Legislative Bulletin: Updated Summary of Obamacare “Stability” Legislation

On Monday, Sen. Lamar Alexander (R-TN) and others introduced their latest version of an Obamacare “stability” bill. In general, the bill would appropriate more than $60 billion in funds to insurance companies, propping up and entrenching Obamacare rather than repealing it.

Also on Monday, the Congressional Budget Office released its analysis of the updated legislation. In CBO’s estimate, the bill would increase the deficit by $19.1 billion, while marginally increasing the number of insured Americans (by fewer than 500,000 per year).


Stability Fund
: Provides $500 million in funding for fiscal year 2018, and $10 billion in funding for each of fiscal years 2019, 2020, and 2021, for invisible high-risk pools and reinsurance payments. The $500 million this year would provide administrative assistance to states to establish such programs, with the $10 billion in each of the following three years maintaining them.

Grants the secretary of Health and Human Services (HHS), in consultation with the National Association of Insurance Commissioners, the authority to allocate the funds to states—which some conservatives may be concerned gives federal bureaucrats authority to spend $30.5 billion wherever they choose.

Includes a provision requiring a federal fallback for 2019 (and only 2019) in states that choose not to establish their own reinsurance or invisible high-risk program. Moreover, these federal fallback dollars must be used “for market stabilization payments to issuers.” Some conservatives may be concerned that this provision—which, like the rest of the $30 billion in “stability funds,” did not appear in the original Alexander-Murray legislation—undermines state flexibility, by effectively forcing states to bail out insurers, whether they want to or not.

Cost-Sharing Reduction Payments: The bill appropriates roughly $30-35 billion in cost-sharing reduction (CSR) payments to insurers, which subsidizes their provision of discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance exchanges.

Last October, President Trump announced he would halt the payments to insurers, concluding the administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the final quarter of 2017, and $9-10 billion for each of years 2019, 2020, and 2021, based on CBO spending estimates. This language represents a change from the original Alexander-Murray bill, which appropriated payments for 2018 and 2019 only.

For 2018, the bill appropriates CSRs only for 1) states choosing the Basic Health plan option (which gives states a percentage of Obamacare subsidies as a block grant to cover low-income individuals) and 2) insurers for which HHS determines, in conjunction with state insurance commissioners, that the insurer assumed the payment of CSRs when setting rates for the 2018 plan year. This language represents a change from the original Alexander-Murray bill, which set up a complicated system of rebates that would have allowed insurers potentially to pocket billions of dollars by retaining “extra” CSR payments for 2018.

Some conservatives may be concerned that, because insurers understood for well over a year that a new administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future.

Hyde Amendment: With respect to the issue of taxpayer dollars subsidizing federal insurance plans covering abortion, the bill does not apply the Hyde Amendment protections retrospectively to the 2017 CSR payments, or to the (current) 2018 plan year. With respect to 2019 through 2021, the bill prohibits federal funding of abortions, except in the case of rape, incest, or to save the life of the mother. However, the bill does allow states to use state-only dollars to fund other abortions, as many state Medicaid managed care plans do currently.

According to the pro-abortion Guttmacher Institute, with respect to coverage of abortions in state Medicaid plans:

  • 32 states and the District of Columbia follow the federal Hyde Amendment standard, funding abortion only in the cases of rape, incest, or to save the life of the mother;
  • One state provides abortion only in the case of life endangerment; and
  • 17 states provide coverage for most abortions—five voluntarily, and 12 by court order.

State Waiver Processes: The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the bill would:

  • Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  • Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver”;
  • Require HHS to release guidance to states within 60 days of enactment regarding waivers, including model language for waivers—a change from the 30 days included in the original Alexander-Murray bill;
  • Shorten the time for HHS to consider waivers from 180 days to 120—a change from 90 days in the original Alexander-Murray bill;
  • Allow a 45-day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year”; 3) waivers that are “the same or substantially similar” to waivers previously approved for another state; and 4) waivers related to invisible high-risk pools or reinsurance, as discussed above. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  • Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance: On the substance of innovation waivers, the bill would rescind regulatory guidance the Obama administration issued in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/exchange waiver to offset higher costs to Medicaid, and vice versa.

While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump administration can revoke it at any time—indeed, should have revoked it last year. Additionally, the bill amends, but does not repeal, the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  • “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  • “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  • “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  • “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans: The bill would allow all individuals to purchase “catastrophic” health plans, beginning in 2019. The legislation would also require insurers to keep those plans in a single risk pool with other Obamacare plans—a change from current law.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding: The bill requires HHS to obligate $105.8 million in exchange user fees to states for “enrollment and outreach activities” for the 2019 and 2020 plan years—a change from the original legislation, which focused on the 2018 and 2019 plan years. Currently, the federal exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers.

In a rule released in December 2016, the outgoing Obama administration admitted that the exchange is “gaining economies of scale from functions with fixed costs,” in part because maintaining the exchange costs less per year than creating one did in 2013-14. However, the Obama administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of biweekly reports from HHS on metrics like call center volume, website visits, etc., during the 2019 and 2020 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing: Requires HHS to issue regulations (in consultation with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines.

