How the Obama Administration Hid Facts to Pass Obamacare

Over the weekend, Politico ran a report about how a “Trump policy shop filters facts to fit his message.” The article cited several unnamed sources complaining about the office of the Assistant Secretary for Planning and Evaluation (ASPE) within the Department of Health and Human Services (HHS), and its allegedly politicized role within the current administration.

One of the article’s anonymous sources called ASPE’s conduct over the past 18 months “another example of how we’re moving to a post-fact era.” Richard Frank, a former Obama appointee and one of the few sources to speak on the record, said that he found the current administration’s “attack on the integrity and the culture of the office…disturbing.”

As a congressional staffer conducting oversight of the CLASS Act in 2011-12, I reviewed thousands of pages of e-mails and documents from the months leading up to Obamacare’s passage. Those records strongly suggest that ASPE officials, including Frank, withheld material facts from Congress and the public about CLASS’s unsustainability, because full and prompt disclosure could have jeopardized Obamacare’s chances of passage.

About the CLASS Act ‘Ponzi scheme’

The Community Living Assistance Services and Supports program, or CLASS for short, intended to provide a voluntary insurance benefit for long-term care. Included as part of Obamacare, the program never got off the ground. In October 2011, HHS concluded it could not implement the program in an actuarially sound manner; Congress repealed the program entirely as part of the “fiscal cliff” deal enacted into law in the early days of 2013.

CLASS’s prime structural problem closely resembled that of the Obamacare exchanges—too many sick people, and not enough healthy ones. Disability lobbyists strongly supported the CLASS Act, hoping that it would provide financial support to individuals with disabilities. However, its voluntary nature meant that the more people already with disabilities enrolled and qualified for benefits, the higher premiums would rise, thereby discouraging healthy people from signing up.

Moreover, although actuarially questionable in the long-term, CLASS’s structure provided short-term fiscal benefits that aided Obamacare’s passage. Because CLASS required a five-year waiting period to collect benefits, the program would generate revenue early in its lifespan—and thus in the ten-year window budget analysts would use to score Obamacare—even if it could not maintain balance over a longer, 75-year timeframe.

This dynamic led the Senate Budget Committee Chairman Kent Conrad (D-ND), to dub CLASS “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.”

Internal Concerns Minimized in Public

A report I helped draft, which several congressional offices released in September 2011—weeks before HHS concluded that program implementation would not go forward—highlighted concerns raised within the department during the debate on Obamacare about CLASS’ unsustainable nature. For instance, in September 2009, one set of talking points prepared by ASPE indicated that, even after changes made by Congress, CLASS “is still likely to create severe adverse selection problems”—i.e., too many sick people would enroll to make the program sustainable.

Frank told me that, during one public speech in October 2009, “I spent about half my time setting out the problems with CLASS that needed to be fixed.” He did indeed highlight some of the actuarial challenges the CLASS program faced. But Frank’s remarks, at a Kaiser Family Foundation event, closed thusly:

We’ve, in the department, have modeled this extensively, perhaps more extensively than anybody would want to hear about [laughter] and we’re entirely persuaded that reasonable premiums, solid participation rates, and financial solvency over the 75-year period can be maintained. So it is, on this basis, that the Administration supports it that the bill continues to sort of meet the standards of being able to stand on its own financial feet. Thanks.

Frank told me over the weekend that his comments “came at the end of my explaining that we were in the process of addressing those issues” (emphasis mine). But Frank actually said that the Obama administration was “entirely persuaded” of CLASS’ solvency, which gives the impression not that the department had begun a process of addressing those issues, but had already resolved them.

Frank’s public comments notwithstanding, ASPE had far from resolved the actuarial problems plaguing CLASS. Two days after his speech, one of Frank’s employees sent around an internal e-mail suggesting that the CLASS Act “seems like a recipe for disaster.”

