Thursday, December 23, 2010

The Obama Administration’s Christmas Gift to AARP

Amidst the end-of-year flurry on Capitol Hill, the Administration released its proposed regulations on rate review of “unreasonable” premium increases on Tuesday – and tucked within its 136 pages are some interesting provisions ensuring that AARP’s lucrative Medigap supplemental insurance policies will not be subject to the new scrutiny other insurers will receive.  Here’s the relevant passage from pages 29-30 of the regulations (posted online here until they’re officially published in the Federal Register):

In addition, insurance coverage that meets the “excepted benefits” definition set forth in section 2791(c) of the PHS Act and 45 C.F.R. §144.103 would not be subject to these proposed regulations.  While “excepted benefits” are not explicitly exempt from section 2794 of the PHS Act, they are exempt from other provisions of the PHS Act, as added by the Affordable Care Act.  “Excepted benefits” do not appear to be the focus of the rate review provisions of the Affordable Care Act.  Therefore, the proposed regulation would exempt “excepted benefits,” to allow for the consistent administration of the PHS Act with respect to these defined benefits.

Section 2791(c)(4) of the Public Health Service Act (linked here) specifically includes Medicare supplemental insurance in the definition of “excepted benefits” – meaning that AARP’s lucrative Medigap plans will be exempt from the rate review process.  On a related note, it’s also worth noting all the other special exemptions Medigap policies received in the health care law – because the Administration’s position, noted in the passage above, is that all the other special exemptions granted to Medigap plans mean that the rate review regulations should not apply to them either:

  • EXEMPT from the prohibition on pre-existing condition exclusions, such that AARP can continue to impose waiting periods on vulnerable seniors with pre-existing conditions – as it does currently (Section 1201(2)(A), Page 81 of H.R. 3590);
  • EXEMPT from a $500,000 cap on executive compensation for insurance industry executives, so that AARP can give its CEO more than $1 million in annual compensation – over 78 times the average annual Social Security benefit of $12,738 (Section 9014, Page 1995 of H.R. 3590);
  • EXEMPT from the tax on insurance companies that will total more than $14 billion per year – even though according to its own financial statements AARP generated more money from insurance industry “royalty fees” than it received from membership dues, grant revenues, and private contributions combined (Section 10905(d), Page 2395 of H.R. 3590); and

  • EXEMPT from a requirement imposed on Medicare Advantage plans to spend at least 85 percent of their premium dollars on medical claims – AARP Medigap policies are currently held to a far less restrictive 65 percent standard, and the difference can be used to fund “kickbacks” to AARP paid out of the pockets of its senior citizen members (Section 1103, Page 49 of H.R. 4872).

Also of note: AARP’s comments on the rate review note that the organization “strongly supports giving regulators authority to review rates before they are implemented” – but yet say NOTHING about applying the rate review process to Medigap plans.  And while AARP said it supports transparency in disclosing information relevant to rate calculations for other types of insurance, the exemption for Medigap plans means that AARP will not have to disclose the amount of “kickbacks” it obtains from the sale of each Medigap policy.  (AARP’s Board Chair previously promised to disclose this information at a congressional hearing last year; however, AARP later reneged on this commitment made in an open hearing.)

So to sum up:  The Administration believes that all the special exemptions granted to Medigap plans in the health care law allows them to create yet another exemption for Medigap plans in regulations – and the AARP supports transparency for other insurers, but not for itself.  Merry Christmas indeed…