However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

Consumer Notification: Requires states that allow the sale of short-term, limited duration health coverage to disclose to consumers that such plans differ from “Obamacare-approved” qualified health plans. Note that this provision does not codify the administration’s proposed regulations regarding short-term health coverage; a future Democratic administration could (and likely will) easily re-write such regulations again to eliminate the sale of short-term plans, as the Obama administration did in 2016.

CBO Analysis of the Legislation

As noted above, CBO believes the legislation would increase the deficit by $19.1 billion, while increasing the number of insured Americans marginally. In general, while CBO believed that changes to Obamacare’s state waivers program would increase the number of states applying for waivers, they would not have a net budgetary impact.

However, the bill does include one particular change to Obamacare Section 1332 waivers allowing existing waiver recipients to request recalculation of their funding formula. According to CBO, only Minnesota qualifies under the statutory definition, and could receive $359 million in additional funding between 2018 and 2022. Some conservatives may be concerned that this provision represents a legislative earmark that by definition can only affect one state.

With respect to the invisible high-risk pools and reinsurance, CBO believes the provisions would raise spending by a net of $26.5 billion, offset by higher revenues of $7 billion. The budget office estimated that the entire country would be covered by the federal fallback option in 2019, because “it would be difficult for other states [that do not have waivers currently] to establish a state-based program in time to affect premiums.”

For 2020 and 2021, CBO believes that 60 and 80 percent of the country, respectively, would be covered by state waivers; “the remainder of the population in those years would be without a federally-funded reinsurance program or invisible high-risk pool.” The $7 billion in offsetting savings referenced in CBO’s score comes from lower premiums, and thus lower spending on federal premium subsidies. In 2019, CBO believes “about 60 percent of the federal cost for the default federal reinsurance program would be offset by other sources of savings.”

CBO believes that, under the bill, premiums would be 10 percent lower in 2019, and 20 percent lower in 2020 and 2021, compared to current law. Some conservatives may note that lower premiums relative to current law does not equate to lower premiums relative to 2018 levels. Particularly because CBO expects elimination of the individual mandate tax will raise premiums by 10 percent in 2019, many conservatives may doubt that premiums will go down in absolute terms, notwithstanding the sizable spending on insurer subsidies under the bill.

CBO noted that premium changes would largely affect unsubsidized individuals—i.e., families with incomes more than four times the federal poverty level ($100,400 for a family of four in 2018)—a small portion of whom would sign up for coverage as a result of the reductions. However, “in states that did not apply for a waiver, premiums would be the same under current law as under the legislation starting in 2020.”

Moreover, even in states with a reinsurance waiver, CBO believes that insurers will “tend to set premiums conservatively to hedge against uncertainty” regarding the reinsurance programs—meaning that CBO “expect[s] that total premiums would not be reduced by the entire amount of available federal funding.”

As noted in prior posts, CBO is required by law to assume full funding of entitlement spending, including cost-sharing reductions. Therefore, the official score of the bill included no net budget impact for the CSR appropriation. However, Alexander received a supplemental letter from CBO indicating that, compared to a scenario where the federal government did not make CSR payments, appropriating funds for CSRs would result in a notional deficit reduction of $29 billion.

The notional deficit reduction arises because, in the absence of CSR payments, insurers would “load” the cost of reducing cost-sharing on to health insurance premiums—thus raising premium subsidies for those who qualify for them. CBO believes these higher subsidies would entice more families with incomes between two and four times the federal poverty definition ($50,200-$100,400 for a family of four in 2018) to sign up for coverage. Compared to a “no-CSR” baseline, appropriating funds for CSRs, as the bill would do, would reduce spending on premium subsidies, but it would also increase the number of uninsured by 500,000-1,000,000, as some families receiving lower subsidies would drop coverage.

Lastly, the expanded sale of catastrophic plans, coupled with provisions including those plans in a single risk pool, would slightly improve the health of the overall population purchasing Obamacare coverage. While individuals cannot receive federal premium subsidies for catastrophic coverage, enticing more healthy individuals to sign up for coverage will improve the exchanges’ overall risk pool slightly, lowering federal spending on those who do qualify for exchange subsidies by $849 million.

This post was originally published at The Federalist.

Ten Conservative Concerns with an Obamacare “Stability” Bill

A PDF version of this document is available online here.

1.     Taxpayer Funding of Abortion Coverage.             As Republicans themselves correctly argued back in 2010, any provision preventing taxpayer dollars from funding abortion coverage must occur in legislation itself—executive orders are by their nature insufficient. Therefore, any “stability” bill must have protections above and beyond current law to ensure that taxpayer dollars do not fund abortion coverage.

2.     Potential Budget Gimmick.       Press reports indicate that House Republican leaders have considered adjusting the budgetary baseline to fund a “stability” package. Congress should not attempt to violate existing law and create artificial “savings” to fund a reinsurance program.