But the ‘Fixes’ Fall Short

In response to these new analyses, HHS and ASPE came up with a package of technical fixes designed to make the CLASS program actuarially sound. One section of those fixes noted that “it is possible the authority in the bill to modify premiums will not be sufficient to ensure the program is sustainable.”

However, the proposed changes came too late:

  • No changes to the CLASS Act made it into the final version of Obamacare, which then-Majority Leader Harry Reid (D-NV) filed in the Senate on December 19, 2009.
  • The election of Scott Brown (R-MA) to replace the late Kennedy in January 2010 prevented Democrats from fixing the CLASS Act through a House-Senate conference committee, as Brown had pledged to be the “41st Republican” in the Senate who would prevent a conference report from receiving a final vote.
  • While the House and Senate could (and did) pass some changes to Obamacare on a party-line vote through the budget reconciliation process, the Senate’s “Byrd rule” on inclusion of incidental matters in a budget reconciliation bill prevented them from addressing CLASS.

The White House’s own health care proposal, released in February 2010, discussed “a series of changes to the Senate bill to improve the CLASS program’s financial stability and ensure its long-run solvency.” But as HHS Secretary Kathleen Sebelius later testified before the Senate Finance Committee, the “Byrd rule” procedures for budget reconciliation meant that those changes never saw the light of day—and could not make it into law.

Kinda Looks Like a Conspiracy of Silence

By the early months of 2010, officials at ASPE knew they had a program that they could not fix legislatively, and could fail as a result. Yet at no point between January 2010, when ASPE proposed its package of technical changes, through Obamacare’s enactment, did anyone within the administration admit that the program could prove impossible to implement.

Over the weekend, I asked Frank about this silence. He responded that “when the reconciliation package was shelved”—which I take to mean that the CLASS changes did not make it into the reconciliation bill, which did pass—“we began working on regulatory remedies that might address the flaws in CLASS.” However, from the outset some of Frank’s own employees believed those changes might prove insufficient to make the program actuarially sound, as it later proved.

To put it another way: In February 2011, Sebelius testified before the Senate Finance Committee that “the snapshot [of CLASS] in the bill, I would absolutely agree, is totally unsustainable.” She, Frank, and others within the administration had known this fact one year previously: They just hoped they could arrive at a package of regulatory changes that would overcome the law’s structural flaws.

But did anyone within the administration disclose that CLASS was “totally unsustainable” as written back in February 2010? No, because doing so could have jeopardized Obamacare’s chances of passage. The law passed the House on a narrow 219-212 margin.

If HHS had publicly conceded that CLASS could become a “zombie” program—one that they could not fix, but could not remove—it would have caused a political firestorm, and raised broader questions about the bill’s fiscal integrity that could have prevented its enactment.

Was Obamacare Sold on a Lie?

Conservatives have pilloried Obamacare for the many false statements used to sell the law, from the infamous “Lie of the Year” that “If you like your plan, you can keep it” to the repeated promises about premium reductions, Barack Obama’s “firm pledge” to avoid middle-class tax increases, and on and on.

But there are sins of both commission and omission, and the CLASS Act falls into the latter category. Regardless of whether one uses the loaded term “lie” to characterize the sequence of events described above, the public statements by HHS officials surrounding the program prior to Obamacare’s enactment fell short of the full and unvarnished truth, both as they knew it at the time, and as events later proved.

Politico can write all it wants about ASPE under Trump “filter[ing] facts to fit his message.” But ASPE’s prior failure to disclose the full scope of problems the CLASS Act faced represents a textbook example of a bureaucracy hiding inconvenient truths to enact its agenda. If anonymous HHS bureaucrats now wish to attack a “post-fact era” under Trump, they should start by taking a hard look in the mirror at what they did under President Obama to enact Obamacare.

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.

What You Need to Know About Budget Reconciliation in the Senate

After last week’s House passage of the American Health Care Act, the Senate has begun sorting through various policy options for health care legislation. But looming over the policy discussions are procedural concerns unique to the Senate. Herewith a primer on the process under which the upper chamber will consider an Obamacare “repeal-and-replace” bill.

