Monthly Archives: October 2016

An Obamacare “Fix” That Isn’t

Astute political observers might have noticed disconsonant views coming from Republicans on Capitol Hill recently. Even as many rightly criticized Obamacare for the massive premium increases many Americans face—and noted that the law’s framework makes Obamacare inherently unfixable—other unnamed Republican sources may be already laying the groundwork for efforts to repair the law after next week’s election. Such efforts would not only undermine the party’s pre-election messaging, they could well prove ineffective at best in solving the law’s twin problems of too many regulations and too much spending.

Two weeks ago, President Obama attempted to sell his unpopular law in Miami, encouraging people to sign up for exchange coverage in 2017 despite higher premiums for coverage of questionable quality. In response, House Speaker Paul Ryan issued a statement taking issue with the structure of the law itself:

After listening to the president’s speech, I’m not sure what health care law he’s talking about. He wondered out loud why there’s been such a fuss. It’s no secret: It’s because of Obamacare. That’s why we’ve seen record premium hikes. That’s why millions of people—including millennials—have lost their plans, or been forced to buy plans they don’t like. That’s why we’ve seen waste, fraud, and abuse. And at this point, one thing is clear: This law can’t be fixed. [Emphasis mine.]

Last week, however, a different story emerged, in a story highlighting proposed changes to the law that Congress could consider in 2017. The article in The Hill quoted unnamed congressional sources as saying that Republicans have in fact offered to help Democrats “fix” Obamacare:

A Democratic health adviser spoke to congressional Republicans recently about changing the age rating ratio, with a subsidy for older people, and said the reaction was “favorable.”

To translate the article’s policy-speak into English: Obamacare requires that insurers charge older individuals no more than three times what younger enrollees pay. In most cases, however, older individuals incur costs about five to six times what the youngest enrollees incur in medical bills. The three-to-one age rating therefore charges younger people more, so that older individuals pay slightly lower premiums.

Younger and healthier individuals aren’t enrolling in Obamacare, because they don’t see it as a good value—which, under the age rating restrictions, it isn’t. As a result, Obamacare’s exchanges face a pool of enrollees sicker than the average employer plan—one of the main reasons why insurers are losing money, and not offering exchange coverage. The unnamed Democratic staffer mooted changes that would loosen the age rating ratio—providing slightly lower premiums for younger enrollees, in the hope they will sign up in greater numbers—in exchange for richer subsidies for the older individuals who would pay more under the change.

It remains unclear whether these discussions have advanced to any degree of seriousness, or whether Speaker Ryan would in fact bring Obamacare “fixes” to the House floor after publicly stating that the law can’t be fixed. But what is clear is what new subsidies would entail—adding more spending to the nearly $2 trillion the law will already spend in the coming decade, at a time when our nation faces a staggering $19.8 trillion in federal debt. New subsidies would also likely entail new tax increases that will impede economic growth, or additional reductions in Medicare to pay for more spending on Obamacare, at a time when Medicare itself faces funding shortfalls—an inconvenient truth neither presidential candidate has bothered to consider.

Just as important, it’s also unclear whether changing the age rating regulations alone would bring premiums down enough to encourage young people to enroll. Over and above age rating, Obamacare included massive new regulations on health insurance policies, most of which raised premiums dramatically: A new list of “essential health benefits” that all plans must cover; requirements for coverage of preventive services without cost-sharing; requirements that plans cover a greater percentage of expected medical expenses. Even if more favorable age rating lowers premiums by one-third, it won’t take insurance rates much below where they were before the 25 percent premium increase facing plans this January. How will taking premiums back to they are now—when young people haven’t enrolled in Obamacare for the past three years—fix the problem?

The answer’s simple: It won’t. “Favorable” reactions from unnamed staffers aside, more spending and more taxes won’t fix an inherently unfixable law—even if accompanied by some regulatory changes that might do some good. As the old saying goes, if you’re in a hole, stop digging. When it comes to Obamacare, that means staff on both sides of the aisle shouldn’t waste time with “solutions” that involve throwing more of someone else’s money at the problem. Future generations already face a nearly $20 trillion—and counting—hole of debt; if we won’t solve that problem, let’s at least agree not to make it any bigger.

