Summary of Health Care “Consensus” Group Plan

Tuesday, a group of analysts including those at the Heritage Foundation released their outline for a way to pass health-care-related legislation in Congress. Readers can find the actual health plan here; a summary and analysis follow below.

What Does the Health Plan Include?

The plan includes parameters for a state-based block grant that would combine funds from Obamacare’s insurance subsidies and its Medicaid expansion into one pot of money. The plan would funnel the block grant funds through the State Children’s Health Insurance Program (SCHIP), using that program’s pro-life protections. In general, states using the block grant would:

  • Spend at least half of the funds subsidizing private health coverage;
  • Spend at least half of the funds subsidizing low-income individuals (which can overlap with the first pot of funds);
  • Spend an unspecified percentage of their funds subsidizing high-risk patients with high health costs;
  • Allow anyone who qualifies for SCHIP or Medicaid to take the value of their benefits and use those funds to subsidize private coverage; and
  • Not face federal requirements regarding 1) essential health benefits; 2) the single risk pool; 3) medical loss ratios; and 4) the 3:1 age ratio (i.e., insurers can charge older customers only three times as much as younger customers).

Is That It?

Pretty much. For instance, the plan remains silent on whether to support an Obamacare “stability” (read: bailout) bill intended to 1) keep insurance markets intact during the transition to the block grant, and 2) attract the votes of moderate Republicans like Alaska Sen. Lisa Murkowski and Maine Sen. Susan Collins.

As recently as three weeks ago, former Sen. Rick Santorum was telling groups that the proposal would include the Collins “stability” language. However, as I previously noted, doing so would likely lead to taxpayer funding of abortion coverage, because there are few if any ways to attach pro-life protections to Obamacare’s cost-sharing reduction payments to insurers under the special budget reconciliation procedures the Senate would use to consider “repeal-and-replace” legislation.

What Parts of Obamacare Would the Plan Retain?

In short, most of them.

Taxes and Medicare Reductions: By retaining all of Obamacare’s spending, the plan would retain all of Obamacare’s tax increases—either that, or it would increase the deficit. Likewise, the plan says nothing about undoing Obamacare’s Medicare reductions. By retaining Obamacare’s spending levels, the plan would maintain the gimmick of double-counting, whereby the law’s payment reductions are used both to “save Medicare” and fund Obamacare.

Insurance Regulations: The Congressional Research Service lists 22 separate new federal requirements imposed on health insurance plans under Obamacare. The plan would retain at least 14 of them:

  1. Guaranteed issue of coverage—Section 2702 of the Public Health Service Act;
  2. Non-discrimination based on health status—Section 2705 of the Public Health Service Act;
  3. Extension of dependent coverage—Section 2714 of the Public Health Service Act;
  4. Prohibition of discrimination based on salary—Section 2716 of the Public Health Service Act (only applies to employer plans);
  5. Waiting period limitation—Section 2708 of the Public Health Service Act (only applies to employer plans);
  6. Guaranteed renewability—Section 2703 of the Public Health Service Act;
  7. Prohibition on rescissions—Section 2712 of the Public Health Service Act;
  8. Rate review—Section 2794 of the Public Health Service Act;
  9. Coverage of preventive health services without cost sharing—Section 2713 of the Public Health Service Act;
  10. Coverage of pre-existing health conditions—Section 2703 of the Public Health Service Act;
  11. Summary of benefits and coverage—Section 2715 of the Public Health Service Act;
  12. Appeals process—Section 2719 of the Public Health Service Act;
  13. Patient protections—Section 2719A of the Public Health Service Act; and
  14. Non-discrimination regarding clinical trial participation—Section 2709 of the Public Health Service Act.

Are Parts of the Health Plan Unclear?

Yes. For instance, the plan says that “Obamacare requirements on essential health benefits” would not apply in states receiving block grant funds. However, Section 1302 of Obamacare—which codified the essential health benefits requirement—also included two other requirements, one capping annual cost-sharing (Section 1302(c)) and another imposing minimum actuarial value requirements (Section 1302(d)).

