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.

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

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

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

The Issue and the Lawsuit

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

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

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

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

The Proposed Settlement

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

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

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

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

What the Settlement Means

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

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

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

Will Other Parties Object?

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

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

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

This post was originally published at The Federalist.

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.

How Donald Trump Created the Worst of All Possible Health Care Worlds

Following last week’s developments in the ongoing saga over Obamacare’s cost-sharing reduction (CSR) payments, two things seem clear. First, President Trump won’t stop making these payments to insurers, designed to reimburse them for providing reduced deductibles and copayments to low-income individuals. If Trump’s administration continued to pay CSRs to insurers mere weeks after the Obamacare “repeal-and-replace” effort collapsed on the Senate floor, it should be fairly obvious that this president won’t cut off the payments.

Second, notwithstanding the above, Trump won’t stop threatening to halt these payments any time soon. Seeing himself as a negotiator, Trump won’t cede any leverage by committing to make future payments, trying to keep insurance companies and Democrats in suspense and extract concessions from each. He has received no concessions from Democrats, and he likely has no intentions of ever stopping the payments, but will continue the yo-yo approach for as long as he thinks it effective—in other words, until the policy community fully sees it as the empty threat that it is.

President Trump Is Savaging the Constitution

From a constitutional perspective, Trump’s approach to CSRs undermines the rule of law. The president referred to the payments in a May interview with The Economist, stating that “If I ever stop wanting to pay the subsidies, which I will [sic].”

But as any conservative will explain (and this space previously outlined), the president cannot stop making any payments unilaterally. The Supreme Court ruled unanimously in Train v. City of New York that if a law makes a constitutional appropriation, the president cannot refuse to spend the money. He must make the appropriation. Conversely, if the law lacks an appropriation, the president cannot spend money—that prerogative lies with Congress, as per Article I, Section 9, Clause 7 of the Constitution.

Judge Rosemary Collyer ruled last May that Obamacare lacks an appropriation for the cost-sharing reduction payments. If the president agrees, he should stop the payments immediately. If the president disagrees, he should continue the Obama administration’s appeal of that ruling, and commit to making payments unless and until the Supreme Court orders him to stop. Instead, the president has treated the payments—and thus the Constitution—as his personal plaything, which he can obey or disregard on his whim.

This Policy ‘Uncertainty’ Has Consequences

Having under-estimated their risk before this year, many insurers have over-estimated their risk now. Carriers have threatened higher premium increases, or reduction in service areas, because they finally recognize the inherent uncertainty around CSR payments lacking an explicit appropriation in statute.

Insurers’ cries of “uncertainty” have joined chorus with liberals’ claims of “sabotage” against the Trump administration. The same liberal groups and advocates who failed to recognize the uncertainty last year—because higher premiums for 2017 would have hurt Hillary Clinton and Democrats during last fall’s elections—now almost gleefully embrace the concept, believing it can benefit them politically.

Therein lies the full scope of the political danger for Trump and Republicans. It seems obvious that Trump will continue to make the payments to insurers. But it seems equally obvious that Trump enjoys keeping insurers on the proverbial short leash, and won’t give them the “certainty” over the payments that they desire. The end result: An administration that receives political blame from the Right for making unconstitutional payments, and from the Left for “uncertainty”-related premium increases, because Trump has not confirmed those unconstitutional payments will continue.

Rule of Law, Not of Men

But in an ironic twist, the political benefit from creating this unilateral policy could accrue to Democrats, if Republicans receive fallout from higher premiums in 2018. Perhaps that outcome could persuade both parties to abandon the executive unilateralism that has become far too common in recent administrations. Restoring the rule of law seems like such a simple, yet novel, concept that some enterprising politicians in Washington might want to try it.

This post was originally published at The Federalist.

Don’t Blame Trump When Obamacare Rates Jump

Insurers must submit applications by next Wednesday to sell plans through HealthCare.gov, and these will give us some of the first indicators of how high Obamacare costs will skyrocket in 2018. Obamacare supporters can’t wait to blame the coming premium increases on the “uncertainty” caused by President Trump. But insurers faced the same uncertainty last year under President Obama.

Consider a recent press release from California Insurance Commissioner Dave Jones. He announced that “in light of the market instability created by President Trump’s continued undermining of the Affordable Care Act,” he would authorize insurers to file two sets of proposed rates for 2018—“Trump rates” and “ACA rates.” Among other sources of uncertainty, Mr. Jones’s office cited the possibility that the Trump administration will end cost-sharing reduction payments.

Thus the uncertainty: The House filed a lawsuit in November 2014, alleging that the unauthorized payments were unconstitutional. Judge Rosemary Collyer ruled in the House’s favor and ordered a stop to the payments. As the Obama administration appealed the ruling, the cost-sharing reduction payments continued.

The House lawsuit and the potential for a new administration that could cut off the payments unilaterally should have been red flags for regulators when insurers were preparing their rate filings for 2017. I noted this in a blog post for the Journal last May.

To maintain a stable marketplace regardless of the uncertainty, regulators should have demanded that insurers price in a contingency margin for their 2017 rates. It appears that Mr. Jones’s office did not even consider doing so. I recently submitted a Freedom of Information Act request to his office requesting documents related to the 2017 rate-filing process, and “whether uncertainty surrounding the cost-sharing reduction payments was considered by the Commissioner’s office in determining rates for the current plan year.” Mr. Jones’s office replied that no such documents exist.

What does that mean? At best, not one of the California Insurance Commission’s nearly 1,400 employees thought to ask whether a federal court ruling stopping an estimated $7 billion to $10 billion in annual payments to insurers throughout the country would affect the state’s health-insurance market. At worst, Mr. Jones—a Democrat running for attorney general next year—deliberately ignored the issue to avoid exacerbating already-high premium increases that could have damaged Hillary Clinton’s fall campaign and consumers further down the road.

The California Insurance Commission is not alone in its “recent discovery” of uncertainty as a driver of premium increases. In April the left-liberal Center for American Progress published a paper claiming to quantify the “Trump uncertainty rate hike.” The center noted that the “mere possibility” of an end to cost-sharing payments would require insurers to raise premiums by hundreds of dollars a year.

Following insurers’ June 21 deadline, expect a raging blame game over next year’s premium increases. Conservatives shouldn’t hesitate to ask regulators and liberal advocates now pointing the finger at uncertainty where they were this time last year when the future of those payments was equally uncertain.

This post was originally published at The Wall Street Journal.