Democrats Debate How to Give “Free” Stuff to More People

The first night of this month’s Democratic debates provided rapid-fire exchanges on health care, made more complicated by CNN debate moderators who rarely gave candidates time to explain their positions clearly. But the overall tenor of the debate seemed clear: Promising free stuff to voters.

Health care consumed a fair portion of the debate’s first hour. Following lengthy exchanges in the first segment, another extended discussion on electability in the second segment revolved around health care—specifically the provision in Sen. Bernie Sanders’ single-payer bill that would make private health coverage “unlawful.”

Sanders and his fellow Sen. Elizabeth Warren (D-MA) sparred with other, more moderate candidates—Sen. Amy Klobuchar (D-MN), Rep. Tim Ryan (D-OH), Rep. John Delaney (D-MD), and South Bend Mayor Pete Buttigieg—about the feasibility of banning the private coverage that most Americans currently have, and like. Warren won applause from the audience, and likely from the liberal base, with her (self-)righteous anger at these criticisms, decrying Democrats’ use of “Republican talking points” about “taking away health care,” and attacking Delaney for “talk[ing] about what we really can’t do and shouldn’t fight for.”

But partisan attacks aside, the debates showed more similarities than differences, on two key fronts. First, even candidates like Buttigieg and former congressman Robert Francis O’Rourke (D-TX) said they want to move everyone onto a government-run health plan—they just want to do it in a slower and more subtle fashion than Sanders.

When Buttigieg argued that a government-run “public option” would get to single payer eventually, he meant that he would sabotage private coverage to force people into the government system over time. After all, Democrats wouldn’t support the creation of such an “option” if they didn’t think it would lead to huge enrollment, which they believe can become a self-fulfilling prophecy through policy bias.

Yet while Sanders sponsored the legislation, he obviously has not read it, calling his proposal “Medicare for All” even though it would explicitly abolish the current Medicare program. Sanders also claimed yet again that his proposal would make health care a human right, even though it would do no such thing. People would have the “right” to have their care paid for if they can find a doctor who will treat them, but they have no explicit “right” to care under his bill.

In a similar manner, Warren refused to admit, despite repeated questioning from the CNN anchors, that taxes on the middle class would go up to pay for everyone’s “free” health care. She pledged that total costs would go down, an implicit acknowledgement of the obvious fact that wealthy individuals alone cannot fund a government-run health system costing trillions of dollars annually. But she, like her California Senate colleague Kamala Harris, somehow wants to keep up the fiction that middle-class families can consume all the health care they want without having to pay for any of it in taxes.

Ultimately, one key winner emerged from the debate: Donald Trump. Moderate candidates who have little shot at winning the nomination took multiple shots at the party’s leftward lurch that the Trump campaign can easily exploit next summer and fall.

The more Democrats keep pushing farther and farther to the left—with the debate on outlawing private health insurance a prime example—the better the president’s chances of winning re-election. Given the tenor of Tuesday’s discussion, the Trump campaign should offer to host, and pay for, another debate for Democratic candidates, as soon as possible.

This post was originally published at The Federalist.

How Joe Biden Deliberately Avoided Paying Obamacare Taxes

In the campaign for the 2020 Democratic presidential nomination, Joe Biden has portrayed himself as Obamacare’s biggest defender. His health care plan, released this month, pledges to “protect the Affordable Care Act” and states that he “opposes every effort to get rid of this historic law.”

However, his campaign rhetoric in support of Obamacare overlooks one key fact: For the past two years, Joe Biden structured his financial dealings specifically to avoid paying a tax that funds “this historic law,” along with the Medicare program.

While the Bidens paid federal income taxes on all their income, they did not have to pay self-employment taxes on these millions of dollars in profits. The Bidens saved as much as $500,000 in self-employment taxes by taking most of their compensation as profits from the corporation, as opposed to salary.

The Journal cited multiple tax experts who called the Bidens’ move “pretty aggressive,” and a “pretty cut and dried” abuse of the system. Given that most of their income came from writing and speaking engagements, one expert called that income “all attributable to [their] efforts” as individuals and thus wage income, rather than a broader effort by any corporation resulting in profits.

Most important to Biden’s political future is what that foregone self-employment tax revenue would have funded. Section 9015 of Obamacare increased the tax’s rate from 2.9 percent to 3.8 percent for all income above $200,000 for an individual, and $250,000 for a family. By taking comparatively small salaries from their S corporations and receiving most of their income as profits from those corporations, the Bidens avoided paying a tax that funds an Obamacare law Joe Biden claims he wants to defend.

Moreover, the other 2.9 percent in self-employment tax helps finance the Medicare program, which faces its own bleak fiscal future. According to the program trustees, the program will become insolvent by 2026, just seven years from now. If people like Joe Biden use tax strategies to avoid paying self-employment taxes, Medicare’s date of insolvency will only accelerate.

During the last presidential election cycle, Sen. Bernie Sanders repeatedly returned to Hillary Clinton’s paid speeches before companies like Goldman Sachs. Both the more than $100 million in income Bill and Hillary Clinton generated from their speeches, and Hillary Clinton’s insouciance at the vast sums she received—“That’s what they offered,” she said of the $675,000 sum Goldman Sachs paid her to give three speeches—made her look out-of-touch with the concerns of families struggling to make ends meet.