Additionally, the plan on two occasions says that “insurers could offer discounts to people who are continuously covered.” House Republicans offered a similar proposal in their American Health Care Act last year, one that imposed penalties on individuals failing to maintain continuous coverage.

However, the plan includes no specific proposal on how insurers could go about offering such discounts, as the plan states that the 3:1 age rating requirement—and presumably only that requirement—would not apply for states receiving block grant funds. It is unclear whether or how insurers would have the flexibility under the plan to offer discounts for continuous coverage if all of Obamacare’s restrictions on premium rating, save that for age, remain.

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.

AARP’s Own Age Tax

Over the past few weeks, AARP—an organization that purportedly advocates on behalf of seniors—has been running advertisements claiming that the House health-care bill would impose an “age tax” on seniors by allowing for greater variation in premiums. It knows of which it speaks: AARP has literally made billions of dollars by imposing its own “tax” on seniors buying health insurance policies, not to mention denying care to individuals with disabilities.

While the public may think of AARP as a membership organization that advocates for liberal causes or gives seniors discounts at restaurants and hotels, most of its money comes from selling the AARP name. In 2015, the organization received nearly three times as much revenue from “royalty fees” than it did from member dues. Most of those royalty fees come from selling insurance products issued by UnitedHealthGroup.

Only We Can Profit On the Elderly

So in the sale of Medigap plans, AARP imposes—you guessed it!—a 4.95 percent age tax on seniors. AARP not only makes more money the more people enroll in its Medigap plans, it makes more money if individuals buy more expensive insurance.

Even worse, AARP refused good governance practices that would disclose the existence of that tax to seniors at the time they apply for Medigap insurance. While working for Sen. Jim DeMint in 2012, I helped write a letter to AARP that referenced the National Association of Insurance Commissioners’ Producer Model Licensing Act.

Specifically, Section 18 of that act recommends that states require explicit disclosure to consumers of percentage-based compensation arrangements at the time of sale, due to the potential for abuse. DeMint’s letter asked AARP to “outline the steps [it] has taken to ensure that your Medigap percentage-based compensation model is in full compliance with the letter and spirit of” those requirements. AARP never gave a substantive reply to this congressional oversight request.

Don’t Screw With Obamacare, It’s Making Us Billions

Essentially, AARP makes money off other people’s money—perhaps receiving insurance premium payments on the 1st of the month, transferring them to UnitedHealth or its other insurance affiliates on the 15th of the month, and pocketing the interest accrued over the intervening two weeks. That’s nearly $3.2 billion in profit over six years, just from selling insurance plans. AARP received much of that $3.2 billion in part because Medigap coverage received multiple exemptions in Obamacare. The law exempted Medigap plans from the health insurer tax, and medical loss ratio requirements.

Most importantly, Medigap plans are exempt from the law’s myriad insurance regulations, including Obamacare’s pre-existing condition exclusions—which means AARP can continue its prior practice of imposing waiting periods on Medigap applicants. You read that right: Not only did Obamacare not end the denial of care for pre-existing conditions, the law allowed AARP to continue to deny care for individuals with disabilities, as insurers can and do reject Medigap applications when individuals qualify for Medicare early due to a disability.

The Obama administration helped AARP in other important ways. Regulators at the Department of Health and Human Services (HHS) exempted Medigap policies from insurance rate review of “excessive” premium increases, an exemption that particularly benefited AARP. Because the organization imposes its 4.95 percent “age tax” on individuals applying for coverage, AARP has a clear financial incentive to raise premiums, sell seniors more insurance than they require, and sell seniors policies that they don’t need. Yet rather than addressing these inherent conflicts, HHS decided to look the other way and allow AARP to continue its shady practices.