How Will the Bill Come to the Senate Floor?

The bill that passed the House was drafted as a budget reconciliation bill. The phrase “budget reconciliation” refers to a process established by the Congressional Budget Act of 1974, in which congressional committees reconcile spending in programs within their jurisdiction to the budget blueprint passed by Congress. In this case, Congress passed a budget in January that required health-care committees to report legislation reducing the deficit by $1 billion—the intended vehicle for an Obamacare “repeal-and-replace” bill.

What’s So Important about Budget Reconciliation?

Under most circumstances, the Senate can only limit debate and amendments by invoking cloture, which requires the approval of three-fifths of all senators sworn (i.e., 60 votes). Because the reconciliation process prohibits filibusters and unlimited debate, it allows the Senate to pass reconciliation bills with a simple majority (i.e., 51-vote) threshold.

Why Does the ‘Byrd Rule’ Exist as part of Budget Reconciliation?

Named for former Senate Majority Leader Robert Byrd (D-WV), the rule intends to protect the integrity of the legislative filibuster. By allowing only matters integral to the budget reconciliation to pass the Senate with a simple majority (as opposed to the 60-vote threshold), the rule seeks to keep the body’s tradition of extended debate.

What Is the ‘Byrd Rule’?

Simply put, the rule prohibits “extraneous” material from intruding in budget reconciliation legislation. However, the term “Byrd rule” is technically a misnomer in two respects. First, the “Byrd rule” is more than just a longstanding practice of the Senate. After several years of operation as a Senate rule, it was codified into law beginning in 1985, and can be found at 2 U.S.C. 644. Second, the rule consists of not just one test to define whether material is “extraneous,” but six.

What Are the Six Different Types of Extraneous Material?

So the Various Types of ‘Byrd Rule’ Violations Are Not Necessarily Equivalent?

Correct. While most reporters focus on the fourth test—when a legislative provision has a budgetary impact merely incidental to the provision’s policy change—that is not the only type of rule violation. Nor in many respects is it the most significant.

While violations of the fourth test are fatal to the provision—the extraneous material is stricken from the underlying legislation—violations of the third (material outside the jurisdiction of committees charged with reporting reconciliation legislation) and sixth (changes to Title II of the Social Security Act) tests are fatal to the entire bill.

Who Determines Whether a Provision Qualifies as ‘Extraneous’ Under the ‘Byrd Rule’?

How Does One Determine Whether a Provision Qualifies as ‘Extraneous’ under the ‘Byrd Rule’?

In some cases, determining compliance with the rule is relatively straight-forward. A provision dealing with veterans’ benefits (within the jurisdiction of the Veterans Affairs Committee) would clearly fail the third test in a tax reconciliation bill, as tax matters lie within the Finance Committee’s jurisdiction.

However, other cases require a more nuanced, textual analysis by the parliamentarian. Such an analysis might examine Congressional Budget Office (CBO) and other outside scores, to assess the provision’s fiscal impact (or lack thereof), the statute the reconciliation bill seeks to amend, other statutes cross-referenced in the legislation (to assess the impact of the programmatic changes the provision would make), and prior precedent on related matters.

When Does the Senate Assess Whether a Provision Qualifies as ‘Extraneous’?

In some respects, assessing compliance is an iterative process. Often, the Senate parliamentarian will provide informal advice to majority staff as they begin to write reconciliation legislation. While these informal conversations help to guide bill writers during the drafting process, the parliamentarian normally notes that these discussions do not constitute a formal advisory opinion; minority party staff and other interested persons are not privy to the ex parte conversations, and could in time bring her new information that could cause her to change her opinion.

Do Debates about the ‘Byrd Rule’ Take Place on the Senate Floor?

