 

Mr. CARTWRIGHT. It says right here, the President’s budget for 

fiscal year 2015 giving the CMS the general authority to collect 

such sums as may be collected from authorized user fees. I have 

the CRS report here and ask unanimous consent. 

Mr. JORDAN. Without objection, let it be entered in the record. 

Mr. JORDAN. The President’s budget is not always something 

that Congress passes. I do not know what binding authority it has. 

I trust CRS and I will look at it, but I am not following that, frankly. The President proposes all kinds of things that Congress does 

91 

not like. Just because he proposes it, does not mean it is constitutional. 

Are there further questions for the Doctor? 

Dr. Cohen, we want to thank you for being here today. Good 

luck. 

Dr. COHEN. Thank you. 

Mr. JORDAN. We are adjourned. 

[Whereupon, at 12:20 p.m., the subcommittee was adjourned.] 

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Æ 


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