3.     Insurers Still Owe the Treasury Billions.    The Government Accountability Office concluded in 2016 that the Obama Administration violated the law by prioritizing payments to insurers over payments to the U.S. Treasury. The Trump Administration and House Republicans should focus first on reclaiming the billions insurers haven’t repaid, rather than giving them more taxpayer cash in a “stability” package.

4.     Doesn’t Repeal Obamacare Now.        Instead of repealing the onerous regulations that caused health insurance rates to more than double from 2013-17, a “stability” bill would lower premiums by giving insurers additional subsidies—throwing money at a problem rather than fixing it.

5.     Undermines Obamacare Repeal Later.   House Republican leaders reportedly support a bill (H.R. 4666) by Rep. Ryan Costello (R-PA). That bill appropriates “stability” funds to insurers for three years (2019 through 2021), eliminating any incentive for the next Congress to consider “repeal-and-replace” legislation.

6.     Budgetary Cliff Opens Door to Perpetual Bailouts.    Whereas Obamacare’s reinsurance program phased out over three years—with funding of $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016—H.R. 4666 contains $10 billion in funding for each of three years. This funding cliff would create a push for additional “stability” funding thereafter—turning the Costello bill into a perpetual bailout machine.

7.     Bails Out Insurers’ Bad Decisions.    During the period 2015-17, most insurers assumed they would continue to receive cost-sharing reduction (CSR) payments, despite growing legal challenges over their constitutionality. Before even considering appropriating CSR funds, Congress should first investigate insurers’ bad business decisions to assume unconstitutional payments would continue in perpetuity.

8.     Bails Out Insurance Commissioners’ Bad Decisions.    Likewise, in the summer and fall of 2016, virtually all state insurance commissioners failed to consider whether the incoming Administration would unilaterally withdraw CSR payments—which the Trump Administration did last year. Before making CSR payments, Congress first should investigate insurance commissioners’ gross negligence.

9.     Doesn’t Hold Obama Officials Accountable.        In 2016, the House Energy and Commerce and Ways and Means Committees released a 158-page report highlighting abuses over the unconstitutional appropriation of CSRs by the Obama Administration. Since then, neither committee has acted—contempt citations, criminal referrals, or other similar actions—to uphold Congress’ constitutional prerogatives.

10.  Could Undermine Second Amendment Rights.  Last week, health insurer Aetna made a sizable contribution to fund this month’s gun control march in Washington. Some may question why insurers need billions of dollars in taxpayer cash if they can contribute to liberal organizations, and whether some of this “stability” package will end up in the hands of groups opposed to Americans’ fundamental liberties.

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.

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.

Bailing Out Health Insurers Now Would Only Reward Their Negligence

Upon the unveiling of another health insurance “stabilization” measure Tuesday, Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) claimed he did not view it as a repudiation of his own “stability” measure, introduced last week.

“We’ve gone from a position where everyone was saying we can’t do cost sharing [reduction payments] to responsible voices like [Senate Finance Committee Chairman Orrin] Hatch and [House Ways and Means Committee Chairman Kevin] Brady saying we should.”

In the words of Margaret Thatcher, “No. No. No!” Conservatives should reject the premise that Congress must immediately open up the federal piggy bank to replenish the unconstitutional cost-sharing reduction subsidies that the Trump administration cut off earlier this month. Instead, it should first hold insurers—and insurance regulators—accountable for the irresponsible actions that got them to this point.

Insurers Disregarded a Federal Lawsuit

My May article explained how insurers sought to hold Congress hostage over cost-sharing reduction payments. Unless Congress guaranteed the payments for all of calendar year 2018, insurers claimed they would have to raise premiums to reflect “uncertainty” over the payments.

But that “uncertainty” always existed. Insurers just ignored it. They ignored a federal district court judge’s May 2016 ruling striking down the cost-sharing reduction payments as unconstitutional, because the judge stayed her ruling pending an appeal. They ignored warnings that the next presidential administration could easily cut off the payments unilaterally. And they ignored the fact that a presidential election was scheduled for November 2016, and that “come January 2017, the policy landscape for insurers could look far different” than under the Obama administration.

Upon reading my May 2017 article, a former colleague who works for an insurer responded by claiming that no one took the litigation against the cost-sharing reduction payments seriously last year. In other words, it was a risk that he and his colleagues ignored until President Trump started making threats to cut off the payments, and finally did so earlier this month.

Regulators Asleep at the Switch?

Likewise, state insurance commissioners largely disregarded until this spring and summer the possibility that cost-sharing reduction payments would disappear. At a Capitol Hill briefing last month, I asked Brian Webb of the National Association of Insurance Commissioners (NAIC) whether his members had considered the prospect of cost-sharing reduction payments disappearing last fall, when regulators examined rates for the current (i.e., 2017) plan year. By last fall, a federal court had already declared the payments unconstitutional, and every state insurance commissioner knew a new administration would take office in January and could stop the payments directly.

Webb’s response? “Under the court decision, they [the cost-sharing reduction payments] are still being paid, pending appeal.… In the meantime, payments are being made.” That is, until three weeks after the briefing in question, when President Trump stopped the payments. Oops.