The Cronyism Stinks to High Heaven

AARP will claim in its defense that it’s not an insurance company, which is true. Insurance companies must risk capital to pay claims, and face losses if claims exceed premiums charged. By contrast, AARP need never risk one dime. It can just sit back, license its brand, and watch the profits roll in. Its $561.9 million received from UnitedHealthGroup in 2015 exceeded the profits of many large insurers that year, including multi-billion dollar carriers like Centene, Health Net, and Molina Healthcare.

But if the AARP now suddenly cares about “taxing” the aged so much, Washington should grant them their wish. The Trump administration and Congress should investigate and crack down on AARP’s insurance shenanigans. Congress should subpoena Sebelius and Sylvia Mathews Burwell, her successor, and ask why each turned a blind eye to its sordid business practices. HHS should write to state insurance commissioners, and ask them to enforce existing best practices that require greater disclosure from entities (like AARP) operating on a percentage-based commission.

And both Congress and the administration should ask why, if AARP cares about its members as much as it claims, the organization somehow “forgot” to lobby for Medigap reforms—not just prior to Obamacare’s passage, but now. AARP’s fourth quarter lobbying report showed that the organization contacted Congress on 77 separate bills, including issues as minor as the cost of lifetime National Parks passes, yet failed to discuss Medigap reform at all.

This post was originally published at The Federalist.

The Next Obamacare Battleground: State Insurance Premiums

The New York Times reported last week on the Obama administration, in an effort “to avoid another political uproar over the Affordable Care Act,” urging state insurance commissioners to hold down premium increases for 2016. The Times cited a letter that Kevin Counihan, who oversees the federal insurance exchanges, sent to state commissioners last month asking states “to carefully consider as you make your final rate decisions” several factors the administration said would contribute to more moderate cost increases than those already experienced.

But trends in many states appear likely to force premiums higher. Continued low enrollment after the 2015 open-enrollment season means that some insurers still face a group of enrollees who are older and sicker than their initial projections. One report out this summer by pharmaceutical benefits manager Express Scripts indicated that people who enrolled in exchange plans have higher prescription-drug costs than participants in other health insurance plans, including greater use of costly new treatments for diseases such as Hepatitis C. So some carriers may seek higher premiums to reflect their rising costs.

Premium increases are obviously unpopular, but state regulators must protect insurers–an insolvent insurer cannot provide financial protection to anyone. The Oregonian reported in June: “While some insurers proposed rates similar to or better than this year’s, officials are ordering them to be raised—saying they need to close a sizable gap between what insurers have collected and what they spend on claims.” One insurer that proposed a rate decrease for next year, Kaiser Health Plan of the Northwest, was forced to raise premiums by 8.3%. A carrier that proposed a 9% increase ended up with a 34.8% hike in rates. The commissioner’s office forced these adjustments to ensure that carriers do not pay out more in claims than they generate in premiums.

One could see Mr. Counihan’s letter as the opening stages of a blame game over premiums. Of course, rising health costs, anemic enrollment in plans administered through the insurance exchanges, and unpopular product design are not the fault of state insurance commissioners. And there are risks to trying to dictate outcomes to states, including that state officials might be distracted from their focus on preserving carriers’ solvency if pressed by federal officials more focused on achieving politically desirable outcomes.

This post was originally published at the Wall Street Journal Think Tank blog.

Obamacare Is NOT Saving Americans Money

Yesterday the Department of Health and Human Services (HHS) released a report that claims to highlight how Obamacare is working for Americans—but in reality, it actually shows how the law has fallen short of candidate Obama’s promises.

If a picture is worth a thousand words, then one chart in the report tells the tale. Figure 3 of the HHS report (below) highlights what happened when insurers requested to increase premiums by more than 10 percent—triggering a new rate review process established under Obamacare. While some of these premium increases were modified or withdrawn, nearly three in five (57.8 percent) were approved “unmodified” by regulators:

HHS_Fig3

However, if Obama’s campaign promises had come true, NONE of those proposed premium increases would have occurred—because candidate Obama promised premiums would go down under his plan:

For those who have insurance now, nothing will change under the Obama plan — except that you will pay less. Obama’s plan will save a typical family up to $2,500 on premiums.

