Three Unanswered Questions on Covered California’s Bogus Premium “Study”

On Thursday, Covered California, the state’s health insurance Exchange, released a purported study providing estimates of premium increases over the next three years. The report itself provides precious little specificity regarding premium increases — not least because no one can know such details so far in advance. It seems purposefully designed around a blaring headline — “Premium Increases of Up to 90 Percent!!!” — with the rest largely window dressing.

The report also contains premium estimates for all 50 states. There seems little reason for the California state Exchange to commission a report on premium levels nationwide — particularly because the report does not provide anything more than a possible range of premium increases in each state. Either the Exchange views itself as part of the #Resistance to President Trump, it wants to use the headlines to motivate Congress to pass a “stability” package — or both. (Probably both.)

Is Covered California’s Actuary Biased?

A footnote in the paper notes that “the leadership on the analysis” in the paper was “provided by Covered California’s Chief Actuary, John Bertko.” Bertko’s name came up in another document, one I received last summer, following a Public Records Act request to Covered California. In the September 2016 email exchange, Bertko forwarded an article to colleagues regarding the status of legal action on cost-sharing reductions (CSRs), along with a note stating that “I think the court case on CSRs is unlikely to go the wrong way.”

He was wrong factually, of course. Judge Rosemary Collyer ruled that the Obama Administration lacked a valid appropriation to make CSR payments in May 2016, and Judge Vince Chhabria last fall denied a motion by state attorneys general requiring the Trump Administration to make the payments.

Why Did Covered California Not Prepare for Instability?

When it comes to the CSR issue discussed above, I wrote back in May 2016 that the incoming administration could withdraw the payments unilaterally, and that as a result, “come January 2017, the policy landscape for insurers could look far different” than it did under President Obama.

What did Covered California do regarding that warning? Exactly nothing. My Public Records Act request for all records relating to cost-sharing reductions and rates for the 2017 plan year yielded but two documents. The first, the Bertko e-mail chain referenced above, related solely to how the federal government had addressed the CSR issue. Bertko sent it two months after Covered California announced its rates for the 2017 plan year, and the Exchange’s model contract with insurers mentioned nothing about the federal government not funding CSRs — both demonstrating that Covered California failed to conduct due diligence about whether CSRs could disappear.

The second document Covered California disclosed is an e-mail chain starting on November 21, 2016, two weeks after the election. Covered California Executive Director Peter Lee requested an urgent legal analysis of the CSR issue, allowing Covered California to redact most of the email chain on attorney-client privilege grounds. (I separately removed personal contact information that Covered California left unredacted in the document sent to me.) That said, it doesn’t take a rocket scientist to understand the general context: “Oh ^!%^@#!@—Trump actually got elected! What can he do about CSRs now…?”

Will Peter Lee Actually Enroll in Obamacare Himself?

The Covered California paper claims that regulatory actions taken by the Trump Administration “are expected to draw consumers out of the individual market, sowing market instability and raising the specter of large premium increases in 2019 and beyond.”

However, one person definitely won’t be drawn out of the individual market: Peter Lee, Covered California’s Executive Director — who never went into the individual market in the first place, because he refuses to buy the policies his own Exchange sells. As I have previously written, Lee lets taxpayers pay for his health insurance coverage, even though he makes a salary of $436,800 annually.

Alternatively, Lee believes the Exchange coverage he promotes throughout California is good enough for others to buy, but not good enough for him—a similarly offensive concept. What exactly is the point of an Executive Director going on a bus tour promoting “quality, affordable coverage” if that individual won’t purchase that same coverage — either because he finds it unaffordable or of low quality?

Lee can release all the reports about increasing Exchange enrollment that he wants, but in reality, he has failed to put his money where his mouth is — quite literally. Unless and until he swallows his pride, joins the hoi polloi, and actually purchases the coverage he himself sells, the advice Covered California gives isn’t worth the paper it’s printed on.

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.