It does not appear that most regulators even bothered to consider this scenario last year, just like most insurers ignored the prospect of cost-sharing reductions going away. Instead, as with banks who assumed a decade ago that subprime mortgages could never fail, the health insurance industry blindly assumed—despite significant evidence to the contrary—that cost-sharing reduction payments would continue.

Prevent ‘Too Big to Fail’

Yes, the Congressional Budget Office has indicated that cutting off the cost-sharing reduction payments would cost the federal government more in the short-term. That and other facts may give Congress a reason to restore the payments, eventually.

But most importantly, Congress should take action—by exercising its oversight authority, and through legislation if necessary—to end the “too big to fail” mentality that led insurers and their regulators to make a series of bad decisions regarding cost-sharing reductions. To instead give insurers a blank check, paid for by federal taxpayers, could cost far more in the longer term.

This post was originally published at The Federalist.

What You Need to Know about Cost-Sharing Reductions

A PDF version of this document is available via the Texas Public Policy Foundation.

On October 12, the Trump Administration announced it would immediately terminate a series of cost-sharing reduction payments to insurers. Meanwhile policy-makers have spent time debating and discussing cost-sharing payments in the context of a “stabilization” bill for the Obamacare Exchanges. Here’s what you need to know about the issue ahead of this year’s open enrollment period, scheduled to begin on November 1.

What are cost-sharing reductions?

Cost-sharing reductions, authorized by Section 1402 of Obamacare, provide individuals with reduced co-payments, deductibles, and out-of-pocket maximum expenses.[1] The reductions apply to households who purchase Exchange coverage and have family income of between 100% and 250% of the federal poverty level (FPL, $24,600 for a family of four in 2017). The system of cost-sharing reductions remains separate from the subsidies used to discount monthly insurance premiums, authorized by Section 1401 of Obamacare.[2]

What are cost-sharing reduction payments?

The payments (also referred to as CSRs) reimburse insurers for the cost of providing the discounted policies to low-income individuals. According to the January Congressional Budget Office (CBO) baseline, those payments will total $7 billion in the fiscal year that ended on September 30, $10 billion in the fiscal year ending this coming September 30, and $135 billion during fiscal years 2018-2027.[3]

What is the rationale for CSR payments?

Insurers argue that CSR payments reimburse them for discounts that the Obamacare statute requires them to provide to consumers. However, some conservatives would argue that the cost-sharing reduction regime might not be necessary but for the myriad new regulations imposed by Obamacare. These regulations have more than doubled insurance premiums from 2013 through 2017, squeezing middle-class families.[4] Some conservatives would therefore question providing government-funded subsidies to insurers partially to offset the cost of government-imposed mandates on insurers and individuals alike.

Why are the CSR payments in dispute?

While Section 1402 of Obamacare authorized reimbursement payments to insurers for their cost-sharing reduction costs, the text of the law did not include an explicit appropriation for them. Some conservatives have argued that the Obama Administration’s willingness to make the payments, despite the lack of an explicit appropriation, violated Congress’ constitutional “power of the purse.” In deciding to terminate the CSR payments, the Trump Administration agreed with this rationale.

What previously transpired in the court case over CSR payments?

In November 2014, the House of Representatives filed suit in federal court over the CSR payments, claiming the Obama Administration violated both existing law and the Constitution, and seeking an injunction blocking the Administration from making the payments unless and until Congress grants an explicit appropriation.[5] In September 2015, Judge Rosemary Collyer of the United States District Court for the District of Columbia ruled that the House of Representatives had standing to sue, rejecting a Justice Department attempt to have the case dismissed. Judge Collyer ruled that the House as an institution had the right to redress for a potential violation of its constitutional “power of the purse.”[6]

On May 12, 2016, Judge Collyer issued her ruling on the case’s merits, concluding that no valid appropriation for the CSR payments exists, and that the Obama Administration had violated the Constitution by making payments to insurers. She ordered the payments halted unless and until Congress passed a specific appropriation—but stayed that ruling pending an appeal.[7]

How did the Obama Administration justify making the CSR payments?

In its court filings in the lawsuit, the Obama Administration argued that the structure of Obamacare implied an appropriation for CSR payments through the Treasury appropriation for premium subsidy payments—an appropriation clearly made in the law and not in dispute.[8] President Obama’s Justice Department made this argument despite the fact that CSR and premium subsidy regimes occur in separate sections of the law (Sections 1402 and 1401 of Obamacare, respectively), amend different underlying statutes (the Public Health Service Act and the Internal Revenue Code), and fall within the jurisdiction of two separate Cabinet Departments (Health and Human Services and Treasury).

The Obama Administration also argued, in court and before Congress, that it could make an appropriation because Congress had not prohibited the Administration from doing so—effectively turning the Constitution on its head, by saying the executive can spend funds however it likes unless and until Congress prohibits it from doing so.[9] In her ruling, Judge Collyer rejected those and other arguments advanced by the Obama Justice Department.

