Politics & Policy

How to Stop Insurer Bailouts

(Kevin Zimarik/Dreamstime)
An action plan for the next Republican administration to save taxpayer dollars.

In the coming decade, actions set in motion by the Obama administration could cost the American taxpayer over $170 billion in publicly funded health-insurance-company bailouts — a scandal I described in detail in these pages last week. Fortunately for taxpayers, however, a future administration could shut off the gushing taps of bailout dollars that President Obama has turned on. Because the bailouts in large part revolve around unilateral administration actions — decisions solely made by the executive, without even the notice-and-comment process used in normal rulemaking — the next administration could reverse those actions almost as quickly as they were introduced.

By taking the steps below, a Republican administration could preserve taxpayer funds — and restore the separation of powers this administration has so badly damaged.

Risk Corridors

One of two transitional programs for Obamacare insurers, risk corridors were designed to provide stability in the law’s early years — insurers with large profits would pay in some of their gains to reduce shortfalls by carriers with large losses. However, because insurers have lost money hand-over-fist on Obamacare exchanges, claims by loss-making insurers seeking payments have greatly exceeded receipts taken in by profit-making insurers. Congress has thus far prevented the Centers for Medicare and Medicaid Services (CMS) from using taxpayer funds to bail out the risk corridors, but insurers are taking legal action seeking unpaid risk-corridor funds as a result.

Action: Revoke the Administration Memo Declaring a Unilateral Bailout: In November, CMS issued a short memo noting that, in 2014, insurers requested $2.87 billion in risk-corridor payments, but because other insurers only paid in $362 million to risk corridors, the administration could only pay 12.6 percent of 2014 payment requests. The memo stated that the $2.5 billion in unpaid payments represent an “obligation of the United States Government for which full payment is required.”

The memo conceded that Congress had provided no appropriation for the $2.5 billion in risk-corridor shortfalls — indeed, Congress had specifically enacted language prohibiting CMS from spending additional taxpayer funds on risk-corridor payments. CMS had no authority to issue such a memo — and the next administration should revoke it.

Action: Refuse to Settle Risk-Corridor Lawsuits — and Refuse to Pay Claims: Insurers have filed several lawsuits seeking to collect their unpaid risk-corridor funds — lawsuits that the Obama administration will be inclined to settle. Congress prohibited CMS from using taxpayer funds to pay risk-corridor claims — but a legal settlement would be paid from the Judgment Fund of the Treasury, allowing the administration to circumvent the appropriations restrictions.

The Obama administration may, in its final days after November’s elections, attempt to settle the insurer lawsuits by paying risk-corridor claims from the Judgment Fund. Such an action would contradict opinions of the Congressional Research Service (CRS) and the Government Accountability Office (GAO). Both organizations have stated their belief that the Judgment Fund cannot be used to spend money on accounts and programs where Congress itself has declined to appropriate funds. Particularly given the views of these non-partisan legal experts, federal judges can, and should, look skeptically upon, and even overturn entirely, any conspiracy by the Obama administration and insurers to create a backdoor bailout without Congress’s explicit consent in the form of an appropriation.

Under our Constitution, the power of the purse lies solely with Congress, not with unelected bureaucrats.

The next administration should fight these insurer lawsuits tooth-and-nail, refusing to either settle the lawsuits or to use the Judgment Fund to pay any claims — unless and until Congress explicitly appropriates funds for that purpose. Under our Constitution, the power of the purse lies solely with Congress, not with unelected bureaucrats who believe they can dispense billions of dollars in taxpayer money to their crony-capitalist colleagues at will.

Potential Savings to Taxpayers: Insurers submitted $2.5 billion in unpaid risk-corridor claims for 2014. Given continued insurer losses in 2015 and 2016, a conservative estimate would suggest a total of $7.5 billion in unpaid claims for each of 2014, 2015, and 2016. Actions by a new administration could save taxpayers from this bailout totaling billions — possibly tens of billions — of dollars.

Reinsurance

Reinsurance, the second program intended to ease the transition to Obamacare, would, according to the text of the law, impose “fees” on all employer-provided plans from 2014 to 2016. The funds were designed to 1) repay the Treasury for the cost of another reinsurance program in place from 2010 to 2013, and 2) subsidize insurers selling Obamacare-compliant individual plans with high-cost patients.