Lamar Alexander Wants to Bail Out Regulators Who Misjudged Billions

When a state’s insurance market stands on the verge of collapse, as Tennessee Insurance Commissioner Julie Mix McPeak claimed in 2016, why would she and her colleagues fail to consider another potential change that could precipitate a full-on implosion? Congress should analyze this question as it examines Obamacare’s health insurance markets.

Unfortunately, however, Tennessee Sen. Lamar Alexander seems more interested in stuffing the coffers of the insurance industry than in conducting robust oversight of McPeak’s regulatory debacle.

A recent public records request confirms that when health insurers filed their 2017 rates in the summer of 2016, Tennessee’s Department of Insurance failed to contemplate that the incoming presidential administration could cancel the cost-sharing payments. As a result, Tennessee insurers will incur their share of the $1.75 billion in losses insurers face nationally this year. The department’s lack of planning and preparation left Tennessee consumers—to say nothing of health insurers themselves—exposed.

Tennessee Should Have Seen This Coming

McPeak cannot say she was not warned about the vulnerability of insurers’ cost-sharing subsidies. In May 2016, federal court Judge Rosemary Collyer ruled the payments unconstitutional, because Obamacare did not include an explicit appropriation for them. While Collyer stayed her ruling as the Obama administration appealed, I noted that month that the incoming president could easily concede the lawsuit and halt the payments unilaterally—exactly what President Trump did in October.

As one insurance expert noted recently, 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 the recent public records request revealed that Tennessee regulators did not send so much as a single e-mail considering whether this “hand grenade” would explode—taking the state’s exchange down with it—before approving insurance rates for 2017 last fall.

Senators Seem to Prefer Bailouts to Accountability

Tennessee’s Alexander has played a leading role in ignoring insurance commissioners’ questionable behavior. In September, Alexander convened a hearing of the Health, Education, Labor, and Pensions (HELP) Committee he chairs to take testimony from insurance commissioners, including McPeak, about state insurance markets. At no point did Alexander or any other senator ask McPeak or her fellow commissioners why they failed to consider, let alone predict, the withdrawal of the cost-sharing payments last year.

Instead of examining the regulatory failures of commissioners like McPeak, Alexander has dedicated his energies toward solving the problem McPeak’s ignorance helped to create. His legislation would appropriate approximately $25 billion in taxpayer funds for the cost-sharing reduction payments to insurers.

Unfortunately, Alexander’s legislation would result in a major windfall for health insurers, according to the Congressional Budget Office (CBO). Because insurers have already raised their premiums for 2018 to compensate for the loss of the cost-sharing reduction payments, Alexander’s bill would effectively pay them twice. While the CBO believes insurers will rebate some—not all, but only some—of these “extra” payments back to the government, insurers could pocket between $4-6 billion in additional windfall profits thanks to Alexander’s legislation.

This post was originally published at The Federalist.

Who Will Regulate the Regulators?

My recent investigation into insurance commissioners failure’ to consider, let alone prepare for, a new presidential administration withdrawing unconstitutional cost-sharing reduction payments when examining rates for the 2017 plan year included one particular story worth highlighting.

In Montana, the insurance commissioner branded Blue Cross Blue Shield’s premium increase as “unreasonable,” in part because it wished to prepare for an eventuality—namely, withdrawal of the cost-sharing reduction payments—that the commissioner herself ignored.

Insurer’s Request for Contingencies

As noted last month, Blue Cross Blue Shield of Montana first requested that state regulators permit it to stop reducing cost-sharing to low-income beneficiaries if the federal government withdrew the payments reimbursing insurers for those discounts. However, federal regulators rightly noted that Obamacare requires insurers to lower cost-sharing for qualified individuals, regardless of whether the federal government provides reimbursement for this, making this proposal impossible to implement.

Because it could not stop lowering cost-sharing if the federal reimbursements ceased, Blue Cross Blue Shield requested a higher premium increase for 2017, to cushion against the risk of an unfunded mandate—the federal government requiring the company to lower cost-sharing without reimbursing it for that. However, Montana’s insurance commissioner, Monica Lindeen, dubbed the carrier’s proposed premium increase “unreasonable.”