Did Congress investigate the history, legality, and constitutionality of the Obama Administration’s CSR payments to insurers?

Yes. Last year, the Ways and Means and Energy and Commerce Committees organized and released a 158-page report on the CSR payments.[10] While congressional investigators received some documents relating to the Obama Administration’s defense of the CSR payments, the report described an overall pattern of secrecy surrounding critical details—portions of documents, attendees at meetings, etc.—of the CSR issue. For instance, the Obama Administration did not fully comply with valid subpoenae issued by the committees, and attempted to prohibit Treasury appointees who volunteered to testify before committee staff from doing so. However, despite the extensive oversight work put in by two congressional committees, and the pattern of secrecy observed, neither of the committees have taken action to compel compliance, or redress the Obama Administration’s obstruction of Congress’ legitimate oversight work.

What has the Trump Administration done about the CSR payment lawsuit?

After the election, the Justice Department and the House of Representatives filed a motion with the United States Circuit Court of Appeals for the District of Columbia.[11] The parties stated that they were in negotiations to settle the lawsuit, and sought to postpone proceedings in the appeal (which the Obama Administration had filed last year). The Justice Department and the House have filed several extensions of that request with the court, but have yet to present a settlement agreement, or provide any substantive updates surrounding the issues in dispute. In announcing its decision to terminate the CSR payments, the Trump Administration said it would provide the court with a further update on October 30.

In August, the Court of Appeals granted a motion by several Democratic state attorneys general seeking to intervene in the suit (originally called House v. Burwell, and renamed House v. Price when Dr. Tom Price became Secretary of Health and Human Services).[12] The attorneys general claimed that the President’s frequent threats to settle the case, and cut off CSR payments, meant their states’ interests would not be represented during the litigation, and sought to intervene to prevent the House and the Trump Administration from settling the case amongst themselves—which could leave an injunction permanently in place blocking future CSR payments.

Upon what basis did President Trump stop the CSR payments to insurers?

Under existing law, court precedent, and constitutional principles, a determination by the executive about whether or not to make the CSR payments (or any other payment) depends solely upon whether or not a valid appropriation exists:

  • If a valid appropriation does not exist, the executive cannot disburse funds. The Anti-Deficiency Act prescribes criminal penalties, including imprisonment, for any executive branch employee who spends funds not appropriated by Congress, consistent with Article I, Section 9, Clause 7 of the Constitution: “No money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.”[13]
  • If a valid appropriation exists, the executive cannot withhold funds. The Supreme Court held unanimously in Train v. City of New York that the executive cannot unilaterally impound (i.e., refuse to spend) funds appropriated by Congress, which would violate a President’s constitutional duty to “take Care that the Laws be faithfully executed.”[14]

Has a court forced President Trump to keep making the CSR payments?

No. In fact, until the Administration had announced its decision late Thursday, no one—from insurers to insurance commissioners to governors to Democratic attorneys general to liberal activists and Obamacare advocates—had filed suit seeking to force the Trump Administration to make the payments. (While the Democratic attorneys general sought, and received, permission to intervene in the House’s lawsuit, that case features the separate question of whether or not the House had standing to bring its matter to court in the first place. It is possible that appellate courts could, unlike Judge Collyer, dismiss the House’s case on standing grounds without proceeding to the merits of whether or not a valid appropriation exists.)

Given the crystal-clear nature of existing Supreme Court case law—if a valid appropriation exists, an Administration must make the payments—some would view the prolonged unwillingness by Obamacare supporters to enforce this case law in court as tacit evidence that a valid appropriation does not exist, and that the Obama Administration exceeded its constitutional authority in starting the flow of payments.

How will the decision to stop CSR payments affect individuals in Exchange plans?

In the short- to medium-term, it will not. Insurers must provide the cost-sharing reductions to individuals in qualified Exchange plans, regardless of whether or not they get reimbursed for them.

Can insurers drop out of the Exchanges immediately due to the lack of CSR payments?

No—at least not in most cases in 2017. The contract between the federal government and insurers on the federal Exchange for 2017 notes that insurers developed their products based on the assumption that cost-sharing reductions “will be available to qualifying enrollees,” and can withdraw from the Exchanges if they are not.[15] However, under the statute, enrollees will always qualify for the cost-sharing reductions—that is not in dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for providing the cost-sharing reductions to enrollees. This clause may therefore have limited applicability to withdrawal of CSR payments. It appears insurers have little ability to withdraw from Exchanges in 2017, even if the Trump Administration stops reimbursing insurers.

If insurers faced a potential unfunded obligation—providing cost-sharing reductions without federal reimbursement—to the tune of billions of dollars, how did they react to Judge Collyer’s ruling last year?