They can, and they have, but relatively rarely. As James Wallner, an expert in Senate parliamentary procedure, notes, over the last three decades, the Senate has formally adjudicated only ten instances of the fourth test—whether a provision’s fiscal impacts are merely incidental to its proposed policy changes.

Because most determinations of “Byrd rule” compliance (or non-compliance) have been made through informal, closed-door “Byrd bath” discussions in the Senate parliamentarian’s office, there are few formal precedents—either rulings from the chair or votes by the Senate itself—regarding specific examples of “extraneous” material. As a result, the Senate—whether the parliamentarian, the presiding officer, or the body itself—has significant latitude to interpret the statutory tests about what qualifies as “extraneous.”

Can the Senate Overrule the Parliamentarian about What Qualifies as ‘Extraneous’ Under the ‘Byrd Rule’?

Yes, in two respects. The presiding officer—whether the vice president as president of the Senate, the president pro tempore (currently Sen. Orrin Hatch, R-UT), or another senator—can disregard the parliamentarian’s guidance and issue his or her own ruling. Alternatively, a senator could appeal the chair’s decision, and a simple majority of the body could overrule that decision. There is a long history of senators doing just that.

As a practical matter, however, such a scenario appears unlikely during the Obamacare debate, for two reasons. First, some senators may view such a move as akin to the “nuclear option,” undermining the legislative filibuster by a simple majority vote. The recent letter signed by 61 senators pledging to uphold the legislative filibuster indicates that at least some senators in both parties want to preserve the usual 60-vote margin for passing legislation, and therefore may not wish to set a precedent of allowing potentially “extraneous” material on to a budget reconciliation bill through a simple majority.

Second, if the Senate did overrule the parliamentarian on a procedural matter related to budget reconciliation, a conservative senator would likely introduce a simple, one-line Obamacare repeal bill and ask the Senate to overrule the parliamentarian to allow it to qualify as a reconciliation matter. Since many members of the Senate, like the House, do not actually wish to repeal Obamacare, they would likely decline to head down the road of overruling the parliamentarian, for fear it may head in this direction.

Can the Senate Waive the ‘Byrd Rule’?

Yes—provided three-fifths of senators sworn (i.e., 60 senators) agree. In the past, many budget reconciliation bills—like the Balanced Budget Act of 1997—passed with far more than 60 Senate votes, which made waiving the rule easier.

However, Republicans did not agree to waive the rule for extraneous material included in Senate Democrats’ Obamacare “fix” bill in March 2010. That material was stricken from the legislation and did not make it into law. For this and other reasons, it seems unlikely that eight or more Senate Democrats would vote to waive the rule for an Obamacare “repeal-and-replace” bill.

Didn’t Democrats Pass Obamacare through Budget Reconciliation?

Yes and no. They fixed portions of Obamacare—for instance, the notorious “Cornhusker Kickback”—through a budget reconciliation measure that passed through both houses of Congress in March 2010. But the larger, 2,400-page measure that passed the Senate on Christmas Eve 2009 was enacted into law first.

Once Scott Brown’s election to the Senate in January 2010 gave Republicans 41 votes, Democrats knew they could not go through the usual process of convening a House-Senate conference committee to consider the differences between each chamber’s legislation. A conference report is subject to a filibuster, and Republicans had the votes to sustain that filibuster.

Instead, House Democrats agreed to pass the Senate version of the legislation—the version that passed with 60 votes on Christmas Eve 2009—then have both chambers use a separate budget reconciliation bill—one that could pass the Senate with a 51-vote majority—to make changes to the bill they had just enacted.

This post was originally published at The Federalist.

Four Ways Donald Trump Can Start Dismantling Obamacare on Day One

Having led a populist uprising that propelled him to the presidency, Donald Trump will now face pressure to make good on his campaign promise to repeal Obamacare. However, because President Obama used executive overreach to implement so much of the law, Trump can begin dismantling it immediately upon taking office.