Likewise, Biden’s 2020 competitors almost certainly will use the questions about his taxes to undermine his image as “Middle Class Joe.” Few middle-class families will make in a lifetime the $15.6 million in income that the Bidens received in but two years. Moreover, how can Joe Biden claim to defend Obamacare—let alone Medicare—when he created a tax strategy specifically to avoid paying taxes that fund those two programs?

In 2014, Barack Obama, whose administration proposed ending the loophole the Bidens used to avoid self-employment taxes, attacked corporations for seeking to migrate to lower-tax jurisdictions overseas: “It is true that there are a lot of things that are legal that probably aren’t the right thing to do by the country.” In Joe Biden’s case, his tax behavior probably wasn’t the right thing to help his political future either.

This post was originally published at The Federalist.

Democrats Agree: Free Health Coverage for Undocumented Immigrants

If a picture is worth a thousand words, then three series of pictures, featuring Democrats discussing health benefits for those in this country illegally, speak volumes. First, Hillary Clinton in September 1993:

Finally, Democratic candidates for president last night:

Whereas Indiana Mayor Pete Buttigieg called coverage for illegal immigrants an “insurance program” and “not a hand out,” Clinton said in 1993—well before the most recent waves of migration—that “we do not want to do anything to encourage more illegal immigration into this country. We know now that too many people come in for medical care, as it is. We certainly don’t want them having the same benefits that American citizens are entitled to have.”

Likewise, whereas Joe Biden said “you cannot let people who are sick, no matter where they come from, no matter what their status, go uncovered,” the president whom he worked for promised the American people that “the reforms I’m proposing would not apply to those who are here illegally.” Granted, the promise had a major catch to it—Obamacare verifies citizenship but not identity, allowing people here illegally to obtain benefits using fraudulent documents—but at least he felt the need to make the pledge in the first place. No longer.

Ironically enough, even as all Democrats supported giving coverage to illegally present foreigners, the candidates seemed less united on whether, how, and from whom to take health insurance away from U.S. citizens. Only Sens. Kamala Harris and Bernie Sanders said they supported abolishing private health insurance, as Sanders’ single-payer bill would do (and as Sen. Elizabeth Warren and New York Mayor Bill de Blasio pledged on Wednesday evening). For Harris, it represents a return to her position of January, after fudging the issue in a follow-up interview with CNN last month.

As usual, Sanders made typically hyperbolic—and false—claims about his plan. He said that his bill would make health care a human right, even though it does no such thing. In truth, the legislation guarantees that individuals would have their bills paid for—but only if they can find a doctor or hospital willing to treat them.

While Sanders pledged that under his bill, individuals could go to whatever doctor or hospital they wished, such a promise has two main flaws. First, his bill does not—and arguably, the federal government cannot—force a given doctor to treat a given patient. Second, given the reimbursement reductions likely under single payer, many doctors could decide to leave the profession altogether.

Sanders’ home state provided a reality check during the debate. Candidates critical of single payer noted that Vermont had to abandon its dream of socialized medicine in 2014, when the tax increases needed to fund such a program proved too overwhelming.

Shumlin gave his fellow Democrats a valuable lesson. Based on the radical, and radically unaffordable, proposals discussed in this week’s debates—from single-payer health care, to coverage for undocumented immigrants, to “free” college and student loan forgiveness, and on and on—they seem hellbent on ignoring it.

This post was originally published at The Federalist.

California Is What’s Wrong with Obamacare

In recent days, California lawmakers have finalized their budget. The legislation includes several choices regarding health care and Obamacare, most of them incorrect ones. Doling out more government largesse won’t solve rising health costs, and it will cause more unintended consequences in the process.

Health Coverage for Individuals Unlawfully Present

This move has drawn the most attention, as the budget bill expands Medicaid coverage to illegally present adults aged 19-26. California will pay the full share of this Medicaid spending, as the federal government will not subsidize health coverage for foreign citizens illegally present in the United States.

As to those who disagree with this move, one can study the words of none other than Hillary Clinton. In 1993, she testified before Congress in opposition to giving illegal residents full health benefits, because “illegal aliens” were coming to the United States for health care even then:

We do not think the comprehensive health care benefits should be extended to those who are undocumented workers and illegal aliens. We do not want to do anything to encourage more illegal immigration into this country. We know now that too many people come in for medical care, as it is. We certainly don’t want them having the same benefits that American citizens are entitled to have.

If Clinton’s words don’t sound compelling enough, consider one way that California may finance these new benefits: By reinstating Obamacare’s individual mandate. To put it another way, people who obey the law (i.e., the mandate) will fund free health coverage for people who by definition have broken the law by coming to, or remaining in, the United States unlawfully.

A Questionable Individual Mandate

This issue faces multiple questions on both process and substance. First, the budget bill includes about $8 million for the state’s Franchise Tax Board to implement an individual mandate, but doesn’t actually contain language imposing the mandate. The bill that would reimpose the mandate, using definitions originally included in the federal law, passed the Assembly late last month, but faces opposition in the Senate.

Third, implementing the mandate imposes legal and logistical challenges. I argued in the Wall Street Journal last fall that states cannot require employers who self-fund health coverage to report their employees’ insurance coverage to state authorities. The mandate bill the Assembly passed does not include such a requirement.