Action: Reclaim Funds for the Treasury: While the text of Obamacare explicitly states the Obama administration should prioritize repaying the Treasury over repaying insurers, the administration has done precisely the opposite — putting payments to insurers ahead of repayments to taxpayers. The non-partisan experts at CRS have called the Obama administration’s actions a clear violation of the text of the law.

The next administration can and should limit this insurer bailout by reorienting its priorities in line with both the law and basic common sense — taxpayers deserve priority before insurers. It could also sue insurers to recoup bailout funds dispensed in error because of the Obama administration’s reckless disregard for the law.

Potential Savings to Taxpayers: While insurers appear likely to receive the full $20 billion in reinsurance payments provided for under the law from 2014 to 2016, the Treasury is set to receive far less than the $5 billion it was promised under the statute. Reorienting the reinsurance priorities to put taxpayers before insurers will likely save the public billions.

#share#

Cost-Sharing Subsidies

Obamacare requires insurers to provide reduced cost sharing — that is, lower deductibles and co-payments — to households with incomes under 250 percent of the federal poverty level. But the text of the law nowhere includes an explicit appropriation to subsidize the insurer-provided discounts. The Obama administration, refusing to be bothered by such trifling inconveniences as the plain text of a statute, will have already paid out $13.9 billion by the end of this fiscal year (September 30).

Action: Turn Off the Bailout Taps Immediately: As noted in the deposition of an IRS employee recently released by the House Ways and Means Committee, the Obama administration decided to turn on these bailout taps despite the plain text of the law — and without undertaking any public notice-and-comment process. A future administration could turn the bailout taps off in a similar fashion within days of taking office.

Action: Settle the House Lawsuit: On May 12, in United States District Court, Judge Rosemary Collyer agreed with the House of Representatives in U.S. House of Representatives v. Burwell, an important constitutional case related to the cost-sharing subsidies. The House argued, and Judge Collyer agreed, that the Obama administration’s payments to insurers violated the Constitution — which, by prohibiting any payment without an explicit appropriation, gives Congress, and only Congress, the “power of the purse.”

By settling the House lawsuit, the next administration would provide another level of insurance that the bailout taps to insurers could not be re-started. The House’s suit requests a permanent injunction prohibiting the Treasury Department and the Department of Health and Human Services from spending any taxpayer funds on cost-sharing subsidies to insurers unless and until Congress provides an explicit appropriation. If the next administration agreed to such a measure by settling the House’s lawsuit in federal court, it would bind all future administrations to the same standard — restraining executive power and restoring the separation of powers.

Potential Savings to Taxpayers: The Congressional Budget Office estimates that cost-sharing subsidies will total $45 billion over the next four fiscal years — roughly the time span of the next administration — and $130 billion over a decade, meaning that a new administration could save taxpayers tens of billions, if not hundreds of billions, of dollars.

This series of actions from the next administration would save taxpayers more than $50 billion in total — $7.5 billion from risk corridors, up to $5 billion from reinsurance, and $45 billion in cost-sharing subsidies — and potentially triple that amount if the restrictions on cost-sharing subsidies become permanent.

Just as important, the next administration should also thoroughly investigate the actions taken by the Obama administration regarding these insurer bailouts for any hint of illegality. In the deposition released by the House Ways and Means Committee, the IRS’s chief risk officer noted “there was some risk to making these [cost-sharing subsidy] payments with respect to the . . . Anti-Deficiency Act,” which he recalled “has criminal penalties associated with it” for federal employees who spend money not appropriated by Congress. The chief risk officer noted that “we take [the Anti-Deficiency Act] very seriously.”

#related#At minimum, the next administration should investigate just how seriously all Obama administration employees took the Anti-Deficiency Act, and whether they violated the law — not to mention the Constitution’s separation of powers — to shovel bailout funds to insurers. The IRS’s chief risk officer noted that then-attorney general Eric Holder and Treasury Secretary Jack Lew were personally involved in the decision to turn on the bailout taps for the cost-sharing subsidies. In addition to turning off those taps, a new administration should determine whether the Obama administration’s sweetheart deals for health insurers crossed the line from mere crony capitalism into criminal activity.

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