Monthly Archives: September 2016

A Victory for Taxpayers — And the Rule of Law

Once again, President Obama’s vaunted pen and phone have run into trouble with the law. This time, the nonpartisan Government Accountability Office (GAO), acting in its function as comptroller general, concluded that the administration has implemented Obamacare’s reinsurance program in an illegal and impermissible manner. Rather than focusing first on repaying the Treasury, as the text of the statute requires, the administration has placed its first and highest priority on bailing out insurers.

In an opinion requested by numerous members of Congress and released this afternoon, the GAO explained:

We conclude that HHS [Health and Human Services] lacks authority to ignore the statute’s directive to deposit amounts from collections under the transitional reinsurance program in the Treasury and instead make deposits to the Treasury only if its collections reach the amounts for reinsurance payments specified in section 1341. This prioritization of collections for payment to issuers over payments to the Treasury is not authorized. 

As I have previously explained, the reinsurance funds collected from employers had two – distinct purposes: first, to repay Treasury for the $5 billion cost of a separate program in place from 2010 through 2013; and, second to subsidize insurers selling Obamacare plans to high-cost patients during the law’s first three years.

When collections from employers turned out to be less than expected, HHS prioritized the second objective to the exclusion of the first – an action that, according to the GAO, violates the plain text of the statute. As the opinion noted, “the fact that HHS’s collections ultimately fell short of the projected amounts does not alter the meaning of the statute.” The memo continued that, because agencies must “‘effectuate the statutory scheme as much as possible’ . . . HHS continues to have an obligation to carry out the statutory scheme using a method reflective of the specified amounts even though actual collections were lower than projected.” As a result, the GAO concluded that the Department has no authority to divert to insurers approximately $3 billion in reinsurance contributions that should be allocated to the Treasury.

The GAO legal team found HHS’s justification for its actions to date unpersuasive:

HHS’s position regarding prioritization of collections for reinsurance payments appears to be driven solely by the factual circumstances presented here, namely, lower than expected collections. However, a funding shortfall does not give an agency “a hinge for enlarging its discretion to decide which [priorities] to fund.” 

The law isn’t a Chinese menu, where federal bureaucrats can pick and choose which portions they wish to follow. They must follow all of the law, as closely as possible — even the portions they disagree with.

In reaching its conclusion, the GAO agreed with the nonpartisan Congressional Research Service and with other outside experts, each of whom said that HHS had violated the law in a way that was not subject to regulatory deference. And while the GAO’s reinsurance opinion is the most recent legal smackdown of the Obama administration’s craven efforts to bail out insurers, it is by no means the first: In May, Judge Rosemary Collyer ruled that the administration violated the constitution by spending funds on cost-sharing subsidies that Congress never appropriated.

More and more insurers are announcing their departure from Obamacare’s exchanges — Blue Cross Blue Shield announced this month that it is pulling out of the Obamacare marketplace in Nebraska and in most of Tennessee. Given these implosions, the return of $3 billion in taxpayer funds to the Treasury represents a blow to HHS’s bailout strategy. It demonstrates the law’s fundamentally flawed design, whereby the administration can keep insurers offering coverage on exchanges only by flouting the law to give them billions of dollars in taxpayer funds they do not deserve.

Conservatives should applaud the members of Congress who requested this ruling, which helps to staunch the flow of crony-capitalist dollars to insurers. Much more work remains, however. Congress should also act to protect its power of the purse with respect to Obamacare’s risk corridors — ensuring that the administration does not fund through a backroom legal settlement the payments to insurers that Congress explicitly prohibited two years ago. When they return in November, members should step up their oversight of both the risk-corridor and reinsurance programs: They should find out why HHS acted in such an illegal manner in the first place and whether insurance-company lobbyists encouraged the administration to violate the statute’s plain text.

For now, however, conservatives should rightly celebrate the legal victory that GAO’s opinion represents. Obamacare represented a massive increase in government spending and a similarly large increase in government authority. Today’s opinion has clipped both — a victory for taxpayers and the rule of law.

This post was originally published at National Review.

The Report Every State Legislator Should Read

Regardless of the outcome of November’s elections, health care will likely return to the forefront of policy debates in 2017 — both in Washington and in state capitals across the country. Should Hillary Clinton capture the White House, liberal groups, proclaiming that Obamacare is here to stay, will likely push to expand Medicaid in the states that have rejected the program’s massive expansion under Obamacare. Hospital groups will no doubt work hand-in-glove with the Left on these efforts, claiming that only Medicaid expansion will allow hospitals to remain viable, particularly in rural areas.

That’s why a report released by the Congressional Budget Office (CBO) earlier this month should be read by every state legislator in every state likely to debate expansion next year. In analyzing profit margins over the coming decade, the nonpartisan CBO concluded that Medicaid expansion will not make a material difference in hospitals’ overall viability.

The CBO paper modeled the impact of various provisions of Obamacare in 2025, and compared those outcomes with hospitals’ profitability in 2011, before the law’s major provisions took effect. Each scenario allowed CBO analysts to isolate the effects of separate provisions — for instance, the law’s reduction in Medicare payments to reflect improved productivity, expanded health-insurance coverage through Medicaid and the exchanges, and other payment changes.

By analyzing the effects of expanded insurance coverage, and examining whether expanding Medicaid in more states would impact hospitals’ financial condition, CBO shows that such an expansion will not materially improve their solvency:

Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries…is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.