The short version comes down to this: End cronyist bailouts, and confront the health insurers behind them. Want more details? Read on.

1. End Unconstitutional Cost-Sharing Subsidies

In May, Judge Rosemary Collyer ruled in a lawsuit brought by the House of Representatives that the Obama administration had illegally disbursed cost-sharing subsidies to insurers without an appropriation. These subsidies—separate and distinct from the law’s premium subsidies—reimburse insurers for discounted deductibles and co-payments they provide to some low-income beneficiaries.

Trump should immediately 1) revoke the Obama administration’s appeal of Collyer’s ruling in the House’s lawsuit, House v. Burwell, and 2) stop providing cost-sharing subsidies to insurers unless and until Congress grants an explicit appropriation for same.

2. Follow the Law on Reinsurance

House v. Burwell represents but one case in which legal experts have ruled the Obama administration violated the law by bailing out insurers. In September, the Government Accountability Office (GAO) handed down a ruling in the separate case of Obamacare’s reinsurance program.

The law states that, once reinsurance funds come in, Treasury should get repaid for the $5 billion cost of a transitional Obamacare program before insurers receive reimbursement for their high-cost patients. GAO, like the non-partisan Congressional Research Service before it, concluded that the Obama administration violated the text of Obamacare by prioritizing payments to insurers over and above payments to the Treasury.

Trump should immediately ensure that Treasury is repaid all the $5 billion it is owed before insurance companies get repaid, as the law currently requires. He can also look to sue insurance companies to make the Treasury whole.

3. Prevent a Risk Corridor Bailout

In recent weeks, the Obama administration has sought to settle lawsuits raised by insurance companies looking to resolve unpaid claims on Obamacare’s risk corridor program. While Congress prohibited taxpayer funds from being used to bail out insurance companies—twice—the administration apparently wishes to enact a backdoor bailout prior to leaving office.

Under this mechanism, Justice Department attorneys would sign off on using the obscure Judgment Fund to settle the risk corridor lawsuits, in an attempt to circumvent the congressional appropriations restriction.

Trump should immediately 1) direct the Justice Department and the Centers for Medicare and Medicaid Services (CMS) not to settle any risk corridor lawsuits, 2) direct the Treasury not to make payments from the Judgment Fund for any settlements related to such lawsuits, and 3) ask Congress for clarifying language to prohibit the Judgment Fund from being used to pay out any settlements related to such lawsuits.

4. Rage Against the (Insurance) Machine

Trump ran as a populist against the corrupting influence of special interests. To that end, he would do well to point out that health insurance companies have made record profits, nearly doubling during the Obama years to a whopping $15 billion in 2015. It’s also worth noting that special interests enthusiastically embraced Obamacare as a way to fatten their bottom lines—witness the pharmaceutical industry’s “rock solid deal” supporting the law, and the ads they ran seeking its passage.

As folks have noted elsewhere, if Trump ends the flow of cost-sharing subsidies upon taking office, insurers may attempt to argue that legal clauses permit them to exit the Obamacare exchanges immediately. Over and above the legal question of whether CMS had the authority to make such an agreement—binding the federal government to a continuous flow of unconstitutional spending—lies a broader political question: Would insurers, while making record profits, deliberately throw the country’s insurance markets into chaos because a newly elected administration would not continue paying them tribute in the form of unconstitutional bailouts?

For years, Democrats sought political profit by portraying Republicans as “the handmaidens of the insurance companies.” Anger against premium increases by Anthem in 2010 helped compel Democrats to enact Obamacare, even after Scott Brown’s stunning Senate upset in Massachusetts. It would be a delicious irony indeed for a Trump administration to continue the political realignment begun last evening by demonstrating to the American public just how much Democrats have relied upon crony capitalism and corrupting special interests to enact their agenda. Nancy Pelosi and K Street lobbyists were made for each other—perhaps it only took Donald Trump to bring them together.
This post was originally published at The Federalist.