Obamacare’s Exchanges Have Become Medicaid-Like Ghettoes

The October surprise that Washington knew about all along finally arrived yesterday, as the Obama administration announced that premiums would increase by nearly 25 percent nationally for Obamacare’s individual insurance. With the exchanges already struggling to maintain their long-term viability, the premium increases place the administration in a political vise, as it tries to encourage people to buy a product whose price is rising even as it presents a poor value for most potential enrollees.

In the 40-page report the Department of Health and Human Services (HHS) released, breaking down premium and plan information for 2017, one interesting number stands out. Among states using Healthcare.gov, the federally run exchange, the median income of enrollees in 2016 topped out at 165 percent of the federal poverty level (FPL). In other words, half of enrollees made less $40,095 for a family of four. And 81 percent earned less than $60,750 for a family of four, or less than 250 percent of the FPL.

The new data from the report further confirm that the only people buying exchange plans are those receiving massive subsidies — both the richest premium subsidies, which phase out significantly above 250 percent FPL, and cost-sharing subsidies, which phase out entirely for enrollees above the 250 percent FPL threshold. If the House of Representatives’ suit challenging the constitutionality of spending on the cost-sharing subsidies succeeds, and those funds stop flowing to insurers, Obamacare may then face an existential crisis.

Even as it stands now, however, the exchanges are little more than Medicaid-like ghettoes, attracting a largely low-income population most worried about their monthly costs. To moderate premium spikes, insurers have done what Medicaid managed-care plans do: Narrow networks. Consultants at McKinsey note that three-quarters of exchange plans in 2017 will have no out-of-network coverage, except in emergency cases. And those provider networks themselves are incredibly narrow: one-third fewer specialists than the average employer plan, and hospital networks continuing to shrink.

In short, exchange coverage looks nothing like the employer plans that more affluent Americans have come to know and like. Case in point: At a briefing last month, I asked Peter Lee, the executive director of Covered California, what health insurance he purchased for himself. He responded that he was not covered on the exchange that he himself runs but instead obtained coverage through California’s state-employee plan. Which raises obvious questions: If Covered California’s offerings aren’t good enough to compel Lee to give up his state-employee plan, how good are they? Or, to put it another way, if exchange plans aren’t good enough for someone making a salary of $420,000 a year, why are they good enough for low-income enrollees?

Therein lies Obamacare’s problem — both a political dilemma and a policy one. Insurers who specialize in Medicaid managed-care plans using narrow networks have managed to eke out small profits amid other insurers’ massive exchange losses. As a result, other carriers have narrowed their product offerings, making Obamacare plans look more and more alike: narrow networks, tightly managed care — yet ever-rising premiums.

While restrictive HMOs with few provider choices may not dissuade heavily subsidized enrollees from signing up for exchange coverage, it likely will discourage more affluent customers. The exchanges need to increase their enrollment base. The combination of high premiums, tight provider networks, and deductibles so high as to render coverage “all but useless” will not help the exchanges attract the wealthier, and healthier, enrollees needed to create a stable risk pool. By reacting so sharply to its current customer base, insurers on exchanges could well alienate the base of potential customers they need to maintain their long-term viability. In that sense, Obamacare’s race to the bottom could become the exchanges’ undoing.

This post was originally published at National Review.

Barack Obama’s Anti-Democratic Speech

In Miami on Thursday afternoon, President Obama gave a speech ostensibly updating the American people on the status of his health care law. But beneath the wonky explanations lay several dark—one might even call them intolerant—undercurrents.

As much as Donald Trump’s recent comments suggesting he won’t accept the results of November’s election violate democratic norms—and they do—President Obama’s demeanor provides a more subtle, but perhaps no less insidious, threat to democratic pluralism.

When it comes to his eponymous law, President Obama thinks only policy outcomes to his liking warrant an end to debate, will only acknowledge ideas and philosophies consonant with his own, and refuses to acknowledge the extent of the deception needed to pass the measure in the first place.