A “small effect” and “not large enough…to substantially alter” projections — far from the panacea hospitals claim Medicaid expansion will be for their bottom lines.

The report provides several reasons why Medicaid expansion will not cure hospitals’ financial woes. Whereas CBO assumed that exchange plans would reimburse hospitals above their average costs, “Medicaid’s payment rates are below hospitals’ average costs.” Medicaid revenues will likely grow more slowly over time, as Medicaid payment rates cannot exceed Medicare levels — and Obamacare dramatically slowed those Medicare reimbursement levels. Moreover, CBO estimated “that the use of hospitals’ services among the newly insured will increase by about 40 percent as a result of having insurance.” If Medicaid pays hospitals less than their average costs, then inducing additional patient demand by expanding coverage could actually exacerbate hospitals’ shortfalls, not improve them.

To put it bluntly, hospitals made a horrible deal by endorsing Obamacare in 2009. The industry agreed to annual reductions in their Medicare payments forever in exchange for a one-time increase in the number of insured patients. The CBO report quantifies how badly the hospital industry missed its target. Even if hospitals revolutionize their productivity — a standard nonpartisan experts doubt they will achieve — the added revenue from Obamacare’s coverage expansions will barely offset the effects of the Medicare-reimbursement reductions. Under the worst-case scenario, as many as half of all hospitals could become unprofitable within a decade — and the entire industry could face negative profit margins.

Medicaid expansion cannot save hospitals from the financial woes they inflicted upon themselves by endorsing Obamacare — but it can make both federal and state governments less solvent in the process. Prior research has shown how the Medicaid rolls in states that did expand drastically exceeded projections — and a new Mercatus Center report released earlier this month noted that costs per beneficiary have grown as well.

With the costs of Medicaid growing in states that did expand, and CBO showing meager financial benefits to hospitals as a result of expansion, state legislators have every reason to resist the temptation to dramatically expand the welfare state under Obamacare.

This post was originally published at National Review.

How Bailing Out Health Insurers Will Lead to Single Payer Health Care

The bad news for Obamacare keeps on coming. Major health carriers are leaving insurance exchanges, and other insurance co-operatives the law created continue to fail, leaving tens of thousands without health coverage. Those on exchanges who somehow manage to hold on to their insurance will face a set of massive premium increases—which will hit millions of Americans weeks before the election.

Many on the Right believe Obamacare was deliberately designed to fail, and fear that we’re on a slippery slope toward single-payer. On the other side of the spectrum, the Left hopes conservatives’ fears—and liberals’ dreams—will be answered. But is either side right?

The reality is more nuanced than the rhetoric would suggest. Whether government runs all of health care is less material than whether government pays for all of health care. The latter will, sooner or later, lead to the former. That’s why the debate over bailing out Obamacare is so important. Ostensibly “private” health insurers want tens of billions of dollars in taxpayer-funded subsidies—because they claim these subsidies are the only thing standing between a government-run “public option” or a single-payer system.

But the action insurers argue will prevent a government-run system will in reality create one. If insurers get their way, and establish the principle that both they and Obamacare are too big to fail, we will have created a de facto government-run insurance system. Whether such system is run through a handful of heavily regulated, crony capitalist “private” insurers or government bureaucrats represents a comparatively trifling detail.

The Biggest Wolf Is Not the Closest

In considering the likelihood of single-payer health care, one analogy lies in the axiom that one should shoot the wolf outside one’s front door. Single-payer health care obviously represents the biggest wolf—but not the closest. While liberals no doubt want to create a single-payer health care system—Barack Obama has repeatedly said as much—they face a navigational problem: Can you get there from here?

The answer is no—at least not in one fell swoop. Creating a single-payer system would throw 177.5 million Americans off their employer-provided health insurance. That level of disruption would be orders of magnitude greater than the cancellation notices associated with the 2013 “like your plan” fiasco, which itself prompted President Obama to beat a hasty, albeit temporary, retreat from Obamacare’s mandates. Recall too that the high taxes needed to fund a statewide single-payer effort prompted Vermont—Vermont—to abandon its efforts two years ago.

Understanding the political obstacles associated with throwing half of Americans off their current health insurance, liberals’ next strategy has focused on creating a government-run health plan to “compete” with private insurers. Hillary Clinton endorsed this approach, and Democratic senators made a new push on the issue this month. When stories of premium spikes and plan cancellations hit the fan next month, liberals will inevitably claim that a government-run plan will solve all of Obamacare’s woes (although even some liberal analysts admit the law’s real problem is a product healthy people don’t want to buy).

Can the Left succeed at creating a government-run health plan? Probably not at the federal level. Liberals have noted that only one Democratic Senate candidate running this year references the so-called “public option” on his website. Thirteen Senate Democrats have yet to co-sponsor a resolution by Sen. Jeff Merkley (D-Oregon) calling for a government-run plan. Such legislation faces a certain dead-end as long as Republicans control at least one chamber of Congress. Given the failure to enact a government-run plan with a 60-vote majority in 2009, an uncertain future even under complete Democratic control.

What About Single-Payer Inside States?