Without a reporting requirement on employers, a mandate could become toothless, because the state would have difficulty verifying coverage to ensure compliance—people could lie on their tax forms and likely would not get caught. However, imposing a reporting regime, either through the mandate bill or regulations, would invite an employer to claim that federal labor law (namely, the Employee Retirement Income Security Act) prohibits such a state-based requirement.

More Spending on Subsidies

While the budget bill does not include an explicit insurance mandate, it does include more than $295 million to “provide advanceable premium assistance subsidies during the 2020 coverage year to individuals with projected and actual household incomes at or below 600 percent of the federal poverty level.”

Obamacare epitomized the problems that policy-makers face in subsidizing health insurance. The federal law includes a subsidy “cliff” at 400 percent of the poverty level. Households making just under that threshold can receive federal subsidies that could total as much as $5,000-$10,000 for a family, but if their income rises even one dollar above that “cliff,” they lose all eligibility for those subsidies.

By penalizing individuals whose incomes rise even marginally, the subsidy “cliff” discourages work. That’s one of the main reasons the Congressional Budget Office said Obamacare would reduce the labor supply by the equivalent of 2.5 million full-time jobs.

California decided to replace these work disincentives with yet more spending on subsidies. This year, the federal poverty level stands at $25,750 for a family of four—which makes 600 percent of poverty equal to $154,500. In other words, a family making more than $150,000 will now classify as “low-income” for purposes of the new subsidy regime.

Hypocrisy by Officials

The individual mandate bill gives a significant amount of authority for its implementation to Covered California, the state’s insurance exchange. The bill says the exchange will determine the amount of the mandate penalty, and determine who receives exemptions from the mandate.

Who runs California’s exchange? None other than Peter Lee, the man I previously profiled as someone who earns $436,800 per year, yet refuses to buy the exchange coverage he sells. Or, to put it another way, if the mandate passes, Lee will be standing in judgment of individuals who refuse to do what he will not—buy an Obamacare plan.

If you think that seems a bit rich, you would be correct. But it epitomizes the poor policy choices and hypocritical actions taken by officials to prop up Obamacare in California.

This post was originally published at The Federalist.

Kamala Harris vs. Hillary Clinton on Benefits to Immigrants

Back in January, jaws dropped when presidential candidate Sen. Kamala Harris (D-CA) admitted at a CNN town hall that she wanted to take away the existing health arrangements of hundreds of millions of Americans. Now we know one reason why.

In another interview with CNN that aired Sunday, Harris admitted that she wants to provide taxpayer-funded health care, along with education and other benefits, to individuals unlawfully present in this country. But as even Hillary Clinton recognized, doing so wouldn’t just cost precious taxpayer dollars. It will also encourage individuals to migrate to the United States for “free” health care.

In the interview, CNN’s Jake Tapper asked Harris about language in Section 102(a) of the House and Senate single-payer bills, which would make health coverage available to all individuals present in the United States, regardless of their legal status. When questioned whether she supported granting benefits “to people who are in this country illegally,” Harris responded unequivocally that she does: “Let me just be very clear about this. I am opposed to any policy that would deny in our country any human being from access to public safety, public education or public health, period.”

Compare Harris’ response to the words of none other than Hillary Clinton. When testifying before Congress about her health-care task force’s plan in September 1993, Clinton said she opposed extending benefits to “illegal aliens,” because it would encourage additional migration to the United States:

We do not think the comprehensive health care benefits should be extended to those who are undocumented workers and illegal aliens. We do not want to do anything to encourage more illegal immigration into this country. We know now that too many people come in for medical care, as it is. We certainly don’t want them having the same benefits that American citizens are entitled to have.

Clinton may not want illegally present foreign citizens having the same benefits that American citizens would be entitled to under single payer, but Harris does.

The problems sparked by single payer would reach far beyond undocumented foreigners living in this country. To wit, both the House and Senate single-payer bills prohibit individuals from traveling “for the sole purpose of obtaining health care” from the new government-run system. But note the specific wording: It only prohibits foreign citizens from traveling for the sole purpose of receiving health care.

This extremely permissive language would give federal officials fits. So long as anyone states some other purpose—visiting the U.S. Capitol, for instance, or seeing a Broadway play—for his or her visit, the language in the bills would make it impossible to deny these foreign citizens health care funded by U.S. taxpayers.

Provisions like these would not just cost American taxpayer dollars, it would also cost the U.S. health-care system. Growth in benefit tourism would greatly increase demand for health care (as would many other provisions in a single-payer system). Because of this greater demand, American citizens would have an increasingly difficult time accessing care. Foreign residents may not like waiting for care either, but individuals from developing countries lacking access to advanced health treatments might find queues for care in this country far preferable to no care at all in their native land.

Don’t Insult Americans’ Intelligence

In the same CNN interview that aired Sunday, Harris also tried, albeit unconvincingly, to “clean up” her January comments about “mov[ing] on” from private insurance. She claimed to Tapper that single-payer legislation would not fully eliminate private insurance. However, host Tapper rightly pointed out that supplemental insurance could only cover the very few services that the government-run plan would not, like cosmetic surgery.

Tapper also asked Harris about the unions that have health plans that they like now, not least because they gave up pay raises in prior years to keep rich health benefits. Harris could only concede that “it’s a legitimate concern which must be addressed.” I’m sure that those individuals facing the loss of their health coverage feel better, because Harris has officially dubbed their concern “legitimate.”