Based on their public filings and statements, several did not appear to react at all. While Aetna and Centene referenced loss of CSR payments as impacting their firms’ outlooks and risk profiles in their first Securities and Exchange Commission (SEC) quarterly filings after Judge Collyer’s ruling, most other companies ignored the potential impact until earlier this year.[16] Some carriers have given decidedly mixed messages on the issue—for instance, as Anthem CEO Joseph Swedish claimed on his company’s April 26 earnings call that lack of CSR payments would cause Anthem to seek significant price hikes and/or drop out of state Exchanges,[17] his company’s quarterly SEC filing that same day indicated no change in material risks, and no reference to the potential disappearance of CSR payments.[18]

Even before Judge Collyer’s ruling in May 2016, one could have easily envisioned a scenario whereby a new President in January 2017 stopped defending the CSR lawsuit, and immediately halted the federal CSR payments: “Come January 2017, the policy landscape for insurers could look far different” than in mid-2016.[19] However, despite public warnings to said effect—and the apparent lack of public statements by either Donald Trump or Hillary Clinton to continue the CSR payments should they win the presidency—insurers apparently assumed maintenance of the status quo, disregarding these potential risks when bidding to offer Exchange coverage in 2017.

Did insurance regulators fail to anticipate or plan for changes to CSR payments following Judge Collyer’s ruling?

It appears that many did. For instance, the office of California’s state insurance commissioner reported having no documents—not even a single e-mail—analyzing the impact of Judge Collyer’s May 2016 ruling on insurers’ bids for the 2017 plan year.[20] Likewise, California’s health insurance Exchange disclosed only two relevant documents: A brief e-mail sent months after the state finalized plan rates for the 2017 year, and a more detailed legal analysis of the issues surrounding CSR payments—but one not undertaken until mid-November, after Donald Trump won the presidential election.[21]

Some conservatives may be concerned that insurance commissioners’ failure to examine the CSR payment issue in detail—when coupled with insurers’ similar actions—represents the same failed thinking that caused the financial crisis. That herd behavior—an insurer business model founded upon a new Administration continuing unconstitutional actions, and regulators blindly echoing insurers’ assumptions—represents the same “too big to fail” mentality that brought us a subprime mortgage scandal, a massive financial crash on Wall Street, a period of prolonged economic stagnation, and a taxpayer-funded bailout of big banks.

How can Congress restore its Article I power?

With respect to the CSR payments, conservatives looking to restore its Article I power—as Speaker Ryan recently claimed he wanted to do by maintaining the debt limit as the prerogative of Congress—could take several appropriate actions:[22]

  • Insist on a settlement of the lawsuit in the House’s favor, consistent with the last Congress’ belief that 1) Obamacare lacks a valid appropriation for CSR payments and 2) decisions regarding appropriations always rest with Congress, and not the executive;
  • Ask the Justice Department to investigate whether any Obama Administration officials violated the Anti-Deficiency Act by making CSR payments without a valid congressional appropriation; and
  • Insist on enforcement of the subpoenae issued by the House Ways and Means and Energy and Commerce Committees during the last Congress, and pursue contempt of Congress charges against any individuals who fail to comply.

How can Congress exercise its oversight power regarding the CSR payments?

Before even debating whether or not to create a valid appropriation for the CSR payments, Congress should first examine in great detail whether and why insurers and insurance commissioners ignored the issue in 2016 (and prior years); any potential changes to remedy an apparent lack of oversight by insurance commissioners; and appropriate accountability for any unconstitutional and illegal actions as outlined above.

Some conservatives may be concerned that, by blindly making a CSR appropriation without conducting this critically important oversight, Congress would make a clear statement that Obamacare is “too big to fail.” Such a scenario—in addition to creating a de facto single-payer health care system—would, by establishing a government backstop for insurers’ risky behaviors, bring about additional, and potentially even larger, bailouts in the future.

What are the implications of providing CSR payments to insurers?

Given the way in which many insurers and insurance regulators blindly assumed cost-sharing reduction payments would continue, despite the lack of an express appropriation in the law, some conservatives may be concerned that making CSR payments would exacerbate moral hazard. Specifically, when filing their rates for the 2017 plan year, insurers appear to have assumed they would receive over $7 billion in CSR payments—despite the uncertainty surrounding 1) the lack of a clear CSR appropriation in the statute; 2) the May 2016 court ruling calling the payments unconstitutional; 3) the unknown outcome of the 2016 presidential election; and 4) the apparent lack of a firm public commitment by either major candidate in the 2016 election to continue the CSR payments upon taking office in January 2017.

Some conservatives may therefore oppose rewarding this type of reckless behavior by granting them the explicit taxpayer subsidies they seek, for fear that it would only encourage additional irresponsible risk-taking by insurance companies—and raise the likelihood of an even larger taxpayer-funded bailout in the future.

How can Congress solve the larger issue of CSRs creating an unfunded mandate on insurance companies absent an explicit appropriation?

One possible way would involve elimination of Obamacare’s myriad insurance regulations, which have led to insurance premiums more than doubling in the individual market over the past four years.[23] Repealing these new and costly regulations would lower insurance premiums, reducing the need for cost-sharing reductions, and allowing Congress to consider whether to eliminate the CSR regime altogether.