What then of state efforts to create a government-run health plan? The Wall Street Journal featured a recent op-ed by Scott Gottlieb on this subject. Gottlieb notes that Section 1332 of Obamacare allows for states to create and submit innovation waivers—waivers that a Hillary Clinton administration would no doubt eagerly approve from states wanting to create government-run plans. He also rightly observes that the Obama administration has abused its authority to approve costly Medicaid waivers despite supposed requirements that these waivers not increase the deficit; a Clinton administration can be counted on to do the same.

But another element of the state innovation waiver program limits the Left’s ability to generate 50 government-run health plans. Section 1332(b)(2) requires states to enact a law “that provides for state actions under a waiver.” The requirement that legislation must accompany a state waiver application will likely limit a so-called “public option” to those states with unified Democratic control. Because Obamacare, and the 2010 and 2014 wave elections it helped spark, decimated the Democratic Party, Democrats currently hold unified control in only seven states.

Even at the state level, liberals will be hard-pressed to find many states in which to create their socialist experiment of a government-run health plan. In those few targets, health insurers and medical providers—remember that government-run health plans can only “lower” costs by arbitrarily restricting payments to doctors and hospitals—will make a powerful coalition for the Left to try and overcome. Also, in the largest state, California, the initiative process means that voters—and the television ads health-care interests will use to influence them—could ultimately decide the issue, one way or the other.

So if single-payer represents the biggest wolf, but not the one closest to the door, and government-run plans represent a closer wolf, but only a limited threat at present, what does represent the wolf at the door? Simple: the wolf in sheep’s clothing.

Too Big To Fail, Redux

The wolf in sheep’s clothing comes in the form of insurance industry lobbyists, who have been arguing to Republican staff that only making the insurance exchanges work will fend off calls for a government-run plan—or, worse, single-payer. They claim that extending and expanding the law’s current bailouts—specifically, risk corridors and reinsurance—can stabilize the market, and prevent further government intrusion.

Well, they would say that, wouldn’t they. But examining the logic reveals its hollowness: If Republicans pass bad policy now, they can fend off even worse policy later. There is of course another heretofore unknown concept of conservative Republicans choosing not to pass bad policy at all.

That’s why comments suggesting that at least some Republicans believe Obamacare must be fixed no matter who is elected president on November 8 are so damaging. That premise that Congress must do something because Obamacare and its exchanges are “too big to fail” means health insurers are likewise “too big to fail.” If this construct prevails, Congress will do whatever it takes for the insurers to stay in the marketplace; if that means turning on the bailout taps again, so be it.

But once health insurers have a clear backstop from the federal government, they will take additional risk. Insurers have said so themselves. In documents provided to Congress, carriers admitted they under-priced premiums in the law’s first three years precisely because they believed they had an unlimited tap on the federal fisc to cushion their losses. Republican efforts in Congress to rein in that bailout spigot have met furious lobbying by health insurers—and attempts by the Obama administration to strike a corrupt bargain circumventing Congress’ restrictions.

Efforts to end the bailouts and claw back as much money as possible to taxpayers would shoot the wolf at the door. Giving insurers more by way of bailout funds—socializing their risk—will only encourage them to take additional risk, exacerbating a boom-and-bust cycle that will inevitably result in a federal takeover of all that risk. When the federal government provides the risk backstop, you have a government-run system, regardless of who administers it.

While the insurance industry may view more bailouts as their salvation, Obamacare’s version of TARP looks more like a TRAP. By socializing losses, purportedly to prevent single-payer health care, creating a permanent insurer bailout fund will effectively create one. While remaining mindful of the other wolves lurking, Congress should focus foremost on eliminating the one at its threshold: Undo the Obamacare bailouts, and prove this law is not too big to fail.

This post was originally published at The Federalist.

Responding to Nicholas Bagley on Risk Corridors

Over at the Incidental Economist, Nicholas Bagley has a post that finally acknowledges some legal precedent for the argument I and others have been making for months, most recently on Monday—that the Judgment Fund cannot be used to settle lawsuits regarding Obamacare’s risk corridors. I noted in my Monday post that three non-partisan sources have issued rulings agreeing with my argument: The Justice Department’s own Office of Legal Counsel (OLC), the Comptroller General, and the Congressional Research Service (CRS). Unfortunately, Bagley mis-represented the first opinion, ignored the second entirely, and called the third one an outlier (which it isn’t) that he didn’t agree with.

While Bagley agrees that the Judgment Fund cannot be utilized where Congress has “otherwise provided for” payment, he argues that the circumstances where Congress has “otherwise provided for” payment are exceedingly rare. He claims “the Judgment Fund is unavailable only if Congress has designated an alternative source of funds to pay judgments arising from litigation.” [Emphasis original.]

Bagley alleges that the 1998 opinion from the Justice Department’s Office of Legal Counsel, cited in my Monday post, illustrates his point. He claims the OLC opinion “offers an example of how ‘specific and express’ a statute has to be before Congress will be understood to have ‘otherwise provided for’ the payment of money damages.” But, funny enough, he doesn’t quote from the memo itself. That might be because, as I noted on Monday, the memo contradicts Bagley:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.

The memo says nothing about how specific and express a statute must be for the Judgment Fund not to apply, as Bagley claims. Instead, it sets up a rather broad rule of construction: If a source of funding exists to pay claims, the Judgment Fund cannot be used to pay claims—it only serves as a payer of last resort. If another source of funding exists, but lacks sufficient cash to pay the judgment in full, then Congress—and not the Judgment Fund or the courts—must fill in the deficit through a new appropriation.