Granted, the President didn’t follow Donald Trump’s (bad) example in saying he would only accept the election results “if I win.” But when it comes to the policy consequences arising from said elections, the President’s attitude essentially echoes Trump’s: The outcomes only matter if he wins.

“Going Back” to Hillarycare

As his is wont, the President on Thursday cited multiple votes on repeal bills in Congress, and questioned why Republicans wouldn’t want to “go back” to the days before Obamacare. But to this historian, it’s worth taking at least minute to do just that.

A certain former Secretary of State often likes to point out that “it was called Hillarycare before it was called Obamacare.” She’s right, of course. It was called Hillarycare—and the voters overwhelmingly rejected it, handing control of both chambers of Congress to Republicans for the first time in 40 years. And before that, voters and legislators rejected universal coverage schemes under Presidents Nixon, Truman, and both Presidents Roosevelt, to name but a few.

Viewed from this prism, why did Democrats in 2009 “go back” to try and enact Hillarycare after voters soundly rejected it—not just during the Clinton Administration, but time after time after time over a span of nearly a century? Because, for good or for ill, they believed in the objective of universal coverage—and they would not take repeated “nos” from the voters for an answer.

Why then should those concerned about the impact of Obamacare—or for that matter, any program promoted by this President—not demonstrate the same level of passion, and the same level of sustained enthusiasm, to obtain their objectives? The answer is simple: They absolutely should—at least, if you believe in democracy. But to judge from his speech, President Obama apparently places a higher priority on denigrating those who would undermine his agenda.

Granted, if you believe government only exists to provide an ever-larger amount of largesse to individuals—a boundless array of programs, generating an ever-growing level of federal munificence—you might think the only outcomes that matter are ones that increase government’s scope and reach. But if you believe that lawmakers, in their rush to obtain short-term political advantage, might be spending their way into unsustainable levels of debt for future generations, you probably take issue with the President’s one-sided perspective.

Differing Goals

Likewise, the President refuses to acknowledge that conservatives have any “serious alternatives” to the law. As someone who helped draft not one, but two, such alternatives, I can categorically call that claim false. President Obama likely knows such alternatives exist—but because they disagree with his objectives, he refuses to acknowledge them.

There’s an ironic contradiction between the President’s refusal to acknowledge conservative alternatives to Obamacare and his self-proclaimed willingness to accept ideas from any quarter. In his speech Thursday, the President joked that he would even change the name of Obamacare to “Reagancare” or “Paul Ryancare,” if Republicans would agree to improve the measure.

But there’s a not-insignificant catch: President Obama will discuss ideas from anyone—but only if they accomplish his objectives. If the ideas don’t synch up with his objectives—if he doesn’t win on the policy, to echo Trump—then to the President, those ideas simply don’t exist.

The President once again talked about Obamacare’s program of state waivers, which he claimed would provide flexibility to states. But as I have previously noted, the law permits states to waive some of the law’s requirements only if they agree to accomplish the law’s objectives. States can impose more mandates and regulations, and cover more people, but not fewer. Conservatives who wish to emphasize solutions that focus on lowering health care costs over expanding coverage will find little comfort from the law’s waivers—and little acknowledgement from this President.

Win at All Costs?

One might not recognize it at first glance, but the President’s speech implicitly admitted many of the deceptions needed to pass Obamacare in the first place. In calling the law a “starter home,” and calling for increased subsidies, he conceded that his remarks to Congress stating “the plan I’m proposing will cost around $900 billion” amounted to a bait-and-switch. Ditto his claims that premiums are rising at their slowest rate—far from the $2,500 per family premium reduction he promised in 2008.

But to President Obama, when it comes to policy, winning is all that matters. And just as with Trump’s comments on the election in November, the only outcomes that matter to President Obama—and the only ideas he will acknowledge—are those in agreement with him. Regardless of whether you believe Obamacare should be preserved, improved, or repealed, that’s bad for democracy.

This post was originally published at The Federalist.