In a letter of deficiency posted on the commission’s website, Lindeen found several portions of the premium increase proposed by Health Care Services Corporation (Blue Cross Blue Shield of Montana’s parent company) unreasonable, including the portion linked to uncertainty over the cost-sharing reduction payments:

HCSC has added 4.2% to its rates because it believes that the government will lose a lawsuit that concerns the validity of the appropriation for cost-sharing reductions and that CMS [the federal Centers for Medicare and Medicaid Services] will not reimburse QHP [qualified health plan] issuers for cost sharing reductions in 2017. The lawsuit is currently pending appeal in the federal circuit court. Experts, including industry experts, agree that this case will not be resolved until at least 2018 and no one knows what the final outcome will be. HCSC appears to be the only health insurer in the country taking the position that its rates will be negatively impacted by this lawsuit in 2017….

In the years since CSI [the Commissioner of Securities and Insurance] has been reviewing health insurance rates, the CSI has always maintained the position that insurers may not base rating assumptions on speculation concerning the outcome of pending litigation. HCSC has stated that it will remove this rating assumption if the CSI allows HCSC to include illegal language in its policy. As the insurance regulator for this state, I cannot agree to that proposal. Raising 2017 rates on the basis of this assumption is unreasonable.

‘Unreasonable’ Regulators

The federal government withdrew the payments in October. Had the carrier not raised premiums pre-emptively to account for the possibility that the payments might disappear, it would have joined other insurers in incurring as much as $1.75 billion in losses over the final quarter of this calendar year.

Lindeen’s actions proved “unreasonable” in several respects. First, contra her claims that “experts agree” that the dispute over the payments “will not be resolved until at least 2018,” I specifically wrote in May 2016 that the incoming presidential administration could halt the payments “almost immediately.” The letter of deficiency does not even attempt to address this set of circumstances—the events that actually transpired—raising the obvious question of which “experts” Lindeen consulted, or whether indeed she consulted any “experts” at all.

Why It Matters

Liberals have worked to publicly embarrass insurance companies for years. The Obama administration stoked outrage over Anthem’s proposed 39 percent premium increase in California in early 2010 to marshal support for Obamacare’s passage, after Scott Brown’s special election Senate win made its prospects seem bleak.

The Left wants to make such “naming and shaming” de rigueur. California recently enacted a drug transparency law requiring pharmaceutical companies to justify price increases, a measure other states wish to emulate. But perhaps not surprisingly, liberals have yet to explain exactly what should happen when regulators get it wrong, as so clearly happened in Montana, where Lindeen arrived at a conclusion ultimately disproven by events.

At minimum, the Trump administration has a role to play in regulating the regulators, as the Department of Health and Human Services (HHS) must certify each state has an “effective” rate review program. Federal authorities should ask Montana’s insurance commissioner why she considered Blue Cross’ assumptions regarding cost-sharing reduction payments “unreasonable” when Blue Cross and not she ended up being correct. Moreover, given the larger regulatory debacle over cost-sharing payments, HHS has reason to write to every state and ask why they all made the mistaken assumption that unconstitutional payments to insurers would continue.

While this conservative would much prefer states regulating insurance markets rather than the federal government, the incompetence on display over cost-sharing reductions demonstrates the need for increased accountability among state authorities. If liberals wish to persist in their efforts to “hold industry accountable” for raising prices, perhaps they should explain how they will hold regulators accountable when those regulators drop the proverbial ball. Better yet, they should stop trying to scapegoat insurance companies for higher health costs, and work instead towards reducing them.

This post was originally published at The Federalist.

California’s Health Insurance Debacle

When it comes to the changes in health insurance markets this year, Peter Lee, the head of California’s health insurance Exchange, is quick to criticize officials in other states: “Shame on the insurance commissioners who didn’t think ahead,” he told Politico in October. But to quote Winston Churchill, Mr. Lee should be more modest—because he has much to be modest about.