The 1998 memo from the Justice Department mirrors another 1998 ruling by the Comptroller General—the keeper of the handbook of appropriations law. In that case, Congress had imposed appropriations restrictions prohibiting the federal government from paying the cost of re-running a Teamsters union election. This fact pattern mirrors the statutory restrictions Congress imposed to prevent additional taxpayer funds being used to bail out risk corridors. And the Comptroller General’s ruling made clear that the Judgment Fund could not be utilized to circumvent the appropriations restriction:

The costs of supervising the 1996 election rerun, like the 1996 election, are programmatic costs that, but for the restrictions in sections 619 and 518 of the 1998 Justice and Labor Appropriations Acts, would be payable from available Justice and Labor operating accounts. The fact that Congress has chosen to bar the use of funds made available in the 1998 Justice and Labor Appropriations Acts to pay the cost of the Election Officer’s supervision of the 1996 election rerun should not be viewed as an open invitation to convert the Judgment Fund from an appropriation to pay damage awards against the United States to a program account to circumvent congressional restrictions on the appropriations that would otherwise be available to cover these expenses. Accordingly, we believe that the Judgment Fund would not be available to pay such an order, even if the court were to award a specific sum equivalent to the actual or anticipated costs of supervising the rerun.

While Bagley chose to ignore this ruling entirely, the precedent again indicates that the Judgment Fund cannot be utilized as a “piggy bank”—in this case, that it cannot fund that which Congress has expressly forbidden.

Particularly viewed in combination with these other two rulings, the Congressional Research Service report then stands not as the anomaly Bagley portrays it, but as illustrating the consistent principle that the Judgment Fund cannot be used to circumvent appropriations decisions rightly within the purview of Congress. The CRS memo references the prior opinions by the Comptroller General and OLC discussed above, as well as a separate legal precedent involving payments under the Ryan White HIV/AIDS program. In that case, the Court of Appeals for the Second Circuit also held that a lack of funds in program coffers did not make the Judgment Fund available—instead, the plaintiffs had to appeal to Congress for additional appropriations to pay claims.

Though Bagley does not admit it in his piece, all the non-partisan experts in appropriations law—the Comptroller General, the Congressional Research Service, and even the Justice Department’s own legal team—agree that the Judgment Fund cannot be used to pay claims where Congress has provided another avenue of payment. Despite this overwhelming evidence, Bagley attempts to argue that “every entitlement program has some source of appropriated funds, suggesting that the Judgment Fund would be unavailable in every lawsuit involving an entitlement.” [Emphasis original.]

Here again, Bagley errs—there are entitlements without a permanent appropriations source, including risk corridors. The Comptroller General’s opinion classifying risk corridors as “user fees” notes very clearly that “Section 1342 [of Obamacare, which established risk corridors], by its terms, did not enact an appropriation to make the payments specified [by the law]”—in other words, it created an entitlement without an appropriation. Moreover, Judge Rosemary Collyer’s May ruling in House v. Burwell, litigation regarding Obamacare’s cost-sharing subsidies—which also lacked an explicit statutory appropriation—noted multiple examples of entitlements without a permanent appropriation, including a 1979 Comptroller General opinion relating to payments to Guam. As her ruling noted:

The [Comptroller General’s] risk corridors decision illustrates that a statute can authorize a program, mandate that payments be made, and yet fail to appropriate the necessary funds. Thus, not only is it possible for a statute to authorize and mandate payments without making an appropriation, but [the Comptroller General] has found a prime example in [Obamacare].

Bagley’s argument therefore fails due to his faulty premise—that every entitlement must have an appropriated source of funds.

One other matter worth noting: The Clinton administration’s 1998 Office of Legal Counsel opinion should also prevent settlements—as opposed to judicial verdicts—from being paid from the Judgment Fund. The opinion cites a prior 1989 OLC memo to note that “The appropriate source of funds for a settled case is identical to the appropriate source of funds should a judgment in that case be entered against the government.” Again, the Comptroller General agrees in its Principles of Federal Appropriations Law:

A compromise settlement is payable from the same source that would apply to a judgment in the same suit….The resolution of a case does not alter the source of funds. A contrary view, as Justice points out, might encourage settlements driven by source-of-funds considerations rather than the best interests of the United States.

If the Obama administration cannot pay out a judgment regarding risk corridors—and for all the reasons above, it cannot—then it also cannot settle the lawsuit using Judgment Fund dollars. But that’s exactly what this administration intends to do—circumvent the express will of Congress, and opinions by his own Justice Department, to muscle through a massive insurer bailout “on the nod.”

Mr. Bagley has been encouraging such a backdoor bailout for months, claiming that insurers can claim risk corridor cash via the Judgment Fund. But only this week did he finally “discover” the Congressional Research Service memo directly contradicting his claims, which Sen. Marco Rubio’s office publicly released in May. And in attempting to rebut that memo, he did not acknowledge the Comptroller General’s similar opinion, mis-represented the Office of Legal Counsel’s position, and falsely claimed every entitlement must have an appropriation. Regardless of whether motivated by a lack of information or a desire to avoid inconvenient truths, his flawed and incomplete analysis vastly understates the strength of the argument that the actions the Obama administration contemplates in settling the risk corridor lawsuits violate appropriations law and practice.

Is Another Illegal Obamacare Bailout on the Way?