Note to Harris: Legal hair-splitting about whether single payer bars all health insurance, or just virtually all health insurance, and patronizing constituents fearful of losing their coverage, doesn’t seem like the best way to win support for a government takeover of health care. Perhaps next time she gives an interview with Tapper, she will finally have an answer for why she wants to give benefits to individuals unlawfully present, while taking coverage away from nearly 300 million Americans.

This post was originally published at The Federalist.

Democrats’ Single-Payer Health Care Bill Raises Serious Questions

On Tuesday, the House’s Democratic majority will hold its first formal proceedings on single payer legislation. The House Rules Committee hearing will give supporters an opportunity to move past simplistic rhetoric and answer specific questions about H.R. 1384, the House single payer bill, such as:

Section 102(a) makes “every individual who is a resident of the United States” eligible for benefits, regardless of their citizenship status. But in September 1993, Hillary Clinton testified before Congress that she opposed “extend[ing]” benefits to “those who are undocumented workers and illegal aliens,” because “too many people come [to the United States] for medical care as it is.” Do you agree with Secretary Clinton that single payer will encourage “illegal aliens” to immigrate to the United States for “free” health care?

Section 102(b) prevents individuals from traveling to the United States “for the sole purpose of obtaining” benefits. Does this provision mean that foreign nationals can receive taxpayer-funded health care so long as they state at least one other purpose—for instance, visiting a tourist site or two—for their travels?

Section 104(a) prohibits any participating provider from “den[ying] the benefits of the program” to any individual for any of a series of reasons, including “termination of pregnancy.” What if the nation’s more than 600 Catholic hospitals—which collectively treat more than one in seven American patients—refuse to join the government program because this anti-conscience provision forces them to perform abortions and other procedures in violation of their deeply-held religious beliefs? How will the government program make up for this lost capacity in the health care system?

Section 201(a) requires the Secretary of Health and Human Services (HHS) to compile a list of “medically necessary or appropriate” services that the single payer program will cover. Does anything in the bill prohibit the Secretary from including euthanasia—now legal in at least eight states—on that list of covered benefits?

Section 401(b) requires HHS to compile an “adequate national database,” which among other things must include information on employees’ hours, wages, and job titles. Will America’s millions of health care workers appreciate having the federal government track their jobs and income? Why does the bill contain not a word about employees’ privacy in this “adequate national database?”

Section 611 creates a system of global budgets to fund hospitals’ entire operating costs through one quarterly payment. But what if this lump-sum proves insufficient? Will hospitals have to curtail operations at the end of each quarter if they exceed the budget government bureaucrats provide to them?

Section 614(b)(2) prohibits payments to providers from being used for any profit or net revenue, essentially forcing for-profit hospital, nursing home, hospice, and other providers to convert to not-for-profit status. Coming on top of the bill’s virtual abolition of private insurers, how much will this collective destruction of shareholder value hurt average Americans’ 401(k) balances?

Section 614(c)(4) prohibits hospital providers from using federal operating funds to finance “a capital project funded by charitable donations” without prior approval. Does this restriction—preventing hospitals from opening new wings funded by private dollars—demonstrate how single payer will ration access to care, by limiting the available supply?

Section 614(f) bars HHS from “utiliz[ing] any quality metrics or standards for the purposes of establishing provider payment methodologies.” Does this prohibition on tying any provider payments to quality metrics serve as confirmation of the low-quality care a single payer system will give to patients?

Section 616 states that, if drug and device manufacturers will not agree to an “appropriate” price for their products—as defined by the government, of course—the HHS Secretary will license their patents away to other companies. But the average pharmaceutical costs approximately $2.6 billion to bring to market. How many fewer drugs will come to market in the future due to this arbitrary restriction on innovation?

Section 701(b)(2)(B) sets future years’ appropriations for the program based in part on “other factors determined appropriate by the [HHS] Secretary.” But this month, Nancy Pelosi filed suit against President Trump’s border emergency declaration, after she claimed that the declaration “undermines the separation of powers and Congress’s [sic] power of the purse.” How does allowing an unelected executive branch official to determine trillions of dollars in appropriations uphold Congress’ “power of the purse?”

Section 901(a)(1)(A) states that “no benefits shall be available under Title XVIII of the Social Security Act”—i.e., Medicare—two years after enactment. How does abolishing the current Medicare program square with the bill’s supposed title of “Medicare for All?”

If single payer supporters can answer all these queries at Tuesday’s hearing, many observers will only have one other question: Why anyone thought the legislation a good idea to begin with.

This post was originally published at Fox News.

How Single-Payer Supporters Defy Common Sense

The move to enact single-payer health care in the United States always suffered from major math problems. This week, it revived another: Common sense.

On Monday, the Mercatus Center published an analysis of single-payer legislation like that promoted by socialist Sen. Bernie Sanders (I-VT). While conservatives highlighted the estimated $32.6 trillion price tag for the legislation, liberals rejoiced.

Riiiiiigggggggghhhhhhhhhttttt. As the old saying goes, if something sounds too good to be true, it usually is. Given that even single-payer supporters have now admitted that the plan will lead to rationing of health care, the public shouldn’t just walk away from Sanders’ plan—they should run.

National Versus Federal Health Spending

Sanders’ claim arises because of two different terms the Mercatus paper uses. While Mercatus emphasized the way the bill would increase federal health spending, Sanders chose to focus on the study’s estimates about national health spending.