Responses to Public Records Act requests reveal that neither Mr. Lee nor any official at Covered California, the state-run Exchange, even considered the withdrawal of cost-sharing reduction payments to insurers when setting rates for the 2017 plan year. Just as Mr. Lee has accused others of not preparing for insurance market changes in the coming year, so too he and his colleagues failed to anticipate the sizable changes that took place this year when setting 2017 rates last fall.

This October, President Trump withdrew those cost-sharing reduction payments to insurers. His decision should not have come as a shock, and not just because he had threatened to do so for some time. The payments themselves had been on shaky ground for over a year; Judge Rosemary Collyer called the payments unconstitutional and ordered them stopped in a May 2016 ruling.

When California and other states finalized 2017 premium rates last summer, the cost-sharing payments appeared in significant jeopardy. Judge Collyer had stayed her May 2016 ruling as the Obama Administration appealed it, but another court could have ordered the payments stopped. Moreover, as I noted last year, the incoming Administration could easily stop the payments unilaterally in a matter of days—what President Trump ultimately did in October.

Given this tenuous environment for cost-sharing payments, what due diligence did Covered California undertake last year to determine whether the federal government would continue making payments in 2017? In a word, nothing. Not an e-mail, not a legal analysis, not a memo—nothing.

Only months after Covered California finalized its premium rates for 2017 did Mr. Lee finally jump into action. Two weeks after Trump’s election, a series of urgent e-mails including Mr. Lee discussed the court case regarding cost-sharing payments. Covered California invoked attorney-client privilege to redact the contents of the e-mail chain, but it doesn’t take a rocket scientist to determine that the chain consisted of panicked officials responding to events they had not anticipated.

Because they did not anticipate those events when setting 2017 premiums last summer, California health insurers will suffer financial losses. Insurers must now lower deductibles and co-payments for low-income individuals—a federal requirement under the health care law—without the federal government reimbursing them for that reduced cost-sharing. As a result, insurers in the Golden State will incur their share of up to $1.75 billion in losses nationwide, according to a recent court filing by the industry’s trade association.

Just as they failed to anticipate the loss of cost-sharing subsidies when setting rates for 2017, California officials have failed to accept responsibility for their regulatory failure. When in June I wrote that California’s Insurance Commissioner, Dave Jones, also failed to consider the impact of cost-sharing payments on rates for 2017, Mr. Jones responded with a series of attacks on President Trump. But if Mr. Trump represents such a threat to California’s health insurance market, then Messrs. Jones and Lee both should have spent time analyzing the impact of a Trump presidency on that market prior to his election. The record clearly demonstrates that neither did so.

Mr. Lee’s negligent behavior towards California’s individual health insurance market may stem from the fact that he does not participate in it himself. Despite receiving an annual salary of $436,800, and bonuses in the tens of thousands of dollars, Mr. Lee refuses to buy the Exchange policies he sells, choosing instead to have taxpayers fund his health insurance through CalPERS.

Perhaps Covered California should make a one-percenter like Mr. Lee purchase his insurance with the hoi polloi, so that he might understand the needs of Exchange customers by actually becoming one himself. Better yet, it could find a new Executive Director, one who spends less time tooting his own horn and more time anticipating changes in the market that were predictable—and predicted—long ago.

This post was originally published at the Orange County Register.

The House’s Unwise Proposed Settlement in the Obamacare Payments Court Case

After filing a lawsuit to defend its constitutional “power of the purse” more than three years ago, the House of Representatives late Friday proposed a settlement in the case over Obamacare’s cost-sharing reduction payments to insurers. In their fight to preserve the House’s constitutional authority, and stop propping up Obamacare, the proposed settlement would give conservatives precious little.

The House originally filed suit to accomplish three objectives: 1) halt the cost-sharing reduction payments; 2) keep a future administration from restarting the payments; and 3) set the precedent that the legislative branch can file suit against the executive when the executive exceeds its constitutional authority.