As Ronald Reagan might say, “There they go again.” The Obamacare Perpetual Bailout Machine went into high gear again on Friday, in a typical late-afternoon news dump released by the Centers for Medicare and Medicaid Services (CMS). In a five-paragraph memo, CMS invited insurers to settle outstanding lawsuits regarding an Obamacare bailout program — providing K Street a handy roadmap to obtaining more of federal taxpayers’ hard-earned cash, which administration officials apparently will distribute to insurers on their way out the door.

The lawsuits revolve around Obamacare’s risk-corridor program, one of two ostensibly temporary programs, scheduled to expire this December, that provided a transition to the new Obamacare regime. Plans with high profits would pay into the risk-corridor program, and their spending would offset deficits incurred by insurers with large losses.

As with most things Obamacare, risk corridors haven’t turned out quite like the administration promised. In 2014, insurers paid in a total of $362 million into the risk-corridor program — but requested $2.87 billion in disbursements. Fortunately, an appropriations rider enacted in December 2014, and subsequently renewed, has thus far prevented CMS from using taxpayer funds to bail out the risk-corridor losses. But where there’s a will to give a bailout, the Obama administration thinks it has a way. CMS in the last paragraph of its Friday memo states:

We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.

Translation: “Insurers — you want a bailout? Come right in and let’s chat. After all, we’re here only until January 20 . . . ”

Apart from being bad policy — and a violation of Congress’s express language forbidding a taxpayer bailout — such a settlement could also violate the Justice Department’s own legal guidelines. Insurers are seeking to obtain from the Judgment Fund, the entity that pays out claims stemming from federal lawsuits, what they could not obtain from Congress. But a 1998 opinion from the Justice Department’s Office of Legal Counsel (OLC) called these backdoor bailouts improper and illegal:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.

That’s exactly the situation facing CMS regarding risk corridors. Risk corridors are considered “user fees,” and CMS has a statutory appropriation to make those payments. But Congress explicitly prohibited CMS from using taxpayer funds to supplement those user fees. In other words, Congress has “otherwise provided for” risk-corridor payments — and insurers can’t use the Judgment Fund as an alternative source for bailout because they didn’t like Congress’s prohibition on a taxpayer-funded bailout. Friday’s memo clearly indicates the Obama administration’s desire for some type of corrupt bargain on its way out the door.

At least, so say the Office of Legal Counsel in its 1998 memo (issued by the Clinton administration, remember), the comptroller general, and the non-partisan Congressional Research Service. But CMS, and possibly the Obama Justice Department, have other ideas. In defending the insurer lawsuits, Justice has not yet cited the OLC memo or made any claim that Congress, consistent with both the law and past precedent, should have the last word on any judgment. Friday’s memo clearly indicates the Obama administration’s desire for some type of corrupt bargain on its way out the door.

Congress could try to act legislatively to block a potential settlement, but it has another option at its disposal. Section 2(f)(2)(C) of the rules package adopted by the House of Representatives on the first day of the 114th Congress last January provided that “the authorities provided by House Resolution 676 of the 113th Congress remain in full force and effect in the 114th Congress.” That resolution, which led to the filing of the House v. Burwell case regarding Obamacare’s cost-sharing subsidies, gave the House speaker authorization

to initiate or intervene in one or more civil actions on behalf of the House . . . regarding the failure of the President, the head of any department or agency, or any other officer or employee of the executive branch, to act in a manner consistent with that official’s duties under the Constitution and the laws of the United States with respect to implementation of any provision of [Obamacare].

In other words, Speaker Ryan already has the authority necessary to intervene in the risk-corridor cases — to ensure that any potential “settlement” adheres to both Congress’s express will regarding bailouts and existing legal practice as outlined by both the comptroller general and the Department of Justice itself.

Whether judicially, legislatively, or both, Congress should act — and act now. The time between now and January 20 is short, and the potential for mischief high. The legislature should go to work immediately to stop both a massive illegal bailout and another massive usurpation of Congress’s own authority by an imperial executive.

This post was originally published at National Review.

Are Millions of Americans Leaving Employer Coverage to Join Obamacare?

In defending the relatively small enrollment of health insurance Exchanges to date, the Obama Administration has claimed that fewer employers have dropped health insurance coverage than expected. However, results from a recent survey indicate that approximately 6.8 million enrollees in Obamacare coverage have come directly from the employer market—suggesting the phenomenon may be more widespread than originally thought.

The survey, from the Commonwealth Fund, found that a majority of individuals with Medicaid coverage (62%), and a plurality of individuals with Exchange coverage (45%), lacked health insurance prior to obtaining their new coverage. Commonwealth CrowdoutBut as the figure shows, sizable percentages of individuals with Exchange coverage (34%) and Medicaid insurance (20%) said they had been enrolled in employer-provided health insurance immediately prior to obtaining their current Obamacare-related plan.

The responses suggest the presence of crowd-out, in which government-subsidized insurance takes the place of privately-sponsored coverage. Prior studies suggest that, in some cases, crowd-out can reach as high 60%. While not approaching those levels, the survey data do demonstrate that public programs have attracted many individuals with employer coverage.

Extrapolating the Commonwealth data to existing enrollment figures suggests that Obamacare programs may have prompted 6.8 million enrollees to drop their employer coverage. That number includes 34% of the 11.1 million Exchange enrollees as of March 31 (3.8 million), plus 20% of the approximately 15 million increase in Medicaid enrollment since Obamacare’s first open enrollment period in 2014 (3.0 million).

