Yesterday, the United States Supreme Court ruled in an eight to one decision that federal taxpayers should be on the hook for a $12 billion payout to health insurance companies because of Obamacare. (here) A bit of background is necessary.

The Affordable Care Act forced all American adults to own health insurance. The ACA expanded the Medicaid entitlement for low-income people and established health insurance exchanges for middle-class adults and their families. People earning up to 400 percent of the federal poverty level could access insurance in the exchanges with premium subsidies paid for by taxpayers.

The architects of the ACA set the penalty for not owning insurance extremely low and compounded this err by mandating that insurance companies sell policies to anyone regardless of pre-existing conditions. It was obvious to most policy analysts that young, healthy adults would make a reasonable economic decision and forgo purchasing insurance until they became ill or injured. This is exactly what happened.

To entice insurance companies to participate in the ACA exchanges, the Obamacare writers placed three safe-guard mechanisms in the law. (here)

Risk adjustment forces plans with low-risk people to cover plans with high-risk plans. This program was set up to be cost net-neutral and would run indefinitely.

Reinsurance provided payments to companies that enroll higher risk individuals. It expired in 2016.

The third mechanism is the one SCOTUS ruled on yesterday and is called risk corridor. This program was based on actual claims and again was set up to be cost net-neutral with low-claims insurance companies paying into a fund to cover the expenses of high-claims companies. It expired in 2016, as well.

 Insurance companies, either through foolish administration or political pressure, participated in the ACA exchanges. To break even, companies would need at least 40 percent of enrollees to be young and healthy to offset the high-costs of older, sicker individuals. No surprise, the young and healthy did not sign up for plans, which essentially left all of the participating companies financially upside down. No company made money to pay into the risk corridor fund.

The companies sued the federal government for risk corridor payments totaling $12 billion, even though Congress never appropriated the money. The lawsuit went all the way to the Supreme Court which ruled yesterday. The reasoning of the majority was that the companies participated in good faith and that the U.S. government basically had an historic obligation to cover the risk corridor payments in Obamacare.

Federal taxpayers are now responsible for $12 billion in payments to health insurance companies, even though it was obvious from the initial passage of the ACA that the plans in the exchanges would be money losers. Remember when Americans were promised that Obamacare would bend down the ever-rising cost curve of health care in this country?