[1] 42 U.S.C. 18071, as created by Section 1402 of the Patient Protection and Affordable Care Act, P.L. 111-148.
[2] 26 U.S.C. 36B, as created by Section 1401 of PPACA.
[3] Congressional Budget Office, January 2017 baseline for coverage provisions of the Patient Protection and Affordable Care Act, https://www.cbo.gov/sites/default/files/recurringdata/51298-2017-01-healthinsurance.pdf, Table 2.
[4] Department of Health and Human Services Office of Planning and Evaluation, “Individual Market Premium Changes: 2013-2017,” ASPE Data Point May 23, 2017, https://aspe.hhs.gov/system/files/pdf/256751/IndividualMarketPremiumChanges.pdf.
[5] The House’s original complaint, filed November 21, 2014, can be found at https://jonathanturley.files.wordpress.com/2014/11/house-v-burwell-d-d-c-complaint-filed.pdf.
[6] Judge Collyer’s ruling on motions to dismiss, dated September 9, 2015, can be found at https://docs.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2014cv01967/169149/41.
[8] Links to the filings at the District Court level can be found at https://dockets.justia.com/docket/district-of-columbia/dcdce/1:2014cv01967/169149.
[9] Testimony of Mark Mazur, Assistant Secretary for Tax Policy, before the House Ways and Means Oversight Subcommittee hearing on “Cost Sharing Reduction Investigation and the Executive Branch’s Constitutional Violations,” July 7, 2016, https://waysandmeans.house.gov/event/hearing-cost-sharing-reduction-investigation-executive-branchs-constitutional-violations/.
[10] House Energy and Commerce and House Ways and Means Committees, “Joint Congressional Investigative Report into the Source of Funding for the ACA’s Cost Sharing Reduction Program,” July 7, 2016, https://waysandmeans.house.gov/wp-content/uploads/2016/07/20160707Joint_Congressional_Investigative_Report-2.pdf
[13] The statutory prohibition on executive branch employees occurs at 31 U.S.C. 1341(a)(1); 31 U.S.C. 1350 provides that any employee knowingly and willfully violating such provision “shall be fined not more than $5,000, imprisoned for not more than two years, or both.”
[14] Train v. City of New York, 420 U.S. 35 (1975).
[15] Qualified Health Plan Agreement between issuers and the Centers for Medicare and Medicaid Services for 2017 plan year, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, “Termination,” p. 6.
[16] Aetna Inc., Form 10-Q Securities and Exchange Commission filing for the second quarter of calendar year 2016, http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1hSFIwY0RvdkwyRndhUzUwWlc1cmQybDZZWEprTG1OdmJTOWtiM2R1Ykc5aFpDNXdhSEEvWVdOMGFXOXVQVkJFUmlacGNHRm5aVDB4TVRBMk5qa3hOQ1p6ZFdKemFXUTlOVGM9JnR5cGU9MiZmbj1BZXRuYUluYy5wZGY=
p. 44; Centene, Inc., Form 10-Q Securities and Exchange Commission filing for the second quarter of calendar year 2016, https://centene.gcs-web.com/static-files/23fd1935-32de-47a8-bc03-cbc2c4d59ea6, p. 42.
[17] Transcript of Anthem, Inc. quarterly earnings call for the first quarter of calendar year 2017, April 26, 2017, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjY3NTM5fENoaWxkSUQ9Mzc1Mzg1fFR5cGU9MQ==&t=1, p. 5.
[19] Chris Jacobs, “What if the Next President Cuts Off Obamacare Subsidies to Insurers?” Wall Street Journal May 5, 2016, https://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.
[20] Chris Jacobs, “Don’t Blame Trump When Obamacare Rates Jump,” Wall Street Journal June 16, 2017, https://www.wsj.com/articles/dont-blame-trump-when-obamacare-rates-jump-1497571813.
[21] Covered California response to Public Records Act request, August 25, 2017.
[22] Burgess Everett and Josh Dawsey, “Trump Suggested Scrapping Future Debt Ceiling Votes to Congressional Leaders,” Politico September 7, 2017, http://www.politico.com/story/2017/09/07/trump-end-debt-ceiling-votes-242429.
[23] HHS, “Individual Market Premium Changes: 2013-2017.”

Legislative Bulletin: Summary of Alexander-Murray “Stability” Bill

On Tuesday afternoon, Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) announced he had reached an agreement in principle with Ranking Member Patty Murray (D-WA) regarding an Obamacare “stabilization” package. Unfortunately, legislative text has not yet been released (UPDATE: bill text was released late Tuesday evening), but based on press reports, Twitter threads, and a summary circulating on Capitol Hill, here’s what is in the final package:

Cost-Sharing Reduction Payments:             The bill appropriates roughly $25-30 billion in cost-sharing reduction payments to insurers, which offset their costs for providing discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance Exchanges. Late last Thursday, President Trump announced he would halt the payments to insurers, concluding the Administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the rest of this calendar year, and $10-11 billion for each of years 2018 and 2019, based on Congressional Budget Office spending estimates.