The publicly released data associated with the Commonwealth do not provide income information for the individuals who dropped employer coverage to join an Obamacare plan, or the reasons for their change in coverage. However, other studies suggest that Exchanges have appealed primarily, if not exclusively, to those individuals with low incomes eligible for the greatest subsidies.

News articles have generally focused on the lack of disruption to employer coverage caused by the Obamacare rollout. It remains unclear whether those surveyed by Commonwealth voluntarily relinquished employer coverage (in which case they should not have received Exchange insurance subsidies), saw themselves “dumped” into the Exchange by an employer dropping their plan, or a mix of the two. But the survey data suggest policy-makers need examine the crowd-out phenomenon more closely—not just for those facing potential dislocations in coverage, but for taxpayers footing the bill for insurance subsidies.

The Importance of Unsubsidized Exchange Enrollees

Attempting to pre-empt concerns about rising premiums on Obamacare Exchanges in 2017, the Department of Health and Human Services (HHS) over the recess released a report claiming that federal subsidies will insulate most Americans from the effects of even a massive premium spike for Exchange plans. But in focusing on the number of individuals who qualify for federal subsidies, the HHS report missed an important detail: To become more financially stable and sustainable, the Exchanges need greater enrollment by those who do not qualify for subsidized plans.

I first noted back in March 2015 the split in Exchange enrollment: Only individuals who qualifyAvalere Enrollment by Income for the richest subsidies have signed up for coverage in significant numbers. While the numbers have shifted slightly, the same dynamic remains. An updated analysis from consulting firm Avalere Health found that 81% of the potentially eligible individuals with incomes between 100-150% of the federal poverty level—those who qualify for the richest premium subsidies, and cost-sharing reimbursements to help with things like deductibles and co-payments—selected an Exchange plan. But as the figure above shows, enrollment declines substantially as income rises. Only 16% of eligible individuals with incomes between three and four times poverty selected a plan, and only 2% of those with income above four times poverty—those ineligible for both premium and cost-sharing subsidies—signed up.

While insurance Exchanges in general have suffered from lackluster enrollment, unsubsidized coverage lags even further behind earlier predictions. When Congress enacted the bill into law in March 2010, the Congressional Budget Office (CBO) predicted that in 2016, Exchanges would enroll a total of 21 million Americans—17 million receiving insurance subsidies, and 4 million purchasing unsubsidized coverage. As of March 31, the Exchanges had enrolled 11.1 million Americans—9.4 million buying subsidized coverage, and 1.7 million in unsubsidized plans. When it comes to meeting the 2010 CBO projections, unsubsidized enrollment (42.3%) lags more than ten percentage points behind enrollment of individuals receiving federal subsidies (55.2%).

Although an imperfect proxy, rising income does in the aggregate correlate with longer life-expectancy and better self-reported health status. If wealthier individuals who do not qualify for insurance subsidies enrolled in Exchange plans, the overall risk pool of the Exchanges might improve. As it stands now, however, Exchange enrollees are sicker than those in the average employer-provided health plan. What the HHS report tried to highlight as a feature—the large number of enrollees receiving subsidies—is in reality a bug, as the poorer, sicker population has proved difficult for insurers to cover.

The HHS study contained other material shortcomings. It did not acknowledge that, according to multiple estimates, off-Exchange enrollment nearly matches Exchange enrollment—a fact with two major implications. First, it means more Americans will pay the full freight of higher premiums than the Administration would have you believe. Second, it reinforces that insurers can circumvent the statutory requirement to combine off-Exchange and on-Exchange enrollment into a single risk pool by only selling policies off the Exchange. Some carriers have effectively segmented the market in two by doing just that.

Most obviously, while the HHS report advertised how insurance subsidies would cushion the effect of higher premiums for most Exchange purchasers, it did not attempt to estimate the impact on the federal fisc of that higher spending. Others have also noted that the Department again declined to release the underlying data behind its assertions. But by highlighting how much of their population receives federal subsidies, HHS essentially advertised Exchanges’ one-dimensional nature—the same aspect that has many insurers heading for the exits.

Are Exchanges’ Dual Dilemmas Mutually Exclusive?

Amidst the spike in health insurance premiums set to hit just before the November elections, health insurance Exchanges face two distinct dilemmas: Too few people enrolled overall—coupled with a disproportionate number of sick individuals. Unfortunately, solving these dual problems may prove mutually exclusive, as scrutinizing efforts of sick individuals seeking to obtain coverage could lead healthier people to abandon their efforts to enroll.

In recent months, insurers have raised concerns about special enrollment periods (SEPs), designed to allow individuals to sign up for coverage outside the usual fall open enrollment due to “life changes” like a move, a loss of employer coverage, or a change in marital status. Insurers believe those enrolling through special enrollment periods 1) incur more costs than those customers who sign up using the fall open enrollment and 2) are disproportionately likely to drop their coverage after several months. They believe a significant proportion of special enrollment period sign-ups come from individuals who obtain coverage due to a health crisis, obtain care with that coverage, and promptly drop it once they return to health.