Although it sounds large in absolute terms, the Mercatus paper assumes only a slight drop for health spending in relative terms. It estimates a total of $2.05 trillion in lower national health expenditures over a decade from single-payer. But national health expenditures would total $59.7 trillion over the same time span—meaning that, if Mercatus’ assumptions prove correct, single-payer would reduce national health expenditures by roughly 3.4 percent.

Four Favorable Assumptions Skew the Results

However, to arrive at their estimate that single-payer would reduce overall health spending, the Mercatus paper relies on four highly favorable assumptions. Removing any one of these assumptions could mean that instead of lowering health care spending, single-payer legislation would instead raise it.

First, Mercatus adjusted projected health spending upward, to reflect that single-payer health care would cover all Americans. Because the Sanders plan would also abolish deductibles and co-payments for most procedures, study author Chuck Blahous added an additional factor reflecting induced demand by the currently insured, because patients will see the doctor more when they face no co-payments for doing so.

Second, the Mercatus study assumes that a single-payer plan can successfully use Medicare reimbursement rates. However, the non-partisan Medicare actuary has concluded that those rates already will cause half of hospitals to have overall negative total facility margins by 2040, jeopardizing access to care for seniors.

Expanding these lower payment rates to all patients would jeopardize even more hospitals’ financial solvency. But paying doctors and hospitals market-level reimbursement rates for patients would raise the cost of a single-payer system by $5.4 trillion over ten years—more than wiping away any supposed “savings” from the bill.

Finally, the Mercatus paper “assumes substantial administrative cost savings,” relying on “an aggressive estimate” that replacing private insurance with one single-payer system will lower health spending. Mercatus made such an assumption even though spending on administrative costs increased by nearly $26 billion, or more than 12.3 percent, in 2014, Obamacare’s first year of full implementation.

Likewise, government programs, unlike private insurance, have less incentive to fight fraud, as only the latter face financial ruin from it. The $60 billion problem of fraud in Medicare provides more than enough reason to doubt much administrative savings from a single-payer system.

Apply the Common Sense Test

But put all the technical arguments aside for a moment. As I noted above, whether a single-payer health-care system will reduce overall health expenses rests on a relatively simple question: Will doctors and hospitals agree to provide more care to more patients for the same amount of money?

Whether single-payer will lead to less paperwork for doctors remains an open question. Given the amount of time people spend filing their taxes every year, I have my doubts that a fully government-run system would generate major improvements.

But regardless of whether providers get any paperwork relief from single-payer, the additional patients will come to their doors seeking care, and existing patients will demand more services once government provides them for “free.” Yet doctors and hospitals won’t get paid any more for providing those additional services. The Mercatus study estimates that spending reductions due to the application of Medicare’s price controls to the entire population will all but wipe out the increase in spending from new patient demand.

If Sanders wants to take a “victory lap” for a study arguing that millions of health care workers will receive the same amount of money for doing more work, I have four words for him: Good luck with that.

Health Care Rationing Ahead

I’ll give the last word to, of all things, a “socialist perspective.” One blog post yesterday actually claimed the Mercatus study underestimated the potential savings under single-payer: “[The study] assumes utilization of health services will increase by 11 percent, but aggregate health service utilization is ultimately dependent on the capacity to provide services, meaning utilization could hit a hard limit below the level [it] projects” (emphasis mine).

In other words, spending will fall because so many will demand “free” health care that government will have to ration it. To socialists who yearningly long to exercise such power over their fellow citizens, such rationing sounds like their utopian dream. But therein lies their logic problem, for any American with common sense would disagree.

This post was originally published at The Federalist.

Health Insurance Bailout Is Subprime Redux

Stop me if you’ve heard this story before: Financial institutions, enabled and empowered by lax regulators, make unwise multi-billion-dollar bets that threaten the well-being of millions of Americans—not to mention federal taxpayers. The subprime mortgage crisis that led to the financial meltdown of 2007-08? Sure. But it also describes insurers’ risky bets on Obamacare in 2017-18.

At issue in the latter: Federal cost-sharing reduction payments, designed to reimburse insurers for providing discounted co-payments, deductibles, and the like for certain low-income households. While the text of Obamacare includes no explicit appropriation for the payments, the Obama administration decided to start providing the payments to insurers anyway when the law’s insurance exchanges opened in 2014.

By summer 2016, anyone could have seen problems on the horizon for insurers: Collyer had declared the cost-sharing payments unconstitutional; a new president would take office in January 2017, and could easily terminate the payments unilaterally, just as Obama started them unilaterally; and neither Hillary Clinton nor Donald Trump made any clear public statements confirming the payments would continue.

Worried about their potential exposure, insurers tried to fix their dilemma, but didn’t. Insurers insisted upon language in their contracts with healthcare.gov, the federally run insurance exchange, stipulating that cost-sharing reductions “will always be available to qualifying enrollees,” and allowing them to drop out of the exchange if those reductions disappeared.

But the legal and constitutional dispute does not apply to payments to enrollees. Insurers are legally bound to provide those reductions regardless. The contract provides no help to insurers on the fundamental question: Whether the federal government will reimburse them for providing individuals the reduced cost-sharing.