Speaker Ryan Protects Congress’ “Power of the Purse”

This morning, Speaker Ryan’s office announced that it had filed an amicus curiae brief in one of the pending lawsuits regarding Obamacare’s risk corridors — this one filed by Health Republic. Here’s a quick explainer on the filing and its importance:

What’s Happening? Filed by a failed Oregon co-op, the Health Republic case was the first case filed over unpaid risk corridor claims, back in February. Over the summer, the Justice Department moved to dismiss the case — but solely on the grounds that the case was not yet ripe to be heard by the federal courts.

In the past few weeks, as filing deadlines in other, later risk corridor cases arose, the Justice Department shifted tactics by embarking on a more robust defense. In those later filings, Justice argued not only that insurers do not have a claim for unpaid risk corridor funds now, but that they will not ever have a claim to those funds — because Obamacare never included an explicit appropriation for risk corridors in the law itself, and because Congress further clarified its position when it explicitly made the program budget-neutral in December 2014.

Speaker Ryan’s filing today officially makes the court hearing the Health Republic case aware of the Justice Department’s new position. It argues that the Health Republic case, like the other risk corridor cases, should not just be dismissed due to lack of ripeness, but should be dismissed with prejudice on the merits.

Why Does It Matter? The House’s filing today matters for three reasons:

  1. It signifies the willingness of Congress to intervene to protect its institutional prerogatives — namely its “power of the purse,” which it has exercised in this case, by explicitly denying the transfer of taxpayer funds to the risk corridor program;
  2. It officially makes the court aware of the arguments on the merits — making it tougher for the Justice Department subsequently to settle the claims, as some within the Administration apparently wish to do; and
  3. It introduces a new legal precedent NOT previously cited by the Justice Department in its other risk corridor briefs earlier this month — specifically, the case of Highland Falls-Fort Montgomery School District v. United States. In that case, a statute created an entitlement to benefits for school districts, but Congress later appropriated less than the full amount under the statutory formula — causing the Highland Falls district to sue to obtain the shortfall. That lawsuit was dismissed by the Court of Appeals for the Federal Circuit, which found that “we have great difficulty imagining a more direct statement of congressional intent than the instructions in the appropriations statutes at issue here.” In other words, when Congress speaks with a clear voice — as it did by choosing to make the risk corridor program budget-neutral — Congress gets the last word.

In keeping with the Highland Falls precedent, I’ll give Congress, in the form of Speaker Ryan’s amicus filing, the last word here as well:

Allegedly in light of a non-existent “litigation risk,” HHS recently took the extraordinary step of urging insurers to enter into settlement agreements with the United States in order to receive payment on their meritless claims. In other words, HHS is trying to force the U.S. Treasury to disburse billions of dollars of taxpayer funds to insurance companies even though DOJ has convincingly demonstrated that HHS has no legal obligation (and no legal right) to pay these sums. The House strongly disagrees with this scheme to subvert Congressional intent by engineering a massive giveaway of taxpayer money.

Bill Clinton’s Right: Obamacare’s Tax on Success Is “Crazy”

Taxes are back in the news on the presidential campaign trail — and this time, the controversy has nothing to do with Donald Trump. While the commentariat have seized on Bill Clinton’s description of Obamacare as “crazy,” it’s important to recognize exactly what he considered so nonsensical: the fact that Obamacare increases already sizeable government-imposed penalties on work, entrepreneurship, and success. Its perverse incentives will leave more Americans stuck in a poverty trap, making Obamacare even more warped than Bill Clinton’s description of the law.

In their full context, Clinton’s comments look more damning of the law, rather than less. Before uttering the “crazy” epithet, his remarks focused on those whose income puts them right above the cutoff line to receive federal subsidies. These people are, in the former president’s words, getting “whacked” because they have succeeded in life and in business:

The current system works fine if you’re eligible for Medicaid if you’re a lower-income working person, if you’re already on Medicare, or if you get enough subsidies on a modest income that you can afford your health care. But the people who are getting killed in this deal are the small businesspeople and individuals who make just a little too much to get in on these subsidies. Why? Because they’re not organized, they don’t have any bargaining power with insurance companies, and they’re getting whacked. So you’ve got this crazy system where all of a sudden 25 million more people have health care, and they’re out there busting it, sometimes 60 hours per week, wind up with their premiums doubled and their coverage cut in half. It is the craziest thing in the world. [Emphasis is mine.]