In response, the Centers for Medicare and Medicaid Services (CMS), which sets federal policy for Exchanges, has proposed eliminating some special enrollment periods, and requiring documentation for others. However, an Urban Institute paper released earlier this summer noted that

This higher cost [to insurers] results from three factors: (1) enrollment by costly consumers who are ineligible for SEPs, (2) enrollment by costly consumers who are eligible for SEPs, and (3) limited enrollment by healthy and eligible consumers. CMS’s policy to verify eligibility by requesting consumer documentation addresses the first factor. However, it does not address the second, and it worsens the third by adding procedural requirements that are likely to lessen eligible consumers’ participation, especially among the healthy.

Therein lies the dilemma—both for the Administration, and for insurers. Verifying special enrollment periods will discourage those trying to “game the system” by inventing a “life change” where none exists, but it will do nothing to discourage sick individuals with a bona fide reason for claiming special enrollment—and it may also dissuade healthy individuals from signing up when they change jobs. If the second and third effects outweigh the first, the changes could actually worsen the overall health of Exchange enrollees.

Enrollment in Exchange plans remains moribund compared to original expectations. Administration data show total enrollment of 11.1 million on March 31—a decrease of 1.6 million compared to the beginning of the year, and just over half the 2016 enrollment originally projected by the Congressional Budget Office at the time of the law’s passage. While verifying special enrollment periods will help crack down on abuses of the system, they may do so by further diminishing enrollment. And the changes could actually worsen the problem of adverse selection—enrollment by too few healthy individuals, and too many sick ones—they were meant to fix.

What Blue Cross Blue Shield Didn’t Tell You About Reinsurance

An hour ago, the Blue Cross Blue Shield Association released a blast e-mail to Hill staff trying to justify their support for Obamacare’s reinsurance bailout. The full e-mail is pasted below, but here is a quick fact check of their claims:

CLAIM: “Health plans were required to reduce their premiums based on the federal reinsurance rules in place.”

FACT: What this talking point fails to mention is that reinsurance “assessments” — $63 per person in 2014, $44 in 2015, and $27 this year — RAISED premiums for the majority of Americans with employer-provided health plans — 175 million in 2014 — so that a select few individuals with Exchange coverage could have slightly lower rates.  Raising premiums for some people to lower people for others is “spreading the wealth around,” to use Barack Obama’s famous phrase — but it doesn’t lower underlying health costs, and it doesn’t represent the $2,500 in lower premiums Barack Obama repeatedly promised.

CLAIM: “The transitional reinsurance program receives no federal funds.”

FACT: The reinsurance program uses the coercive power of the federal government to collect the dollars — making them federal funds.  Even the BCBS-distributed literature admits reinsurance funds were collected by “assessments” — i.e., a non-voluntary requirement on all health plans to pay the federal government.

Most federal entitlement programs — Social Security, Medicare, welfare, food stamps — are by their nature redistributive, taking money from some people and giving them to others.  Do Republicans believe THOSE programs do not represent “federal funds?”  Of course not.  The same principle applies here.  Or do BCBS representatives believe all Americans with employer plans would willingly pay $63 per year in higher premiums to help out their friendly health insurers?

CLAIM: “Reinsurance payments to health plans have been below the amounts specified in the statute.”

FACT: This claim misses two points.  First, on a per-enrollee basis, insurers in 2014 received nearly 50% more in reinsurance funds than they assumed when setting premiums for that year. And you don’t have to take my word for it — that conclusion comes from a paper released by the Commonwealth Fund, not exactly a bastion of conservatism.

Second, in 2014 the federal Treasury received exactly ZERO dollars from the reinsurance program — even though the Congressional Research Service and other independent experts have said the law is clear: The Treasury Department, and NOT insurers, stand first in priority for reinsurance assessment funds.

CLAIM: “The privately funded reinsurance program reduced costs for taxpayers.”

FACT: First, because the Obama Administration illegally prioritized insurers over the Treasury as explained above, the reinsurance program stands to stiff taxpayers out of billions of dollars in repayments.  Second, any supposed reduction in the cost of federal insurance subsidies came solely as a result of “assessments” — i.e., taxes — on employer-provided health plans.  Whether taxpayers pay as a result of a front-end reinsurance “assessment” or as a result of the back-end cost of federal insurance subsidies is essentially immaterial — a tax is a tax is a tax.

The fact of the matter remains: The reinsurance program remains an illegally-manipulated system of corporate welfare, and insurers are fighting to retain money that legally belongs in the Treasury.  It’s worth noting that nowhere in the BCBS documents do the Blues even attempt to argue the legality of the program as rejiggered by the Obama Administration.  Their argument to Congress therefore amounts to, essentially, “We stole that money fair and square!”

Members of Congress who want to 1) stand on the side of taxpayers, 2) oppose crony capitalism, and 3) oppose Obamacare should support every attempt to reclaim funds from the reinsurance program — and prevent a risk corridor bailout.

From: ”Pray, Jason”
Date: September 7, 2016 at 11:11:55 AM EDT
To: ”Pray, Jason”
Subject: H.R.5904 – Taxpayers Before Insurers Act

Hi everyone – I hate to come out of the post-recess box like this but, in the strongest possible terms, we encourage your office to not get on this bill as a cosponsor.

In short – Congress should oppose efforts to eliminate or limit the ACA reinsurance program; here are facts about the program:

• Health plans were required to reduce their premiums based on the federal reinsurance rules in place;

• The transitional reinsurance program receives no federal funds;

• Reinsurance payments to health plans have been below the amounts specified in the statute; and

• The privately funded reinsurance program reduced costs for taxpayers.