The HHS report claims that, because rate review lowered the average premium increase—from 8.1 percent to 7.1 percent for those who purchased insurance coverage on their own, and from 5.8 percent to 4.7 percent for small businesses buying insurance—Americans “saved” $1.2 billion due to Obamacare. But one report released last year found that the Obama Administration had fallen $800 billion short of its promise to lower premiums by $2,500 per family.

The fact that regulators are having to approve premium increases of 10 percent or more demonstrates that Obamacare has singularly failed to achieve candidate Obama’s pledge to lower insurance premiums. It’s why Congress should focus on stopping the law now, before premiums can rise any further.

This post was originally published at The Daily Signal.

Kathleen Sebelius: The Insurance Industry’s “Big Sister”

As the Administration gears up to sell Obamacare to the American people, it’s also gearing up its regulatory apparatus to strong-arm private companies.

The Hill reports that even though the Department of Health and Human Services (HHS) previously claimed that it would not try to negotiate rates with insurance companies, in reality HHS Secretary Kathleen Sebelius is doing just that:

“The department is working with state regulators to approach insurers whose rates come in significantly higher or lower than average to make sure their filings are correct,” a senior HHS official said.

So if insurance companies don’t offer the “correct” price, officials from HHS will tell them to come back and try again. Perhaps this is what Vice President Joe Biden meant when, just before Obamacare passed, he said that “we’re going to control the insurance companies.”

Obamacare relies on a series of strong-arm tactics to “control” prices—from price controls on insurance companies to a board of 15 unelected bureaucrats empowered to keep Medicare spending below an arbitrary target. But the real problem with Obamacare is that it forces individuals to buy more insurance than they might want or need, raising premiums in the process. No amount of top-down government controls—or “encouraging” insurance companies to offer the “correct” prices—can change that fact.

So while Secretary Sebelius and HHS continue their intrusive, government-centered tactics to try to offset the premium increases many Americans will see next year, there’s another concept the Administration should try. It’s called free markets and competition.

This post was originally published at The Daily Signal.

DeMint Letter to Obama Asks Him to Hold AARP Accountable

This afternoon Senator DeMint sent a letter to the President, asking him to hold AARP to account for its questionable insurance practices:

 

October 4, 2012

President Barack Obama

The White House

1600 Pennsylvania Avenue, NW

Washington, DC 20500

Dear Mr. President:

During your debate with Governor Romney last night, you criticized Medicare premium support proposals as leaving seniors “at the mercy of insurance companies,” while trumpeting AARP’s endorsement of Obamacare.  However, as I outlined in a recent report about AARP, entitled “Profits Before Principles,” the evidence is clear that Obamacare places seniors at the mercy of one organization – AARP itself.  Because everyone is entitled to his own opinions, but no one is entitled to his own facts, I feel obligated to point out three undisputed facts:

1.       AARP makes most of its money selling health insurance to seniors – and profits financially when premiums rise.  According to its own financial statements, AARP received nearly half a billion dollars in “royalty fees” – or what AARP members have called “kickbacks” – from United Healthcare just last year.  Most of this money came from selling Medigap supplemental insurance to seniors.  And the arrangement under which AARP receives royalties for selling Medigap plans is ethically questionable – AARP receives a percentage of every Medigap premium dollar paid by seniors, meaning AARP makes more in profits the higher premium costs climb.

2.       AARP currently discriminates against seniors with pre-existing conditions.  AARP admits that it imposes waiting periods on individuals applying for its Medigap plans who have pre-existing conditions.  These practices not only violate AARP’s supposed commitment to “ending health status discrimination” – they also violate your claim that insurance companies won’t be able to “jerk you around” now that Obamacare has passed.