During the 2012 campaign, Mitt Romney was roundly criticized when he said in an interview,  “I’m not concerned about the very poor. We have a safety net there.” Bill Clinton’s comments emphasized that Obamacare is not concerned about the middle class. It’s not aimed to support those who want to rise in station in life; it actually discourages them from doing so.

And whereas Romney’s 2012 impromptu “gaffe” came in a live television interview, Obamacare represents considered policy — the result of a legislative process of nearly a year and policymaking developed long before that. As I noted in a 2013 Heritage Foundation paper, the law contains numerous subsidy cliffs that create enormous inequities. In some cases, as little as an additional dollar of income could cause the loss of thousands of dollars in premium or cost-sharing subsidies paid by the federal government, or both. “Families facing these kinds of poverty traps may ask the obvious question: If I will lose so much in government benefits by earning additional income, why work?”

The nonpartisan Congressional Budget Office (CBO) has answered that question simply: In many cases, individuals will not work. A 2010 CBO report concluded that “the phaseout of the [insurance] subsidies as income rises will effectively increase marginal tax rates, which will also discourage work.” All told, the nonpartisan budget scorekeepers have concluded that the law will reduce the labor supply by the equivalent of 2 million jobs next year alone.

Obamacare only exacerbated an existing poverty trap identified by scholars on both sides of the political spectrum, including those at the left-of-center Urban Institute. As income rises above the poverty level, government-funded benefits such as Medicaid, food stamps, and the earned-income tax credit phase out or disappear altogether, eroding or eliminating much of the income effect from higher wages. If a single parent with two children can receive nearly $30,000 in government benefits with no earnings, but only about $10,000 in benefits with $35,000 in earnings, many parents may make the calculated decision that the comparatively modest net increase in family income does not justify work. Moreover, both the prior welfare system and Obamacare impose financial penalties on marriage, discouraging one of the best ways for families to rise out of poverty.

It’s ironic that Bill Clinton, the president who signed the largest tax increase in American history, would express such outrage at the way Obamacare raises effective marginal tax rates for the middle class. But for a party that purports to stand for the interests of the poor and working class, Obamacare will only work to perpetuate the cycle of poverty down to future generations. And that is perhaps the craziest idea of all.

This post was originally published at National Review.

The Dirty Little Secret of Hillary Clinton’s Health Plan

On Monday, President Bill Clinton committed a Kinsley gaffe, criticizing Obamacare as “the craziest thing in the world,” whereby small business owners “wind up with their premiums doubled and their coverage cut in half.” In response to her husband’s accurate depiction of Obamacare’s problems, Hillary said on Tuesday: “We got to fix what’s broken and keep what works, . . . We’re going to tackle it and we’re going to fix it.” Secretary Clinton is exactly correct — if by “fix” she means enacting a proposal that could line the pockets of businesses to the tune of nearly a trillion dollars while simultaneously jacking up premiums and deductibles for millions of Americans.

Hillary Clinton’s plan for a new federal tax credit to subsidize out-of-pocket costs for all Americans will encourage businesses to make their health benefits skimpier — raising premiums, co-payments, and deductibles — because they know that the new tax credit will pick up the difference for the hardest-hit families. While Secretary Clinton’s other major health-care proposals (to increase federal subsidies on insurance exchanges and to create a government-run “public option” on them) would apply only to those without employer-based coverage, the out-of-pocket tax credit would apply to both insurance that is employer-based and insurance that is individually purchased.

In analyzing her proposals, the liberal Commonwealth Fund noted that Secretary Clinton’s out-of-pocket tax credit would affect a pool of 177.5 million potentially eligible Americans, which is more than four times as many as those who would be eligible to avail themselves of the government-run “public option.” The broader reach for the tax credit, plus its generous amount (up to $2,500 per individual or $5,000 per family for out-of-pocket spending that exceeds 5 percent of income) creates a sizable cost for the federal government: net spending of $90.3 billion in 2018 alone, according to the Commonwealth analysis. In 2009, President Obama made this pledge to Congress: “The plan I’m proposing will cost around $900 billion over ten years.” But one element alone of Secretary Clinton’s plan will cost at least that much — and probably more than $1 trillion.