Limiting or eliminating the reinsurance program simply amounts to a retroactive tax on insurance companies and higher premiums going forward.

Please see the attached documents and feel free to contact me with any questions.

-          Jason

Jason Pray

Executive Director, Congressional Relations

BlueCross & BlueShield Association

Have Republicans Gone Wobbly on Obamacare?

In the weeks after Saddam Hussein’s August 1990 invasion of Kuwait, British Prime Minister Margaret Thatcher famously remarked to President George H.W. Bush that “this was no time to go wobbly.” The Iron Lady’s maxim could well have applied to the Senate majority leader last week, when he made comments suggesting Republicans should have a hand in “fixing” Obamacare—the law collapsing in front of our very eyes—in 2017.

In comments at a Chamber of Commerce event in Louisville last Monday, Sen. Mitch McConnell (R-Kentucky) said the law “is crashing”—an obvious statement to all but the law’s most grizzled supporters. But McConnell also “said the next president will have to work with Congress to keep the situation from worsening, though he did not specifically say the health care law would be repealed.”

Those last comments in particular—about the imperative to “fix” Obamacare—should cause conservatives to remember three key points.

1. It’s Not Conservatives’ Job to Fix Liberals’ Bad Law

A crass political point, perhaps, but also an accurate one. Barack Obama, Nancy Pelosi, and Harry Reid rammed Obamacare through on a straight party-line vote, despite Republicans’ warnings, because, in President Obama’s words, “I’m feeling lucky.” These days, it’s the American people who might not be feeling so lucky, with insurers leaving the insurance exchanges in droves and premiums ready to spike.

Some might ask the reasonable question whether Republicans, as the governing party in Congress, should come together for the good of the country to make President Obama’s disastrous law work. But ask yourself what Democrats would do if the circumstances were reversed: Do you think that, if Republicans had enacted premium support for Medicare or personal accounts for Social Security on a straight-party line vote, and those new programs suffered from technical and logistical problems, Pelosi and Reid would put partisanship aside and try to fix the reformed programs? If you do, I’ve got some land to sell you.

We know Reid and Pelosi wouldn’t come together in the national interest, because they didn’t do so ten years ago to support the surge in Iraq. Instead, they passed legislation undermining the surge and calling for a troop withdrawal. The surge succeeded despite Reid and Pelosi, not because of them. So if Democrats abandoned the national interest to score political points a decade ago, why should Republicans bail them out of their Obamacare woes now?

2. Hillary Clinton’s Proposed ‘Solutions’ Range from Bad to Worse

On health care, Hillary Clinton’s campaign proposals have thus far fallen largely into three buckets: 1) increasing Obamacare subsidies, paid for by tax increases; 2) creating a government-run health plan; and 3) expanding price controls against pharmaceutical companies. Conservatives should endorse exactly none of those proposals. Moreover, Clinton’s proposals would actually exacerbate the exchanges’ fundamental problem: A product too few individuals want to buy because federal regulations and mandates have driven up premiums, making the purchase of coverage irrational for all but the sickest individuals.

But McConnell’s statement that “exactly how it [Obamacare] is changed will depend on the election” implies that a Clinton victory will allow her to set the tone and agenda for negotiations on “fixing” Obamacare. It also implies that Republicans should begin negotiating against themselves, and start rationalizing ways to accept proposals coming from a President Hillary: “Well, we could live with a government-run health plan, provided it were state-based…” or “We might be able to justify billions more in spending on new subsidies if…”

In addition to representing the antithesis of good negotiation, such a strategy brings with it both policy and political risk. Negotiating changes to Obamacare on a bipartisan basis puts Republicans on the hook if those changes don’t work. Clinton’s ideas for more taxes, regulations, and spending won’t make the exchanges solvent; if anything, they will only postpone the inevitable for a while longer.

3. Ridiculous Straw Men Can’t Justify Bailouts

Insurance industry spokesmen have been flooding Republican offices on Capitol Hill making this argument: Congress has to grant insurers massive new bailouts, or the American people will end up with a government-run health plan, or worse, single-payer health care.

That argument relies on several levels of specious reasoning. Unless Republicans lose both houses of Congress in November—a possible outcome, but an unlikely one—insurers’ argument pre-supposes that a Republican Congress will vote to enact a government-run health plan, or single-payer health care. As liberals themselves have pointed out, only one Democrat running for Senate this year even mentioned the so-called “public option” on his website. So why is this government-run health plan even a concern, when Reid couldn’t enact it in 2009 with a 60-vote Senate majority?

The honest answer is it probably isn’t—insurers are just trying to scare Republicans into bailing them out. It’s the oldest straw-man argument in the book: We must do something; this is something; therefore, we must do this.

If you don’t believe me, just read the following: “Everyone in this room knows what will happen if we do nothing. Our deficit will grow. More families will go bankrupt. More businesses will close. More Americans will lose their coverage when they are sick and need it the most. And more will die as a result. We know these things to be true.”

Those words come from none other than Barack Obama, as he tried to sell Obamacare in his address to Congress in September 2009. We know where that speech led us, and we should know better than to follow such illogical reasoning again.

Phineas Taylor Barnum once famously remarked that “There’s a sucker born every minute.” Here’s hoping that Republicans will disprove that adage next year, and decline to accept the sucker’s bet associated with trying to fix an inherently unfixable law.

This post was originally published at The Federalist.