3.       Obamacare allows AARP and other sellers of Medigap insurance to continue discriminating against seniors with pre-existing conditions.  The Medigap insurance market – which AARP dominates – received a special exemption from the law’s ban on pre-existing condition discrimination, so AARP can continue its practice of restricting access to those with pre-existing conditions with your Administration’s blessing.  Medigap insurance also received waivers from several other new requirements in the law: Section 1103 exempts plans from medical-loss ratio requirements; Section 9014 exempts plans from caps on industry executive compensation; and Section 10905(d) exempts plans from the tax applied to all other health insurers.  Your Department of Health and Human Services (HHS) went even further, exempting Medigap insurance from premium rate review through regulations – even though AARP, the largest seller of Medigap plans, makes more in profit the higher premiums rise on seniors.

Documents recently released by House investigators also show a close nexus between your Administration and AARP during the rush to ram Obamacare through Congress.  For instance, Jim Messina – then your Deputy Chief of Staff, now your re-election campaign manager – asked AARP for “immediate robo calls into Nebraska urging [Senator Ben] Nelson to vote for cloture” on the bill.  And in December 2009, the White House Office of Public Engagement asked AARP to put out talking points rebutting a Republican amendment related to Medicare.

I am therefore concerned that your Administration may have negotiated a backroom deal, whereby AARP’s lucrative Medigap insurance was exempted from new regulations and enforcement, while AARP provided political cover to your campaign to enact Obamacare – and now your campaign for re-election.  HHS Secretary Sebelius has been very quick to attack other insurers’ practices, but has not dared criticize AARP – even though AARP’s insurance business is more profitable than many other insurance companies.

If you want to ensure seniors are not at the mercy of insurance companies, I encourage you to stop defending AARP’s abusive insurance practices, and instead stand up to the organization when it takes advantage of seniors.

Sincerely,

Jim DeMint

Fact Check: “At the Mercy of Insurance Companies”

The Hill reports that, during his remarks to AARP this morning, the President attacked Republicans for leaving seniors “at the mercy of insurance companies.”  Well, in case you missed it, here are five ways the President and his Administration have left seniors at the mercy of one organization with insurance interests – AARP – by granting them special exemptions and ignoring their questionable insurance practices:

  1. AARP’s lucrative Medigap insurance was exempted in Obamacare from the ban on pre-existing conditions; medical loss ratio requirements; caps on insurance industry executive compensation; and the tax on all other health insurance plans.
  2. The Department of Health and Human Services didn’t think all these Obamacare exemptions were enough; last year they also exempted Medigap insurance from premium rate review – even though AARP, which carries the plan with the largest market share, earns greater profits the more seniors pay in premiums.
  3. At a conference hosted by America’s Health Insurance Plans in March 2010, HHS Secretary Sebelius encouraged the insurance industry to give up some of its profits, at a time when health insurance profit margins were about 2 percentYet neither Secretary Sebelius nor anyone else in the Administration ever criticized AARP for making a profit margin of nearly 5 percent on its Medigap insurance.
  4. In April 2010, the Administration engaged in very public efforts to “encourage” insurance companies to ban rescissions and extend coverage to young adults earlier than is required by the law.  But no one from the Administration has taken similar steps to encourage AARP to stop discriminating against sick seniors applying for Medigap coverage.
  5. In a speech at an AARP conference in October 2010, Secretary Sebelius praised AARP as the “gold standard in cutting through spin and complexity to give people the accurate information they need.”  Yet the National Association of Insurance Commissioners (NAIC) has previously expressed concern about the potential for conflicts-of-interest associated with percentage-based compensation arrangements.  So Secretary Sebelius praised as the “gold standard” for “accurate information” an organization that has the types of financial conflicts her insurance commissioner colleagues have criticized as ripe for abuse.