Likewise, despite having multiple reasons to do so, state regulators did not appear to question the uncertain status of the cost-sharing payments when approving insurers’ 2017 rates in the fall of 2016. I asked all 50 state insurance commissioners for internal documents analyzing the impact of the May 2016 court ruling declaring the payments unconstitutional on the 2017 plan year. In response, I have yet to receive a single document to indicate that regulators demonstrated concern about the incoming administration cutting off billions of dollars in federal subsidies to insurers.

Having under-reacted surrounding the cost-sharing reductions for much of 2016, insurers and insurance commissioners have spent the past several months over-reacting. Industry lobbyists have swarmed Capitol Hill demanding Congress pass an explicit appropriation for the payments—and more bailout payments besides.

But the hyperventilation regarding the cost-sharing payments sends the wrong message to financial markets: They can ignore significant risks, so long as their competitors do so as well. The “uncertainty” surrounding the payments was knowable, and known, both to insurers who tried to change their contracts with the federal exchange, and to analysts like this one. Yet insurers did not change their behavior to reflect those risks, nor did regulators require them to do so.

This post was originally published at The Federalist.

Exclusive: Congress Should Investigate, Not Bail Out, Health Regulators Who Risked Billions

What if a group of regulators were collectively blindsided by a decision that cost their industry billions of dollars? One might think Congress would investigate the causes of this regulatory debacle, and take steps to ensure it wouldn’t repeat itself.

Think again. President Trump’s October decision to terminate cost-sharing reduction (CSR) subsidy payments to health insurers will inflict serious losses on the industry. For October, November, and December, insurers will reduce deductibles and co-payments for certain low-income exchange enrollees, but will not receive reimbursement from the federal government for doing so. America’s Health Insurance Plans, the industry’s trade association, claimed in a recent court filing that insurance carriers will suffer $1.75 billion in losses over the remainder of 2017 due to the decision.

As Dave Anderson of Duke University recently noted, the “hand grenade” of stopping the cost-sharing reduction payments, “if it was thrown in January or February of this year, would have forced a lot of carriers to do midyear exits and it would have destroyed the exchanges in some states.” Yet Congress has asked not even a single question of regulators why they did not anticipate and plan for this scenario—a recipe for more costly mistakes in the future.

A Brewing Legal and Political Storm

The controversy surrounds federal payments that reimburse insurers for lower deductibles, co-payments, and out-of-pocket expenses for qualifying low-income households purchasing exchange coverage. While the text of Obamacare requires the U.S. Department of Health and Human Services to establish a program to reimburse insurers for providing the discounts, it nowhere includes an explicit appropriation for such spending.

As the exchanges launched in 2014, the Obama administration began making CSR payments to insurers. However, later that year, the House of Representatives, viewing a constitutional infringement on its “power of the purse,” sued to stop the executive from making the payments without an explicit appropriation. In May 2016, Judge Rosemary Collyer ruled the payments unconstitutional absent an express appropriation from Congress.

The next President could easily wade into this issue. Say a Republican is elected and he opts to stop the Treasury making payments related to the subsidies absent an express appropriation from Congress. Such an action could take effect almost immediately….It’s a consideration as carriers submit their bids for next year that come January 2017, the policy landscape for insurers could look far different.

One week after my article, Collyer issued her ruling calling the subsidy payments unconstitutional. At that point, CSR payments faced threats from both the legal and political realms. On the legal front, the ongoing court case could have resulted in an order terminating the payments. On the political side, the new administration would have the power to terminate the payments unilaterally—and it does not appear that either Hillary Clinton or Trump ever publicly committed to maintaining the payments upon taking office.

Yet Commissioners Stood Idly By

In the midst of this gathering storm, what actions did insurance commissioners take last year, as insurers filed their rates for the 2017 plan year—the plan year currently ongoing—to analyze whether cost-sharing payments would continue, and the effects on insurers if they did not? About a week before the Trump administration officially decided to halt the payments, I submitted public records requests to every state insurance commissioner’s office to find out.

Two states (Indiana and Oregon) are still processing my requests, but the results from most other states do not inspire confidence. Although a few states (Illinois, Utah, and California’s Department of Managed Health Care) withheld documents for confidentiality or logistical reasons, I have yet to find a single document during the filing process for the 2017 plan year contemplating the set of circumstances that transpired this fall—namely, a new administration cutting off the CSR payments.

In many cases, states indicated they did not, and do not, question insurers’ assumptions at all. North Dakota said it does not dictate terms to carriers (although the state did not allow carriers to re-submit rates for the 2018 plan year after the administration halted the CSR payments in October). Wyoming said it did not issue guidance to carriers on CSRs “because that’s not how we roll.” Missouri did not require its insurers to file 2017 rates with regulators, so it would have no way of knowing those insurers’ assumptions.

Other states admitted that they did not consider the possibility that the incoming administration would, or even could, terminate the CSR payments. North Carolina said it did not think the court case was relevant, or that cost-sharing reduction payments would be an issue. Massachusetts’ insurance Connector (its state-run exchange) responded that “there was no indication that rates for 2017 were affected by the pendency of House v. Burwell,” the case Collyer ruled on in May 2016.

