Health Insurance Risk…Corridors

These are insurance company premium income/payout cost bands written into Obamacare that are intended to smooth out the transition from a quasi-free market in health insurance to the government run health welfare program that is Obamacare.  Under this program, insurance companies that are too successful are punished for that success by being forced to disgorge some of their income in the form of a tax on the premiums they collect, which the Feds then transfer to insurance companies that couldn’t hack the new program, so they get government support.

Only some companies that are having trouble need not apply for the bailout support—they just get to pay the vig without the payoff.

The IRS collects an annual flat amount specified by the Affordable Care Act to be allocated among the insurers according to market share.

But….  IRS regulations published in November excluded “any entity that is a self-insured employer to the extent that such employer self-insures its employees’ health risks.”  Since about four of five employers with more than 500 workers and most union-negotiated health plans are self-insured, they are spared from the tax.  So is insurance on behalf of “government entities,” such as original Medicare (but not privately run Medicare Advantage).

[Thus]…the tax burden falls on the saps who work for small businesses, the self-employed and individuals—i.e., the people who can least afford it.


this [tax] is not deductible for corporate income tax purposes.  In other words, health plans pay the tax and then federal and state taxes on the taxed amount.  [Ex-CBO director Doug] Holtz-Eakin estimates this unusual taxes-on-taxes rule means that the effect on premiums is 54% larger than the dollar amount of the tax itself.


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