If the President is so worried about leaving seniors at the mercy of insurance companies, perhaps he should tell the people within his own Administration to stop granting political favors to Democrats’ cronies at the AARP.

The Obama Administration’s Protection Racket

Shortly, President Obama will be addressing the AARP convention via satellite.  He will undoubtedly say nice things about AARP’s role as a “senior advocate.”  But what he won’t discuss are the ways in which his own Administration has allowed AARP to continue making billions in profits on its insurance business:

  1. AARP’s lucrative Medigap insurance was exempted in Obamacare from the ban on pre-existing conditions; medical loss ratio requirements; caps on insurance industry executive compensation; and the tax on all other health insurance plans.
  2. The Department of Health and Human Services didn’t think all these Obamacare exemptions were enough; last year they also exempted Medigap insurance from premium rate review – even though AARP, which carries the plan with the largest market share, earns greater profits the more seniors pay in premiums.
  3. At a conference hosted by America’s Health Insurance Plans in March 2010, HHS Secretary Sebelius encouraged the insurance industry to give up some of its profits, at a time when health insurance profit margins were about 2 percentYet neither Secretary Sebelius nor anyone else in the Administration ever criticized AARP for making a profit margin of nearly 5 percent on its Medigap insurance.
  4. In April 2010, the Administration engaged in very public efforts to “encourage” insurance companies to ban rescissions and extend coverage to young adults earlier than is required by the law.  But no one from the Administration has taken similar steps to encourage AARP to stop discriminating against sick seniors applying for Medigap coverage.
  5. In a speech at an AARP conference in October 2010, Secretary Sebelius praised AARP as the “gold standard in cutting through spin and complexity to give people the accurate information they need.”  Yet the National Association of Insurance Commissioners (NAIC) has previously expressed concern about the potential for conflicts-of-interest associated with percentage-based compensation arrangements.  So Secretary Sebelius praised as the “gold standard” for “accurate information” an organization that has the types of financial conflicts her insurance commissioner colleagues have criticized as ripe for abuse.

Why might the Administration look the other way despite these abuses?  Documents released by the Energy and Commerce Committee yesterday provide myriad reasons, showing all the political favors senior Administration officials asked of AARP as they rammed Obamacare through Congress:

  • Jim Messina, White House Deputy Chief of Staff: “We need [AARP CEO] Barry Rand to go meet with Ben Nelson personally and just lay it on the line.  ‘We will be with you, we will protect you.  But if you kill this bill, seniors will not forget.’  We are at 59 [votes in the Senate], we have to have him.” (page 7)
  • Jim Messina: “Can we get immediate robo calls into Nebraska urging [Ben] Nelson to vote for cloture?” (page 9)
  • Nancy-Ann DeParle, Director, White House Office of Health Reform: “Can AARP support accountable care orgs [sic] and some other delivery system reforms?” (page 26)
  • Jim Messina: “Latest top 25 targets list from House leadership” (page 35)
  • Ann Widger, Office of Public Engagement: “We would really like AARP to participate in this roundtable.” (page 37)
  • Ann Widger: “Did you guys put out any paper today on the McCain [Medicare] amendment?” (page 39)
  • Jim Messina: “[Rep. Larry] Kissel a problem…Help.” (pages 42-43)
  • Nancy-Ann DeParle: “Can you get me a copy of the [AARP] bulletin we discussed yesterday?” (page 64)

Secretary Sebelius has already admitted she has acted improperly in using her office to conduct political activities; the Office of Special Counsel last week concluded she violated the law to do so.  Given all of the above, it is not unreasonable to question whether the Secretary, and others within the Administration, made a calculated political decision to grant special favors to AARP – and ignore its questionable business practices – because AARP endorsed Obamacare.