Despite the ongoing court case and the deep partisan disputes over Obamacare, many commissioners’ responses indicate a failure to anticipate difficulties with cost-sharing reduction payments. Mississippi stated that, during the filing process for 2017, “CSRs weren’t a problem then, as they were being funded.” Minnesota added that “it was not until the spring of 2017 that carriers started discussing the threat [of CSR payments being terminated] was a real possibility.” Nebraska stated that “I don’t think that there’s anyone who allowed for the possibility of non-payment of CSRs for plan year 2017. We were all waiting for Congress to act.”

However, as an e-mail sent by the National Association of Insurance Commissioners (NAIC) to state regulators demonstrates, federal authorities at the Centers for Medicare and Medicaid Services (CMS) stated their “serious concerns” with the Texas and New Mexico proposals. Federal law requires insurers to reduce cost-sharing for qualifying beneficiaries, regardless of the status of the reimbursement program, and CMS believed the contingency language—which never went into effect in either Texas or New Mexico—violated that requirement.

In at least one case, an insurer raised premiums to reflect the risk that CSR payments could disappear in 2017. Blue Cross Blue Shield of Montana submitted such request to that state’s insurance authorities. However, regulators rejected “contingent CSR language”—apparently an attempt to cancel the reduced cost-sharing if reimbursement from Washington was not forthcoming, a la the Texas and New Mexico proposals. The insurance commissioner’s office also objected to the carrier’s attempt to raise premiums over the issue: “We will not allow rates to be increased based on speculation about outcomes of litigation.”

Of course, had insurers requested, or had regulators either approved or demanded, premium increases last year due to uncertainty over cost-sharing reduction payments, they would not now face the prospect of over $1 billion in losses due to non-payment of CSRs for the last three months of 2017. But had regulators approved even higher premium increases last year, those increases likely would have caused political controversy during the November elections.

As it was, news of the average 25 percent premium increase for 2017 gave Trump a political cudgel to attack Clinton in the waning days of the campaign. One can certainly question why Democratic insurance commissioners who did not utter a word about premium increases and CSR “uncertainty” during Clinton’s campaign suddenly discovered the term the minute Trump was elected president.

However, at least some ardent Obamacare supporters just did not anticipate a new administration withdrawing cost-sharing reduction payments. Washington state’s commissioner, Mike Kreidler, published an op-ed last October regarding the House v. Burwell court case. He did so at the behest of NAIC consumer representative Tim Jost, who wanted to cite Kreidler’s piece in an amicus curiae brief during the case’s appeal. But despite their focus on the court case regarding CSRs, it appears neither Jost nor Kreidler ever contemplated a new administration withdrawing the payments in 2017.

Congressional Oversight Needed

The evidence suggests that not a single insurance commissioner considered the impact of a new administration withdrawing cost-sharing reduction payments in 2017, a series of decisions that put the entire health of the individual insurance market at risk. What policy implications follow from this conclusion?

First, it undercuts the effectiveness of Obamacare’s “rate review” process. That mechanism requires states to evaluate “excessive” premium increases. However, the program’s evaluation criteria do not explicitly include policy judgments such as those surrounding CSRs. Moreover, the political focus on lowering “excessively” high premium increases might result in cases where regulators approve premium rates set inappropriately low—as happened in 2017, where no carriers priced in a contingency margin for the termination of CSR payments, yet those payments ceased in October.

As noted above, Montana’s regulators called out that state’s Blue Cross Blue Shield affiliate for proposing a rate increase relating to CSR uncertainty. The state’s insurance commissioner, Monica Lindeen, issued a formal “letter of deficiency” in which she stated that “raising rates on the basis of this assumption [i.e., loss of cost-sharing reduction payments] is unreasonable.” But events proved Lindeen wrong—those payments did disappear in 2017. Yet the insurer in question has no recourse after their assumptions proved more accurate than Lindeen’s—nor, for that matter, will Lindeen face any consequences for the “unreasonable” assumptions she made.

Second, it suggests an inherent tension between state authorities and Washington. Several regulators specifically said they looked to CMS’ advice on the cost-sharing reduction issue. Iowa requested guidance from Washington, and Wisconsin said the status of the payments was “out of our hands.” But given the impending change of administrations, any guidance CMS provided in the spring or summer of 2016 was guaranteed to remain valid only through January 20, 2017—a problem for regulators setting rates for the 2017 plan year.

Obamacare created a new layer of federal oversight—and federal policy—surrounding regulation of insurance, which heretofore had laid primarily within the province of the states. The CSR debacle resulted from the conflict between those two layers. Unless and until our laws reconcile those tensions—in conservatives’ case, by repealing the Obamacare regime and returning regulation to the states, or in liberals’ preferred outcome, by centralizing more regulatory authority in Washington—these conflicts could well recur.

Third, and perhaps most importantly, it should spark Congress to examine state oversight of health insurance in greater detail. The fact that insurance commissioners escaped the equivalent of a Category 5 hurricane—the withdrawal of CSR payments in January—and struggled through a mere tropical storm with payments withdrawn in October instead, had no relevance on their regulatory skill—to the contrary, in fact.

Unfortunately, Congress has demonstrated little interest in examining why the regulatory apparatus fell so short. The same Democratic Party that investigated regulators and bankers following the financial crisis has shown little interest in questioning why insurers and insurance regulators failed to anticipate the end of cost-sharing reduction payments. With their focus on getting Congress to appropriate funds restoring the CSR payments President Trump terminated, insurance commissioners’ lack of planning and preparation represents an inconvenient truth that Democrats would rather ignore.