The Issue and the Lawsuit

The dispute involves Obamacare’s cost-sharing reduction (CSR) payments, designed to lower deductibles and co-payments through taxpayer subsidies for individuals purchasing exchange coverage. The law instructed insurers to lower cost-sharing for certain low-income individuals, and instructed the Department of Health and Human Services to reimburse insurers for providing these discounts, but included no explicit appropriation for the reimbursements.

Despite the lack of an express appropriation, the Obama administration started making CSR payments to insurers when the exchanges launched in 2014. The House of Representatives, viewing those actions as violating its constitutional authority, sued to stop the payments that fall.

In September 2015, Judge Rosemary Collyer ruled that the House had standing to challenge the constitutionality of the Obama administration’s actions in court. In May 2016, Collyer also agreed with the House on the merits, ruling that Obamacare lacked an appropriation for CSRs, that the Obama administration overstepped its authority, and that the payments must cease unless and until Congress provided an explicit appropriation.

Over the summer, a group of Democratic state attorneys general asked for, and received, permission from the Court of Appeals to intervene in the House’s lawsuit. The attorneys general argued that the change in administration meant neither party to the case would properly represent their interests in ensuring Obamacare’s implementation.

The Proposed Settlement

In Friday’s filing, all three parties—the Trump administration, the House, and the Democratic attorneys general—asked the Court of Appeals to remand the case to Collyer, and for Collyer to accept their settlement arrangement. The settlement would have Collyer vacate her order preventing the executive from making CSR payments.

Regarding other elements of the dispute and the status of CSR payments going forward, the proposed settlement includes this paragraph:

The Parties recognize that the Executive Branch of the United States Government (‘Executive Branch’) continues to disagree with the district court’s non-merits holdings, including its conclusion that the House had standing and a cause of action to bring this suit. The Parties agree that because subsequent developments have obviated the need to resolve those issues in an appeal in this case, the district court’s holdings on those issues should not in any way control the resolution of the same or similar issues should they arise in other litigation between the House and the Executive Branch. The Parties also recognize that the States continue to disagree with the district court’s merits holding. Accordingly, if the court of appeals grants the Joint Motion, the Parties agree that the district court’s holding on the merits should not in any way control the resolution of the same or similar issues should they arise in other litigation, and hereby waive any right to argue that the judgment of the district court or any of the district court’s orders or opinions in this case have any preclusive effect in any other litigation.

On the merits—i.e., whether a CSR appropriation exists, and whether the Obama administration acted constitutionally in making said payments—Collyer’s opinion will not control, and none of the parties can cite it in future litigation.

What the Settlement Means

The House “wins” things it already has. The House already won the action it most desired when President Trump agreed to stop the CSR payments in October. Beyond that, the settlement gives the House the right to cite Collyer’s ruling in future cases between Congress and the executive—which it would have done regardless.

The House gives up what it won. By vacating Collyer’s injunction, the settlement allows President Trump, or any future president, unilaterally to reinstitute the CSR payments at any time. Moreover, because the settlement prohibits all parties from using Collyer’s ruling that an appropriation does not exist “in any other litigation,” it will inhibit the House’s ability to protect its institutional prerogatives should any administration attempt to restart the unconstitutional CSR payments in the future.

The Susan Collins Effect? Sen. Susan Collins has insisted that Congress enact legislation appropriating CSR funds before voting to pass a tax bill that repeals the individual mandate. Last week, she repeated assertions from Senate Republican leaders and Vice President Mike Pence that insurers will receive the payments, even as conservatives in the House have objected to passing an appropriation for CSRs. Some may question the timing of this settlement—which, by ending the House’s lawsuit, would give the Trump administration clear sailing to resume the payments unilaterally—and ask whether the administration will now attempt to do so.

Will Other Parties Object?

Given the implications listed above, other parties could object to the settlement. Attorneys general in Republican states, who believe the law clearly lacks an appropriation for CSR payments, could object to the settlement vacating Collyer’s prohibition on the executive making such payments.