The Commonwealth analysis of Clinton’s plan attempts to estimate how much the out-of-pocket tax credit will reduce health-care expenses for middle-class and working-class families. What the Commonwealth researchers did not mention in the report, and instead buried in a technical appendix, is this doozy of an asterisk: “Potentially, this [tax credit] approach gives firms an incentive to increase workers’ premium contributions, so that more workers are eligible to claim the credit.”

The Commonwealth researchers did not even attempt to model the impact of the tax credit on the actual behavior of businesses, claiming that employers might not know their workers’ income or out-of-pocket expenses, and saying they could not make decisions based on incomplete information. Nonsense. Even if businesses decide not to increase employees’ premium contributions, they could jack up deductibles instead. A firm could raise its deductible by $2,500, offer all workers a $1,000 bonus — to help employees whose out-of-pocket costs don’t meet the 5 percent of income threshold to obtain the tax credit, or assist workers’ cash flow until they receive it — and still come out ahead.

Whether by accident or design, the Commonwealth researchers assumed that employers will not respond to incentives — an assumption that belies three years of experience with Obamacare’s exchanges. Thousands of Americans have gamed the law’s special enrollment periods to sign up for coverage outside the annual enrollment window, incurred above-average costs – and then dropped their coverage at above-average rates, un-enrolling after returning to health. And because Section 1412 of the law allows enrollees a three-month grace period before insurers can drop their coverage for non-payment, one insurer found that 21 percent of its customers didn’t bother to pay their premiums last December, because the law effectively said they didn’t have to.

Given the ways in which Americans have gamed Obamacare’s morass of new regulations to create a system of barely functioning insurance exchanges, it beggars belief to think that businesses would not similarly work to maximize profit. According to the Kaiser Family Foundation’s survey of employer-sponsored health plans, only 23 percent of workers face a deductible above $2,000. With the average deductible rising 12 percent last year, firms would now have an even greater incentive to privatize their gains – because the new tax credit would allow them to socialize their workers’ losses by moving them to the federal fisc.

Why would Secretary Clinton propose a costly plan that encourages large businesses to pocket profits while jacking up costs on struggling families? Simple: The plan will make employer coverage less desirable, and it might even make the Obamacare exchanges look attractive by comparison. If liberals’ end goal is to erode employer-provided health coverage and migrate all Americans to government-run exchanges, offering a tax credit that will effectively erode that coverage faster isn’t a bad way to start.

This post was originally published at National Review

Risk Corridors: The Obama Administration at War with Itself…?

Ferrets in a sack might prove an apt description of the internal infighting plaguing the Obama Administration regarding risk corridors. Last week, sources — whether within the Administration, amongst the insurer community, or both — wanted to portray a multi-billion dollar Judgment Fund settlement with insurers as a fait accompli, telling the Washington Post an agreement could be reached within two weeks.

But in two separate motions filed late last Friday regarding pending lawsuits, lawyers for the Department of Justice pulled a Lee Corso: “Not so fast, my friend!” The filings stated repeated claims made in a related lawsuit this summer that the case made by insurers is not yet ripe for adjudication in court. However, in a new development, Justice also alleged that insurers had no claim to make in court at all:

Third, Count I fails on the merits. Section 1342 [of Obamacare] does not require HHS to make risk corridors payments beyond those funded from collections. And even if that intent were unclear when the Affordable Care Act was enacted in 2010, Congress removed any ambiguity when it enacted annual appropriations laws for fiscal years 2015 and 2016 that prohibited HHS from paying risk corridors amounts from appropriated funds other than collections.

