How Andy Slavitt Sabotaged Obamacare

Over the weekend, former Centers for Medicare and Medicaid Services (CMS) acting administrator and Obamacare defender Andy Slavitt took to Twitter to denounce what he viewed as the Trump administration’s “aggressive and needless sabotage” of the health care law:

Unfortunately for Slavitt, the facts suggest otherwise. The Trump administration took actions to comply with a federal court order that vacated rules promulgated by the Obama administration—including rules CMS issued when Slavitt ran the agency. If Slavitt wants to denounce the supposed “sabotage” of Obamacare, he need look no further than the nearest mirror.

What’s the Issue?

This legal dispute involves risk adjustment payments, one of the three “Rs” Obamacare created. Unlike the risk corridor and reinsurance programs, which lasted only from 2014 through 2016, Obamacare made the risk adjustment program permanent.

In general, risk adjustment transfers funds from insurers with healthier-than-average enrollment to insurers with sicker-than-average enrollment. Without risk adjustment, plans would have perverse incentives to avoid enrolling sick people, due to the Obamacare regulations that require insurers to accept all applicants, and prohibit them from charging higher premiums due to health status.

Since the Obamacare exchanges began operations in 2014, many newer and smaller insurers say that the federal risk adjustment formula unfairly advantages incumbent carriers—in many cases, local Blue Cross Blue Shield plans. The small carriers complain that larger insurers do a better job of documenting their enrollees’ health conditions (e.g., diabetes, etc.), entitling them to larger risk adjustment payments.

A July 2016 analysis concluded that “for most co-ops, these recently announced risk adjustment payments have made a bad situation worse, and for a subset, they may prove to be the proverbial last straw.” Indeed, most Obamacare co-ops failed, and the risk adjustment methodology proved one reason. Two co-ops—Minuteman Health in Massachusetts (now in receivership) and New Mexico Health Connections—sued to challenge the risk adjustment formula.

What Happened in the Lawsuits?

On January 30, a federal district court in Massachusetts ruled in favor of the federal government with respect to Minuteman Health’s case. Judge Dennis Saylor ruled that the Department of Health and Human Services (HHS) did not act in an arbitrary and capricious manner when setting the risk adjustment formula.

However, a few weeks later, on February 28, another federal district court in New Mexico granted partial summary judgement in favor of New Mexico Health Connections, ruling that one element of the risk adjustment formula—the use of statewide average premium (discussed further below)—violated the Administrative Procedure Act as arbitrary and capricious. Judge James Browning vacated that portion of the risk adjustment formula for the years 2014 through 2018, and remanded the matter back to HHS and CMS for further proceedings.

If the Trump administration wanted to use the risk adjustment ruling to “sabotage” Obamacare, as people like Slavitt claim, it would have halted the program immediately after Browning issued his order in February. Instead, the administration on March 28 filed a motion to have Browning reconsider his decision in light of the contrary ruling in the Minuteman Health case.

The administration also asked Browning to lift his order vacating the risk adjustment formula, and just remand the matter to CMS/HHS instead. In that case, the rule would remain in effect, but the administration would have to alter it to comply with Browning’s ruling. However, at a June 21 hearing, Browning seemed disinclined to accept the government’s request—which likely led to the CMS announcement this weekend.

Who Issued ‘Arbitrary and Capricious’ Rules?

The Obama administration did, in all cases. Browning’s ruling vacated a portion of the risk adjustment formula for plan years 2014 through 2018 (i.e., the current one). Even though President Trump took office on January 20, 2017, the outgoing Obama administration rushed out rules for the 2018 plan year on December 22, 2016, with the rules taking effect just prior to Obama leaving office.

However, Browning believed the statute does not require budget neutrality—it does not prohibit it, nor does it require it. Therefore, the administration needed to provide a “policy rationale” for its budget neutrality assumption. For instance, HHS could have argued that, because Obamacare did not include a separate appropriation for the risk adjustment program, implementing risk adjustment in a budget neutral manner would prevent the diversion of taxpayer resources from other programs.

But as Browning noted, “the Court must rely upon the rationale the agency articulated in its internal proceedings and not upon post hoc reasoning.” HHS did not explain the reasoning behind budget neutrality in its final rules for the 2014 plan year, nor for several years thereafter.