Moreover, because the settlement would not resolve the underlying legal issues, those attorneys general would have grounds to intervene—namely, the uncertain regulatory environment that the lack of a definitive ruling on CSRs would create, and the higher costs to state insurance offices due to that uncertainty. Insurers and insurance commissioners would have similar reasons to object to the settlement, although insurers may not wish to “risk” a definitive court ruling stating that a CSR appropriation does not exist.

Regardless, the proposed settlement provides little in the way of tangible results to conservatives who objected to the unconstitutional CSR payments. Conservative members of Congress may therefore wish to state their objections to House leadership, to convince it to change course.

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.

Are Cost-Sharing Reductions Subject to the Sequester?

Sen. Susan Collins (R-ME) thinks she has a deal with Senate Majority Leader Mitch McConnell (R-KY) to attach two provisions to a short-term spending bill later this month: The Alexander-Murray legislation to appropriate funds for cost-sharing reduction (CSR) payments to insurers, and a separate bill she and Sen. Bill Nelson (D-FL) have developed regarding reinsurance proposals.

Collins also thinks these two provisions will have a “net downward effect on premiums,” even after repealing Obamacare’s individual mandate as part of the tax bill the Senate is currently considering. However, it appears that Alexander-Murray and Collins-Nelson’s net effect on premiums could end up being a nice round number: Zero.

Cost-Sharing Reductions and the Sequester

The statute that created the budget sequester applies a list of programs and accounts not subject to sequestration spending reductions. For instance, the law exempts refundable tax credits, like those provided to low-income individuals who buy coverage on Obamacare’s exchanges, from sequestration reductions.

However, neither cost-sharing reduction payments nor reinsurance would qualify as refundable tax credits. They are paid directly to insurers, not individuals, and are not part of the Internal Revenue Code. Also, neither cost-sharing reductions nor reinsurance are on a list of other accounts and programs exempted from the sequester.

The Obama administration previously admitted that cost-sharing reduction payments were subject to the sequester, in a sequestration report to Congress in April 2013, and in testimony before the House Energy and Commerce Committee in August of that year. In a separate 2014 report, the Obama administration also admitted that Obamacare’s transitional reinsurance program (which expired in 2016, and which senators Collins and Nelson effectively want to re-create) was subject to the sequester.

However, last year Judge Rosemary Collyer ruled these actions unconstitutional, because the treasury lacks a valid appropriation to pay out CSR funds. The Trump administration last month stopped the CSR payments to insurers, citing the lack of an appropriation. While the Alexander-Murray bill would appropriate funds for the CSR payments, it would do so through the Centers for Medicare and Medicaid Services, not the treasury—meaning that the sequester would apply.

Statutory PAYGO and the Sequester

Earlier this month, the Congressional Budget Office (CBO) released a letter to Rep. Steny Hoyer (D-MD) indicating that legislation increasing the budget deficit (on a static basis, i.e., not accounting for economic growth) by $1.5 trillion would result in a sequester order of approximately $136 billion for 2018. The existing statutory formula would deliver a 4 percent, or approximately $25 billion, reduction in Medicare spending, followed by about $111 billion in reductions elsewhere.

However, because the sequestration statute exempts many major spending programs like Social Security and Medicaid, CBO believes that only about $85-90 billion in existing federal resources would be subject to the sequester. This means an additional $20-25 billion in mandatory spending, if appropriated, would immediately get sequestered to make up the difference.

On the one hand, conservatives who oppose paying CSRs to insurers may support an outcome where insurers do not actually receive these payments. On the other hand, however, some may view this outcome as the worst of all possible worlds: Having surrendered the principle that the federal government must prop up insurers—and Obamacare—without receiving any actual premium reductions, because the payments to insurers never get made.

This scenario, when coupled with repeal of the individual mandate, could result in a legislative outcome that raises premiums next year—a contradiction of the promises Republicans made to voters.

This post was originally published at The Federalist.