Likewise, Republicans who wish to appropriate funds for the cost-sharing reduction payments have no interest in examining the roots of the CSR debacle. In September, Sen. Lamar Alexander (R-TN) convened a hearing of the Health, Education, Labor, and Pensions (HELP) Committee to take testimony from insurance commissioners on “stabilizing” insurance markets.

At the hearing, Alexander did not ask the commissioners why they did not predict the “uncertainty” surrounding cost-sharing reductions last year. HELP Committee Ranking Member Patty Murray (D-WA) asked Kreidler, her state’s insurance commissioner, about regulators’ “guessing games” regarding the status of CSRs with regard to the 2018 plan year. But neither she nor any of the members asked why those regulators made such blind and ultimately incorrect assumptions last year, by not even considering a scenario where CSR payments disappeared during the 2017 plan year.

Alexander and Murray claim the legislation they developed following the hearing, which would appropriate CSR funds for two years, does not represent a “bailout” for the insurance industry. But the fact remains that last fall, when preparing for the 2017 plan year, insurance regulators dropped the ball in a big way.

Ignoring their inaction, and appropriating funds for cost-sharing reductions without scrutinizing their conduct, would effectively bail out insurance commissioners’ own collective negligence. Congress should think twice before doing so, because next time, a regulatory debacle could have an even bigger impact on the health insurance industry—and on federal taxpayers.

This post was originally published at The Federalist.

Democrats Talking Down Obamacare

It appears that analysts at the Center for American Progress (CAP) have taken up weightlifting in recent weeks, as their health-care team on Monday released a report that represented little more than an attempt to move the Obamacare goalposts. Released ahead of this morning’s start of the 2018 open enrollment period, the “analysis” claimed that, but for the Trump administration’s “sabotage” of Obamacare, enrollment in insurance exchanges would—wait for it—remain unchanged from current year levels.

So in CAP’s view, any decline in exchange enrollment lies entirely at Trump’s feet, but any increase in enrollment comes despite Trump, not because of him. (Funny that.) CAP demonstrated its complete confidence in the effect of Trump’s “sabotage” by failing to make any specific estimate or prediction about how much enrollment would decline due to the president’s actions. The paper discussed Obamacare, but its soft bigotry of low expectations—both for the exchanges and the accuracy of CAP’s own predictions—sounded straight out of the debate on No Child Left Behind.

Their Logic Says Obama Sabotaged His Own Program

But the decision to shorten the open enrollment period was first made by none other than those infamous “saboteurs” Barack Obama and Obama official Andy Slavitt. In February 2016, they announced that open enrollment in 2019 would range from November 1 to December 15. Upon taking office earlier this year, the Trump administration decided to implement this change a year ahead of time, due in part to the ways in which individuals were “gaming the system”—using the long open enrollment period and readily available special enrollment periods to sign up for coverage only after developing costly medical conditions.

A change? Sure. Sabotage? Only if you think Obama and Slavitt want to dismantle Obamacare.

Then there’s the question of funding for enrollment and outreach, which the Trump administration reduced from $100 million to $10 million. As with all organizations that believe beneficence lies solely through government, CAP claims private efforts “cannot fully make up for the wealth of information that only the government has for outreach, as well as the planning and funding that HHS dedicated to the program in past years.”

So maybe, just maybe, Hillary Clinton could cut short her walks in the woods, and raise money for Obamacare instead of hawking her own books. Who knows—maybe noted clean-energy advocate Tom Steyer will stop tilting at windmills, and run ads supporting Obamacare instead of Trump’s impeachment. Or Clinton could simply open up her checkbook and single-handedly replenish the outreach budget herself, given that she and her husband made $153 million giving speeches over their careers—a figure which puts both the Clintons’ largesse, and the outreach “cuts,” in perspective.

Regardless, having seen their profits double under the last administration, health insurers don’t need taxpayers funding ads encouraging people to buy their products. They have $15 billion in profits from 2015 to do that themselves. (With that much money, they could even reprise Andy Griffith’s ads promoting Obamacare.)

Is It Sabotage to Increase Health Coverage?

In the final category of “sabotage” comes the Trump administration’s decision to cancel cost-sharing reduction payments to insurers—payments that Judge Rosemary Collyer ruled unconstitutional nearly 18 months ago. CAP claims this decision will raise premiums for the 2018 plan year. But the decision will also lead to greater spending on insurance subsidies, and more individuals with health coverage, according to the Congressional Budget Office—outcomes CAP would ordinarily support, but somehow “forgot” to mention in its report.

If the states are so concerned that people will be scared away from the exchanges by the thought of higher premiums, perhaps they should stop yelling about higher premiums. With open enrollment just days away, perhaps the states should focus instead on communicating the message that they have devised a response to the CSR payment termination that will prevent harm to the large majority of people while in fact allowing millions of lower-income people to get a better deal on health insurance in 2018. [Emphasis mine.]

While out on the campaign trail, Obama famously told crowds: “Don’t boo—vote.” Perhaps Obamacare supporters should take the eponym’s advice, and spend less time over the next few weeks whining about “sabotage” over open enrollment and more time actually working to enroll people. And maybe, just maybe, all the Washington elites up in arms about President Trump’s “sabotage” of the law could take a truly radical step, and sign up for Obamacare coverage themselves.

This post was originally published at The Federalist.