For 2018 only, the bill includes language allowing states to decline the cost-sharing reduction payments—if they previously approved premium increases that assumed said payments would not be made. If states do not decline the payments, they must certify that said payments will “provide a direct financial benefit to consumers”—that is, they will result in lower premium rates, and/or rebates to consumers. The bill also includes clarifying language regarding the interactions between any such rebates and premium tax credit levels under Obamacare.

Some conservatives may be concerned that, because insurers understood for well over a year that a new Administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future. Moreover, some conservatives may be concerned that, absent Hyde Amendment protections, these payments would subsidize federal insurance plans covering abortion.

State Waiver Processes:     The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s Exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the agreement would:

  1. Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  2. Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver;”
  3. Require HHS to release guidance to states within 30 days of enactment regarding waivers, including model language for waivers;
  4. Shorten the time the Department of Health and Human Services to consider waivers from 180 days to 90;
  5. Allow a 45 day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year; and 3) waivers that are “the same or substantially similar” to waivers previously approved for another state. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  6. Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance:    On the substance of innovation waivers, the bill would regulatory guidance issued by the Obama Administration in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/Exchange waiver to offset higher costs to Medicaid, and vice versa. While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump Administration can revoke it at any time—indeed, should have revoked it months ago.

Additionally, the bill amends—but does not repeal—the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  1. “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  2. “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  3. “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  4. “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their Exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans:              The bill would allow all individuals to purchase “catastrophic” health plans, and keep those plans in a single risk pool with other Obamacare plans. However, this provision would not apply until 2019—i.e., not for the upcoming plan year.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding:               The bill requires HHS to obligate $105.8 million in Exchange user fees to states for “enrollment and outreach activities” for the 2018 and 2019 plan years. Currently, the federal Exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers. In a rule released last December, the outgoing Obama Administration admitted that the Exchange is “gaining economies of scale from functions with fixed costs”—in part because maintaining the Exchange costs less per year than creating one did in 2013-14. However, the Obama Administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of bi-weekly reports from HHS on metrics like call center volume, website visits, etc., during the 2018 and 2019 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump Administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing:     Requires HHS to issue regulations (in consultations with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines. However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

Insurance Commissioners’ CSR Malpractice

Today, a Senate committee hearing will feature testimony from insurance commissioners about the status of Obamacare in their home states. It will undoubtedly feature pleas from those commissioners for billions of new dollars in federal funds to subsidize insurance markets. But before Congress spends a single dime, it should take a hard look at insurance commissioners’ compliance with their regulatory duties regarding Obamacare. On several counts, preliminary results do not look promising.

Of particular issue at today’s hearing, and in health insurance markets generally: Federal payments to insurers for cost-sharing reductions, discounts on co-payments, and deductibles provided to certain low-income individuals. Obamacare authorized those payments to insurers, but did not include an appropriation for them. Despite lacking an explicit appropriation, the Obama administration started making the payments anyway when the exchanges began operation in 2014.

By the middle of 2016, it seemed clear that the cost-sharing reduction payments lay in significant jeopardy. While the federal district court allowed the payments to continue during the Obama administration’s appeal, a final court ruling could strike them down permanently. Moreover, a new administration would commence in January 2017, and could stop the payments immediately. And neither Hillary Clinton nor Donald Trump had publicly committed to maintaining the insurer payments upon taking office.

Let’s Let the Problem Fester to Put Trump in a Bind

How did insurance commissioners respond to this growing threat to the cost-sharing reduction payments? In at least some cases, they did nothing. For instance, in response to my public records request, the office of Dave Jones, California’s insurance commissioner, admitted that it had no documents examining the impact of last May’s court ruling on the 2017 plan bid year.

To call this lack of analysis regarding cost-sharing reductions malfeasance would put it mildly. A new president could easily have cut off those payments—payments totaling $7 billion this fiscal year—unilaterally on January 20. Yet the regulator of the state’s largest insurance market had not so much as a single e-mail considering this scenario, nor examining what his state would do in such an occurrence.

Break the Law to Fund Our Political War Against You

Indeed, insurance commissioners who remained silent last year about cost-sharing reduction payments have responded this year in alarming fashion. The commissioners’ trade association wrote to the Trump administration in May asking them “to continue full funding for the cost-sharing reduction payments for 2017 and make a commitment that such payments will continue.”

The insurance commissioners essentially demanded the Trump administration violate the Constitution. Article I, Section 9, Clause 7 of the Constitution grants Congress the sole power to appropriate funds, and the Supreme Court in a prior case (Train v. City of New York) ruled that the executive cannot thwart that will by declining to spend funds already appropriated. Under the Constitution, a president cannot spend money, or refuse to spend money, unilaterally—but that’s exactly what the insurance commissioners requested.

By implicitly conceding the unconstitutional actions by the Obama administration, and asking the Trump administration to continue those acts, the commissioners’ own letter exposes their dilemma. Why did commissioners ever assume the stability of a marketplace premised upon unconstitutional actions? And why did commissioners purportedly committed to the rule of law ask for those unconstitutional actions to continue?

This post was originally published at The Federalist.