The coming weeks will see U.S. health insurance companies attempt to preserve what amounts to an extortion racket. Already, some carriers have claimed they will either exit the Obamacare exchanges entirely in 2018, or submit dramatically higher premium increases for next year, if Congress does not fund payments to insurers for cost-sharing reductions. While insurers claim “uncertainty” compels them to make these business changes, in reality their roots are the companies’ gross incompetence and crass politics.
While Obamacare requires insurers to lower certain low-income individuals’ deductibles and co-payments, and directs the executive agencies to reimburse insurers for those cost-sharing reductions, it nowhere gives the administration an explicit appropriation to do so. The Obama administration made payments to insurers without an explicit appropriation from Congress, and was slapped with a federal lawsuit by the House of Representatives for it.
Either the Companies Are Mismanaged Or Playing Politics
For insurers to assume that the cost-sharing reduction payments would continue through 2017, let alone 2018, required them to ignore 1) public warnings in articles like mine; 2) Collyer’s ruling; 3) the fact that President Obama would leave office on January 20, 2017; and 4) the apparent silence from both Hillary Clinton and Donald Trump during last year’s campaign on whether they would continue the cost-sharing reduction payments once in office.
Given those four factors, competent insurance executives would have built in an appropriate contingency margin into their 2017 exchange bids, recognizing the uncertainty that the cost-sharing reduction payments would continue during the new administration. Instead, some insurers largely ignored the issue. In its most recent 10-K annual report with the Securities and Exchange Commission, filed February 22, Anthem made not a single reference in the 520-page document to the cost-sharing reduction payments or the House lawsuit.
Therein lies the reason for insurers’ threats. All last year, several insurers assumed Clinton would win and continue the (unconstitutional) payments. Worse yet, some may have willfully ignored their fiduciary responsibility to create a contingency margin for their 2017 plan bids because they wanted to help Clinton by keeping premiums artificially low.
How the People’s Representatives Should Respond
Responding to this extortion racket requires several layers of accountability. First, insurers must accept responsibility for their persistent refusal to address the cost-sharing reduction issue sooner. The Securities and Exchange Commission should investigate whether publicly traded insurers failed to disclose material risks in their company filings by neglecting to mention the clearly foreseeable uncertainty surrounding the payments.
Likewise, the Justice Department’s antitrust division should examine whether insurers’ 2017 premium submissions represent an instance of illegal collusion. If the insurance industry collectively neglected to include a contingency margin surrounding the cost-sharing payments—either to keep premium increases low before the election, or to strong-arm the incoming administration to continue to fund them—such a decision might warrant federal sanctions.
Finally, conservatives and the Trump administration should shine a bright light on state insurance commissioners’ review of premium submissions. Commissioners who approve large contingency margins for 2018 due to uncertainty over cost-sharing reductions, yet did not require a similar contingency margin for 2017 premiums, can be reasonably accused of gross incompetence, playing politics with health insurance premiums, or both.
This post was originally published at The Federalist.