While both the 2011 white paper and 2014 rules (the final version of which HHS released in March 2013) preceded the July 2014 start of Slavitt’s tenure in senior management at CMS, the agency released rules for the 2016, 2017, and 2018 plan years on his watch. If Slavitt believes “sabotage” occurred as a result of Browning’s court ruling, he should accept his share of the responsibility for it, by issuing rules that a federal judge struck down as “arbitrary and capricious.”

Ironically, as one observer noted, the federal government “argued that the court’s ruling as it applies to the 2018 benefit year should be set aside because the agency responded directly to comments regarding its rationale for budget neutrality in the final 2018 payment rule.” However, Browning held that “subsequent final rules” did “not elaborate further on [HHS’] budget neutrality rationale,” and struck down the 2018 rule along with the rules for 2014 through 2017.

Browning’s decision to strike down the 2018 rule demonstrates Slavitt’s “sabotage.” HHS released that rule months after Minuteman Health and New Mexico Health Connections filed their lawsuits, and thus had adequate time to adjust the rule in response to their claims. Regardless, Browning thought the agency did not elaborate upon or justify its policy reasoning regarding budget neutrality in the risk adjustment program—a direct swipe at Slavitt’s inability to manage the regulatory process inside his agency.

What Would Andy Slavitt Do Instead?

On Friday night, Slavitt claimed that an interim final rule could “clarify and resolve everything:”

However, on Sunday, Slavitt tweeted a link to a New York Times article entitled “A Fatal Flaw as Trump Tries to Remake Health Care: Shortcuts.” That article cited several court cases “that the Administration has lost [that] have a common theme: Federal judges have found that the Administration cut corners in trying to advance its political priorities.” It continues:

Two federal courts blocked Trump Administration rules that would have allowed employers who provide health insurance to employees to omit contraceptive coverage if the employers had moral or religious objections. Two federal judges, in separate cases, said the Administration had violated the law by adopting the rules without a public comment period, which the Trump Administration had declared ‘impracticable and contrary to the public interest.’

Those rules regarding the contraception mandate that the Trump administration adopted “without a public comment,” and which were struck down as unlawful, were both interim final rules—the same type of rule Slavitt now wants to use to change the risk adjustment formula. (Interim final rules do require the agency to take comments, but go into effect on the date of their release—thus notice-and-comment occurs retroactively.)

Nicholas Bagley, an Obamacare supporter, explained at the time of their release why he thought the contraception rules would get stricken (as they were) for violating the notice-and-comment requirement. It’s certainly possible that the administration could use Browning’s ruling as a reason to justify forgoing notice-and-comment, and releasing an interim final rule

But it also makes sense that, given the series of legal setbacks the administration has suffered in recent weeks—and the Times article highlighted—officials at CMS and HHS would take a more cautious approach to issuing regulations, to ensure their actions withstand legal scrutiny.

More to the point, it’s disingenuous of Slavitt to tweet an article criticizing the Trump administration for using interim final rules to enact policies he dislikes, then accuse the administration of “sabotage” for not using that same expedited process for policies he likes. It’s even more disingenuous for Slavitt given that the legal dilemma the Trump administration faces regarding risk adjustment comes entirely from a mess they inherited from the Obama administration—and Slavitt himself.

On Sunday, Slavitt cited a conservative article that in his view “called out Trump’s motivation for ending risk adjustment and raise [sic] premiums on millions: Punishing a former President.” Maybe the next time Slavitt makes allegations about supposed “sabotage” by the Trump administration, he should get his facts straight—CMS’s announcement didn’t “end” the risk adjustment program; only Congress can do that—rather than making unfounded against the current president.

This post was originally published at The Federalist.

We Passed the Bill, But We STILL Don’t Know What’s In It…

The Mercatus Center is out today with several papers examining the quality of Obamacare regulations.  The papers take a specific look at eight Obamacare-related interim final rules – those rules that took effect WITHOUT prior public comment – published last year, and effectively undermine Speaker Pelosi’s famous quote that we had to pass the bill to find out what’s in it.  According to the studies, the regulatory analysis performed by the HHS bureaucrats to justify these Obamacare regulations is so poor, we passed the bill and we STILL don’t know what’s in it:

  • The health care [regulatory impact analyses] presented no monetary estimates of benefits, often overestimated the number of people who would benefit, and usually underestimated costs – often by hundreds of millions or billions of dollars.”
  • “The regulation establishing subsidies for early retiree health insurance failed to consider the possibility of “crowd out,” meaning a substantial portion of the subsidies would be given to employers who were going to continue health insurance for early retirees anyway.  This omission means the analysis substantially overstates the number of people who would retain coverage as a result of the regulation.”
  • “None of the regulations consider “moral hazard” – the risk that individuals will engage in wasteful health care spending or unhealthy activities because the insurance company is paying most of the cost.”
  • For at least three and possibly five of the eight rules, more accurate estimates of benefits and costs would likely have reversed the conclusion that benefits outweighed costs.”
  • In numerous cases, the agencies neglected to analyze alternatives that would have been obvious to researchers familiar with the health policy literature.  For the regulation extending health insurance coverage to adult dependent children up to age 26, the analysis did not even consider using the established Internal Revenue Service (IRS) definition of “dependent,” even though that arguably would have made compliance much simpler. Instead, the regulation involved a whole new definition.”
  • “The analysis of the regulation mandating coverage of preventive services did not consider alternative criteria for covered services, such as services that produce net cost savings or that produce results at some specified cost per outcome.  In addition, this analysis selectively cited literature that conveyed the impression that most preventive services pay for themselves by reducing the need for future health care expenditures, when in reality only a minority of such services do.”

Another Mercatus analysis found that Obamacare regulations scored significantly lower than other federal regulations with respect to their quality.  When judged on 12 criteria such as data documentation (How verifiable are the data used in the analysis?) and goal metrics (Does the rule establish measures to track its future performance?), the eight Obamacare regulations scored lower than other federal regulations issued in 2008 and 2009, including those issued by HHS.

As a reminder, through the end of 2011 the Administration had ALREADY issued more than 10,000 pages of Obamacare-related regulations and notices in the Federal Register.  By noting the weak analyses that regulators have used to justify these Obamacare regulations, the Mercatus studies have made the case not only that Obamacare’s impact on business could be more costly than advertised, but also that the supposed benefits of these regulations may end up being illusory – meaning at a time of economic weakness, businesses have been saddled with additional costs for no great purpose.

The Most Important Health Care Regulation You’ve Never Heard Of

Late Friday afternoon, the Centers for Medicare and Medicaid Services released a seemingly obscure regulation that could have a profound impact both on state budgets and the health care overhaul – a proposed rule regarding Medicaid reimbursement levels. (The regulation is available temporarily here; it will be posted in the Federal Register this coming Friday.)  Specifically, the regulations would require states, beginning in 2013, to undertake reviews at least every five years examining access issues for beneficiaries.  The reviews would be based on a framework recommended by MACPAC (the new bureaucratic board created in the 2009 SCHIP reauthorization) requiring states to analyze enrollee needs, availability of care and providers, and utilization of services.

While the regulation attempts to portray the proposed rule as a moderate action, in reality the Administration is once again adding more regulations and mandates on to a fundamentally flawed program, without giving states the flexibility they need to design innovative solutions.  In at least five areas, CMS’ actions undermine state flexibility by burdening states with requirements the Obama Administration has not kept itself:

Lack of Flexibility:  The rule requires that states seeking to reduce or restructure provider payment rates must submit a special access review in advance of the reimbursement changes taking effect.  This additional requirement, over and above the requirement to review provider rates at least every five years, will slow the pace of innovation within state Medicaid programs – and could prevent states from closing their budget gaps in a timely fashion, if they must submit reams of new paperwork to Washington before changes to reimbursement levels take effect.  Moreover, it is highly questionable whether CMS can implement these regulatory requirements in a timely fashion.  Some state legislatures only meet a few months every two years; will CMS be able to issue approvals rapidly when dozens of states are holding fast-paced legislative sessions simultaneously?

Hypocrisy on Public Comments:  The rule “propose[s] to require a public process that states would conduct prior to submitting…changes in the provider payment structure” that would “provide a meaningful opportunity for beneficiaries, providers, and other interested parties to provide input and feedback.”  Some may find these requirements for public comment and transparency a bit rich, given the notorious backroom deals that plagued the entire process surrounding the health care law.  As a reminder, Congress adopted Medicare payment reductions that the Medicare actuary believes could affect beneficiary access WITHOUT hearing directly from the actuary, or holding hearings on the final bill prior to its passage.  Moreover, a recent Congressional Research Service analysis found that of the health care rules released thus far – most of them propounded by CMS – more than 80 percent have NOT provided the opportunity for public comment prior to taking effect.  Many may question why the Obama Administration is imposing public comment requirements on state Medicaid programs that it has yet to follow itself.