Here are four things you need to know about the latest risk corridor developments:

  • DOJ vs. CMS? Whereas the Centers for Medicare and Medicaid Services stated in a September 9 document that it considered unpaid risk corridor claims “an obligation of the United States government for which full payment is required,” the Justice Department has now argued before two separate district court judges that no additional payment is required — not now, and not ever. In testifying before Congress last month, both Acting Administrator Slavitt and his Chief of Staff separately claimed that the Justice Department were consulted before CMS issued its September 9 memo. While last week’s Post article claimed that “Justice officials have privately told several health plans” they want to settle claims on insurers’ terms as quickly (and as quietly) as possible, the filings show that at least some Justice officials have no intention of “tanking” the government’s case for political reasons.
  • Political Appointees vs. Career Civil Servants: Two congressional reports provide some clues to the possible divides within the Administration. A 2014 House Oversight Committee investigative report showed how insurers immediately contacted Valerie Jarrett and other political appointees seeking increased risk corridor payments when insurers’ enrollees started skewing older and sicker than expected. And a report by two House committees earlier this year showed how political appointees have put the proverbial screws to uncooperative civil servants, threatening those civil servants if they exercised their statutory rights to provide information to Congress regarding a related program of Obamacare cost-sharing subsidies. The mixed messages regarding the risk corridor suits could represent a similar divide — political appointees want to pay the claims before President Obama leaves office, whereas career civil servants are focused on the heretofore novel notion of actually enforcing the law as written.
  • Andy Slavitt, Bailout KingDuring his own testimony before the House Energy and Commerce Committee last month, CMS head Andy Slavitt made absolutely no attempt to argue the points Justice made in its filings — namely, that Congress has made its intent regarding risk corridors crystal clear, and that insurers are not owed any money. In this context, it is worth noting: 1) Administrator Slavitt’s at least $4.8 million in stock compensation from a unit of UnitedHealthGroup — the nation’s largest insurer; 2) the special ethics waiver he had to receive from the Obama Administration to make policy decisions impacting his former employer; and 3) the fact that Mr. Slavitt will likely require new employment in three months. Could Administrator Slavitt be attempting to help his once — and perhaps future — employers in the insurance industry…?
  • Constitutional “Takings,” Redefined: In one of the court cases, filed by Blue Cross Blue Shield of North Carolina, the Justice Department responded to claims that the risk corridor non-payment represent a Fifth Amendment violation on the part of the federal government. This Blue Cross insurer has argued — apparently with a straight face — that the federal government NOT giving it a multi-billion dollar, taxpayer-funded risk corridor payment represents a “taking” that violates its constitutional rights. To repeat: Blue Cross alleges it has a constitutional right to a multi-billion dollar bailout — even though the Justice Department notes that there is no contractual right to payment under the risk corridor program at all.

Explaining Both of the Obamacare Risk Corridor Bailouts

It never rains that it doesn’t pour. Even as nonpartisan experts at the Government Accountability Office concluded that the Obama administration broke the law with Obamacare’s reinsurance program, the Washington Post reported the administration could within weeks pay out a massive settlement to insurers through another Obamacare slush fund—this one, risk corridors.

The Post article quoted Republicans criticizing risk corridor “bailouts.” But in reality, the Obama administration itself has admitted using risk corridors as a bailout mechanism—trying to pay insurers to offset the costs of unilateral policy changes made to get President Obama out of a political jam. These two interlinked bailouts—one political, the other financial—explain this administration’s rush to pay off insurers on its way out the door.

Let’s Go Back to 2013

To understand the risk corridor story, one must head back to fall 2013. Millions of Americans received cancellation notices in the mail, informing them that their existing health insurance would disappear once Obamacare’s major provisions took effect. Those individuals also faced long odds to buy replacement policies, given that healthcare.gov and related insurance exchanges remained in a near-constant state of meltdown. Amid the controversy, President Obama had to apologize publicly for misleading the American people with his “like your plan” pledge—which Politifact later dubbed the “Lie of the Year.”

To fix the problem, the Centers for Medicare and Medicaid Services (CMS) tried a stopgap solution. Essentially, CMS said it would ignore the law’s requirements, and allow people to keep their prior coverage—albeit temporarily. States and insurers could allow individuals who purchased coverage after the law’s enactment, but before October 2013, to keep their plan for a few more months (later extended until December 2017). The final paragraph of CMS’ November 14, 2013 announcement of this policy included an important message:

Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.