Yesterday President Obama claimed that he changed Washington “from the outside” by enacting Obamacare.  The pattern of conduct described above suggests just the opposite: That the President rammed Obamacare through only by establishing what amounts to an inside-the-Beltway protection racket between the Administration and AARP – the former will allow the latter to continue overcharging seniors for insurance, so long as AARP uses its advocacy megaphone to endorse the President’s liberal causes.

 

The Honorable Kathleen Sebelius

Secretary

Department of Health and Human Services

200 Independence Avenue, S.W.

Washington, DC 20201

Dear Secretary Sebelius:

Today my office is releasing a report, “Profits Before Principles,” regarding the insurance practices of AARP. The report finds that AARP has a strong financial interest in keeping Medigap supplemental insurance premiums high – because the organization receives greater profits the more seniors pay in premiums. In addition, AARP’s financial interests have been aided by the Patient Protection and Affordable Care Act (PPACA), which AARP not coincidentally endorsed. Experts agree that PPACA’s provisions will have the effect of driving seniors out of Medicare Advantage health plans and into Medigap supplemental insurance – a market where AARP enjoys the largest market share.

I am greatly concerned by AARP’s questionable business practices, and by the numerous exemptions granted to Medigap insurance – both legislatively and through your Department’s regulatory process – as a result of PPACA. Therefore, I ask you to respond to the following questions:

  1. The text of PPACA exempts Medigap supplemental insurance plans from several new requirements: Section 1103 exempts plans from medical-loss ratio requirements; Section 1202(2)(A) exempts plans from the prohibition on pre-existing condition exclusions; Section 9014 exempts plans from caps on industry executive compensation; and Section 10905(d) exempts plans from the tax applied to all other health insurers. Does the Administration support all these special exemptions for Medigap plans? Why or why not?
  2. My staff attended a PPACA implementation briefing for Senate Republican staff in April 2010. At that time, Jeanne Lambrew of your Department’s Office of Health Reform admitted that PPACA exempted Medigap insurance from the law’s new regulatory regime. If in fact the Administration does NOT support PPACA’s numerous exemptions for Medigap plans, why has your Department done nothing to publicize that fact in the intervening two-plus years since that briefing?
  3. Your Department continues to claim that PPACA “ended many of the insurance industry’s worst abuses” – even though you are fully aware that these changes do not apply to Medigap plans. For instance, HHS previously released a publicity brochure that says “starting in 2014, discrimination based on a pre-existing condition by an insurer will be prohibited in every state.” Why has your Department continued to repeat these misleading slogans, even though your staff admitted that seniors applying for Medigap insurance remain subject to pre-existing condition discrimination due to the special carve-outs included in PPACA?
  4. In your speech to the Democratic National Convention on September 4, 2012, you criticized Republicans for “let[ting] insurance companies continue to cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market.” Likewise, during his speech at the Democratic National Convention, President Obama said that “no American should have to spend their golden years at the mercy of insurance companies.” Please detail the specific provisions included in PPACA that place new limits on Medigap insurers’ ability to “cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market,” and ensure that no applicant for Medigap coverage with a pre-existing condition will be left “at the mercy of insurance companies.”
  5. In a speech on September 8, 2012, President Obama claimed that Medicare premium support proposals would lead to billions of dollars in greater profits for insurance companies. But a 2011 House Ways and Means Committee member report found that PPACA itself could lead to billions in profits for AARP, because the law’s cuts to Medicare Advantage will reduce enrollment in that program, and encourage seniors to purchase supplemental Medigap insurance instead. Do you agree with the Ways and Means Committee report’s premise that PPACA will lead seniors to migrate from Medicare Advantage coverage to Medigap plans – thereby increasing profits to AARP? If not, on what basis do you disagree with the non-partisan experts at the Congressional Budget Office and the Medicare Office of the Actuary, who have concluded the law will reduce Medicare Advantage enrollment by millions?
  6. In addition to the above exemptions, your Department added yet another Medigap carve-out to the ones included in the statute, by exempting Medigap insurance from PPACA’s rate review process. Why do seniors not deserve this supposed protection? If PPACA’s benefits are so good, why didn’t your Department extend them to seniors as well?
  7. Did AARP, or anyone associated with or paid by it, influence or attempt to influence the Administration regarding the numerous exemptions given to Medigap insurance in PPACA, or the regulatory interpretations of PPACA? If so, please provide details as to the dates, persons, positions, and circumstances of said efforts.
  8. The 2011 House Ways and Means Committee member report noted that for its Medigap plans, AARP receives 4.95% of every premium dollar paid by seniors. As a former insurance commissioner, do you think it’s appropriate that AARP has a perverse financial incentive to keep Medigap insurance premiums high?
  9. In a speech at an AARP conference in October 2010, you praised that organization as the “gold standard in cutting through spin and complexity to give people the accurate information they need.” As a former insurance commissioner, how exactly do you believe AARP can serve as a “gold standard” giving seniors “accurate information” about Medigap insurance plans, when the organization has a financial incentive to sell seniors more insurance than they may need or want?
  10. As a former insurance commissioner, you are no doubt aware that the National Association of Insurance Commissioners (NAIC) has previously expressed concern about the potential for conflicts-of-interest associated with percentage-based compensation arrangements. In fact, Section 18 of NAIC’s Producer Model Licensing Act recommends that states require explicit disclosure by insurer affiliates, and clear written acknowledgement by consumers, of any percentage-based compensation arrangement, due to the potential for financial abuses. Did you undertake any due diligence to ensure that AARP’s Medigap percentage-based compensation model was in full compliance with both the letter and spirit of Section 18 of the Producer Model Licensing Act prior to making your assertion that AARP constitutes the “gold standard” for giving seniors “accurate information?” If not, why not?
  11. Given that AARP holds the largest share of the Medigap market, why did your Department grant a special exemption for Medigap insurance from PPACA rate review? Why do you believe that AARP can act in a proper manner to control premium increases – even though the organization gains profits for every additional dollar Medigap premiums rise?
  12. At a conference hosted by America’s Health Insurance Plans in March 2010, you encouraged the insurance industry to give up some of its profits, at a time when health insurers were earning between 2 and 3 cents of profit for every dollar of revenue, according to Fortune 500 estimates. If you criticized other insurers for earning between 2 and 3 cents of every premium dollar in profits, why haven’t you criticized AARP for taking 4.95 cents of every Medigap premium dollar as pure profit?
  13. In April 2010, the Administration and you personally engaged in very public efforts to “encourage” insurance companies to ban rescissions and extend coverage to young adults earlier than was required by PPACA. Why haven’t you taken similar steps to encourage AARP to stop discriminating against sick seniors applying for Medigap coverage?
  14. At the April 2010 Senate Republican briefing, staff asked whether your Department would write a letter to AARP asking them to stop denying Medigap applications for individuals with pre-existing conditions. Jeanne Lambrew of the Office of Health Reform promised to look into the matter, but the letter was never sent. Why has your Department waited more than two and a half years to ask AARP to stop discriminating against sick and disabled individuals applying for Medigap insurance?
  15. Finally, please forward copies of any and all Administration documents – including those originating from outside your Department – from January 20, 2009 through today inclusive regarding: 1) the Medigap exemptions included in PPACA, and the Administration’s viewpoints and/or technical assistance provided regarding same during the drafting process; 2) the Administration’s administrative interpretations of the Medigap exemptions during the rulemaking process; 3) AARP’s positions on Medigap insurance plans, including but not limited to the exemptions included in PPACA; and 4) AARP’s position on PPACA, including but not limited to any policy changes AARP said it required to be included in the legislation for the bill to receive the organization’s endorsement.

I look forward to receiving your response on these issues within two weeks. If you have any questions, feel free to contact Alec Aramanda or Chris Jacobs of my staff. Thank you for your time, and I look forward to your reply.