Private Right of Action:  The rulemaking comes at a time when the Supreme Court next fall will consider a case from California in which several patient advocate and provider groups sued the state regarding what they viewed as improperly low Medicaid physician reimbursement levels.  The Court in this case could give private parties the right to sue state Medicaid programs – an unprecedented step that could subject states to an onslaught of costly litigation.  In an earlier filing with the Court dated December 2010, the Justice Department petitioned (unsuccessfully) for the Court NOT to hear the case, citing the Administration’s intent to pursue rulemaking this year.  The Administration has yet to weigh in on whether it believes private entities should be allowed to sue Medicaid programs.  However, the new processes outlined in the rule that states will have to undertake could provide ammunition for trial lawyers seeking to file lawsuits against state Medicaid programs.

Costs:  The rule estimates that the administrative cost to states will be less than $100 million.  However, imposing a new series of burdens on states beginning in 2013 will only add to the complex tasks states are already undertaking to prepare for the Exchanges and Medicaid expansion taking effect in January 2014.  More importantly, CMS did not even attempt to estimate the cost to states that are found to have access difficulties.  The regulation admits that “approximately 10 states will identify access issues and submit corrective action plans” – but doesn’t estimate what the costs of those “corrective action plans” will be.

Moreover, based on other information in the rule, the estimate that only 10 states will need to submit corrective action plans could be overly optimistic.  For instance, page 24 of the rule states that “patterns of beneficiaries obtaining access to care through hospital emergency rooms may be an indication of the access problems for certain categories of services.”  However, as we’ve previously noted, a report issued by the Centers for Disease Control last August found that more than 30% of Medicaid patients under 65 visited the ER at least once in 2007, compared to fewer than 20% of both uninsured patients and patients with private insurance.  If CMS views high ER utilization by Medicaid beneficiaries as a sign of access problems, then far more than 10 states will likely have to submit corrective action plans, and the cost of these – which CMS refused to estimate – could be well into the billions.

Why Now?  Some may question why CMS is releasing this regulation now, given that legal provisions on Medicaid provider reimbursement have been unchanged for well over two decades.  At a time when the health care law is imposing unfunded mandates of at least $118 billion, the last thing fiscally strapped states need is a set of onerous new burdens from Washington – the full cost of which CMS refused to estimate.  What is clear is that CMS’ actions impose yet another unfunded mandate on states.  More importantly, many would argue that Congress should have considered beneficiary access issues BEFORE expanding Medicaid to as many as 25 million new individuals – rather than having unelected bureaucrats attempt to resolve them after the law passed by shoehorning yet another mandate on to already fiscally strapped states.

Non-Answers from the “Most Transparent” Administration

In his exchange with Secretary Sebelius, Senator Hatch noted that two-thirds of Republican written requests for information dating to June 2010 had not received an acknowledgement or response.  In addition, a new report by the Congressional Research Service found that more than three-quarters of rules implementing the health care law were issued WITHOUT public comment.

In the same exchange, Secretary Sebelius also refused to answer the question of whether or not she has the authority to waive the Medicaid mandates imposed in the health care law.  As a reminder, it’s been 76 days (and counting) since Governors made the first of multiple requests for flexibility from such mandates – and the Secretary has yet to give a straight answer as to whether or not she can relieve their massive fiscal burdens by granting flexibility from the mandates.  Conversely, it took only twelve days for the Secretary to respond to Chairman Baucus’ letter about the impact of H.R. 1 – a bill that Democrats admitted had no chance of passing.

Summary of Medical Loss Ratio Regulations

A brief synopsis of some of the high points of the interim final regulation on medical loss ratios (MLRs) released this morning, much of which closely resembles recommendations made by the National Association of Insurance Commissioners (NAIC) late last month:

  • The regulation adopts the NAIC recommendations regarding aggregation, requiring carriers to meet the MLR standards on a state-by-state basis.  See the discussion on pages 30-41 and pages 215-16 of the regulation.
  • The regulation adopts the NAIC recommendations regarding which taxes should be excluded from the MLR calculation.  See the discussion on pages 75-80.
  • The regulation also adopts the NAIC recommendations regarding credibility, which relates to actuarial adjustments provided to smaller carriers (because of the greater uncertainty associated with covering a smaller risk pool).  See the discussion on pages 90-100.
  • The regulation follows the NAIC recommendation that expatriate plans for employees working outside the country should be considered separately, due to the higher administrative costs associated with plans with significant overseas operations.  As a result, the regulation separates MLR reporting for expatriate plans, and includes an adjustment factor for 2011 to account for expatriate plans’ higher administrative costs. (The adjustment factor will be revisited for 2012 and succeeding years.)  See the discussion on pages 42-44.
  • With regard to limited benefit (or “mini-med” plans), the regulation applies an adjustment factor for 2011, with the MLR calculations for limited benefit plans to be revisited in 2012 and succeeding years.  The adjustment comes in response to news reports that McDonald’s and other companies might drop their limited benefit plans – which carry higher-than-average administrative costs – as their existing plans likely would not be able to comply with the new MLR requirements absent an adjustment.  See the discussion on pages 44-48.
  • The regulation sets out a process – along with five criteria – for HHS to consider requests to adjust or otherwise waive the MLR standards in states where the individual insurance market would be “destabilized” as a result of the 80 percent statutory MLR requirement.  However, it does not indicate the status or disposition of adjustment requests already pending, including those made by insurance commissioners in Maine and Iowa.  See the discussion on pages 116-133.

The draft regulations also include estimates of the amount of rebates to be paid out under the regulations; from pages 193-94 of the rule:

Over the 2011-2013 period, the Department’s mid-range estimate is that rebates will total $1.8 billion in the individual market, $770 million in the small group market, and $440 million in the large group market. Additionally, the Department estimates that 9.9 million enrollees in the individual market, 2.3 million enrollees in the small group market, and 2.7 million enrollees in the large group market will receive rebates over the 2011-2013 period under the mid-range estimate. Summing across all three markets, the mid-range estimate is a total of $3.0 billion in rebates over the 2011-2013 period. The low rebate estimate across all three markets for 2011-2013 is $2.0 billion, and the high rebate estimate is $4.9 billion.

The Administration’s fact sheets regarding the new regulation have been advertising the amount and number of the proposed MLR rebates to consumers.  Some may question why the Administration is trumpeting the size of the potential rebates to consumers as a “benefit” provided by the law.  Is the intent of the MLR provisions to ensure that carriers spend their money on medical claims, or to hand out rebate checks to as many people as possible in order to increase political support for an unpopular health care law?

Administration Admits: Unions Are “Special”

To follow up on my earlier missive, the Administration’s Q&A document on this morning’s rule admits that union plans received a “special rule” to allow them to switch insurance plans in the coming years, yet retain their grandfathered status:

Q: How does this policy affect plans that are negotiated by unions – collectively bargained arrangements?

A: Health plans subject to collective bargaining agreements are generally able to maintain their grandfathered status through the end of the agreement.  The law and regulations also include a special rule for collectively bargained plans that gives additional flexibility to change insurers during the collective bargaining agreement in effect on the date that the Affordable Care Act was signed.  After that, collective bargaining agreements are subject to the same rules as other health plans.

Compare that language to the Administration’s fact sheet, which says that employer plans – except for union plans – cannot change insurance companies and maintain grandfathered status:

Cannot Change Insurance Companies.  If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan.  This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collective bargaining agreements.

To be clear, there is nothing in this section of the statute – Section 1251(d) regarding grandfathered plans, reproduced below – that required the Departments to exempt union plans from the rule that a change in insurance companies triggers a change in grandfathered status.  Likewise, there was nothing preventing the Departments from allowing all small businesses to change carriers without penalty.  Instead, the Administration just decided on its own that unions were “special,” and granted them an exemption.  Worse yet, because the Administration decided to publish this rule before putting out a proposal for comment through the normal regulatory process, there was ZERO transparency regarding this latest backroom deal.

(d) EFFECT ON COLLECTIVE BARGAINING AGREEMENTS.—In the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before the date of enactment of this Act, the provisions of this subtitle and subtitle A (and the amendments made by such subtitles) shall not apply until the date on which the last of the collective bargaining agreements relating to the coverage terminates. Any coverage amendment made pursuant to a collective bargaining agreement relating to the coverage which amends the coverage solely to conform to any requirement added by this subtitle or subtitle A (or amendments) shall not be treated as a termination of such collective bargaining agreement.