CMS offered insurers a quid pro quo: If you let Americans keep their existing plan a little longer—getting the administration out of the political controversy President Obama’s repeated falsehoods had caused—we’ll turn on the bailout taps on the back end to make you whole. You scratch my back…

I’ll Pay You Tax Dollars to Play

But this arrangement created several problems. First, CMS cannot decide that it just doesn’t feel like enforcing the law. In a paper analyzing the administration’s implementation of Obamacare, University of Michigan professor Nicholas Bagley called the non-enforcement of the law’s provisions “bald efforts to avoid unwanted consequences associated with full implementation of” the law. He argued the administration’s inaction abdicated the president’s constitutional obligation to “take care that the laws be faithfully executed:”

The Administration thus used the public pronouncements of its non-enforcement policies to encourage the regulated community to disregard provisions of [the law]. Prospectively licensing large groups of people to violate a congressional statute for policy reasons is inimical to the Take Care clause.

While disagreeing that “President Obama has systematically disregarded” the text of the statute, Bagley explicitly conceded that—with respect to the “like your plan” fix and other administrative delays—“the President appears to have broken the law.”

That law-breaking brought with it major financial implications. While healthy individuals kept their existing plans and stayed out of the Obamacare risk pool, sicker individuals signed up in droves. Because the Obama administration unilaterally—and unlawfully—changed the rules after the exchanges had opened, insurers found they had substantially under-priced their products. A 2014 House Oversight Committee report found major impacts after the administration announced the “like your plan” fix:

Insurers immediately started lobbying for additional risk corridor payments, meeting with and e-mailing Valerie Jarrett the day after the Administration’s announcement;

Insurers actually enrolled many fewer young people, and many more older people, than their original estimates made before the Exchanges opened for business on October 1, 2013—consistent with other contemporaneous news reports and industry analyses; and

‘One insurer told the Committee that it expects greater risk corridor receipts because of a sicker risk pool than it anticipated on October 1, 2013 due, in part, to the President’s transitional policy.’

All these developments are entirely consistent with CMS’ November 2013 bulletin announcing the arrangement. CMS pledged to use risk corridors to make insurers whole because it knew insurers would suffer losses as a result of the administration’s unilateral—and illegal—“like your plan” fix.

How About You Pay for Me to Break the Law

To sum up: The administration conjured a political bailout. It pledged not to enforce the law, so people could keep their plans, and President Obama could get off the hook for misleading the American people. This necessitated a financial bailout through risk corridors. Actuaries can debate how much of the unpaid risk corridor claims stem from this specific policy change, but there can be no doubt that the “like your plan” fix increased those claims. CMS itself admitted as much when announcing the policy.

Ironically, Bagley admits the first bailout, but denies the second. His paper concedes the “like your plan” violated the law, and the president’s constitutional duties, largely for political reasons. But he believes the administration can, and should, pay outstanding risk corridor claims using the Judgment Fund. All of this raises an interesting question: Why should the executive be allowed to break the law, abdicate its constitutional obligations, and then force Congress—and ultimately taxpayers—to pay the tab for the financial consequences of that lawbreaking?

The answer is simple: It shouldn’t. While insurers stand in the middle of this tug-of-war, they could have acted differently when President Obama announced his “like your plan” fix. They could have cancelled all pre-Obamacare plans regardless of the president’s announced policy, demanded the opportunity to adjust their premium rates in response, pulled off the exchanges altogether, taken legal action against the administration—or all of the above. They chose instead to complain behind closed doors, get their lobbying machine to work, and hope to cut yet another backroom deal to save their bacon.

But there are two political parties, and two branches of government. To say that Congress should have to write bailout checks to insurers as a result of the executive’s lawbreaking quite literally adds injury—to taxpayers, to the legislative power of the purse, and to the separation of powers—to insult. Any judges to whom the administration will try to bless a risk corridor settlement with insurers should ask many questions about the linked bailouts motivating this corrupt bargain.

This post was originally published at The Federalist.