Six Reasons the Mandate “Deal” Is Bad Health Policy

After their member lunch Tuesday, Senate Republican leadership announced they would work to include a repeal of Obamacare’s individual mandate as part of tax reform. The Senate leaders also announced they would bring the Obamacare “stability” legislation written by Sens. Lamar Alexander (R-TN) and Patty Murray (D-WA) to the floor for a vote.

Repealing Obamacare’s tax on individuals who do not buy health coverage, and using the proceeds to reduce taxes overall, may represent sound tax policy. However, for several reasons, both the mandate repeal, and the “stability” legislation linked to it, represent unsound health policy.

1. This Will Raise Premiums

For these reasons, a tax reform bill repealing the individual mandate cannot repeal the regulations that caused premiums to more than double over the past four years, and necessitated the mandate in the first place. As I previously noted, repealing a penalty that encourages healthy people to purchase insurance, while retaining the regulations that have attracted a sicker-than-average population to Obamacare’s insurance exchanges, will raise premiums—the only question is by how much.

2. It Bails Out Insurers—And Obamacare

The “stability” legislation would provide two years of cost-sharing reduction (CSR) subsidies to health insurers, which reimburse them for the cost of discounting deductibles and co-payments to certain insurers. Three years ago, the House of Representatives sued the Obama administration challenging the constitutionality of these payments, which the House contended were being made without an explicit appropriation from Congress.

In May 2016, Judge Rosemary Collyer agreed. While she stayed her ruling stopping the payments while the Obama administration appealed, the Trump administration used her logic—that the payments lacked a constitutional appropriation—to halt the payments unilaterally last month.

3. This Establishes De Facto Single Payer

In choosing to appropriate CSR funds mere weeks after the Trump administration cancelled the payments, a Republican Congress would send a very clear message: Health insurers—and Obamacare itself—are too big to fail.

This message to health insurers, who last year ignored the risk that CSR payments would disappear, will only encourage them to take further reckless risks, knowing the federal government will provide a backstop if they fail. In other words, a Republican Congress would create a de facto single-payer health system, by establishing the principle that insurers are too big to fail.

Some might argue, as Alexander did Tuesday, that the “stability” fund will lower premiums and mitigate the effects from repealing the mandate outlined above. In one sense, throwing taxpayer funds at a problem will always “fix” it—at least in the short term. But with our nation $20 trillion in debt and repeated years of federal deficits, the federal government has a diminishing ability to spend other people’s money to “solve” problems. Moreover, in the longer term, a Republican Congress will have set an incredibly dangerous—and costly—precedent by telling insurers the federal government will cover their losses.

4. Insurers Could Reap Billions in Windfall Profits

The CBO score also provided some sense of the money insurers might keep. The Alexander-Murray bill would appropriate roughly $7-9 billion in CSR funds for the coming plan year. Yet CBO believes insurers would return only about $3.1 billion in rebates back to the federal government, meaning the insurers themselves could keep some, or all, of the remaining $4-6 billion. All this after insurer profits nearly doubled during the Obama era, to $15 billion per year.

5. There’s Not Enough Flexibility for States

Over and above the question of bailing insurers out of their strategic mistakes by making CSR payments, the Alexander-Murray bill provides nowhere near enough flexibility for states in return. The bill provides for several process improvements regarding applications for state innovation waivers under Obamacare, but it does not fundamentally change the substance of those waivers.

States must still provide as many individuals with health insurance as Obamacare, and much provide a benefit package “of comparable affordability” as Obamacare coverage. Because the Alexander-Murray bill does not substantively change Obamacare’s regulatory straight-jacket, it still will not allow states to provide consumer-driven health care options, or plans that might have lower premiums for consumers.

6. This Means Federal Funding of Plans that Pay for Abortion

If the above six reasons weren’t enough evidence of the questionable policy merits of the mandate “deal,” the video should serve as the coup de grace. That the bill’s sponsor seemed blissfully unaware of all the policy implications of a bill he sponsored—and worked feverishly to sell to his colleagues—should function as a warning to lawmakers. In their haste to pass a tax bill, they are blundering into some serious strategic and policy errors in health policy, which could come back to bite them for many years to come.

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.