Politics & Policy

To Save Obamacare, the President Plots a Massive Bailout of Health Insurers

(Dreamstime image: Vitalik-sv)
President-elect Trump must stop this costly, illegal scheme as soon as he takes office.

In an ongoing backdoor attempt to pay off insurers burned by President Barack Obama’s signature legislation, the Affordable Care Act (ACA), the Obama administration is creating the framework needed to implement a “public option,” the precursor to a single-payer health-care system.

Distracted by the presidential election and the news that ACA insurance premiums will increase by an average of 25 percent in 2017, many have failed to notice the administration’s plan to use a special U.S. Department of Justice (DOJ) fund, called the Judgment Fund, to funnel billions of dollars to insurers without congressional approval. If it successfully executes this plan, the Centers for Medicare and Medicaid Services (CMS) will have circumvented Congress to secure a taxpayer bailout for insurers — directly contradicting Congress’s intentions as expressed by multiple spending bills, and possibly violating federal law.

Currently, insurers are suing HHS for more than $2.5 billion promised them under ACA’s “risk corridor” program, which was designed to redistribute earnings from more profitable insurers in ACA exchanges to less profitable insurers. In 2014, insurers requested $2.9 billion in risk-corridor payments to cover their losses, but only $362 million had been paid into the program by profitable insurers, forcing CMS to pay insurers 12 cents on the dollar. By now, insurers have run up the tab to between $5 billion and $15 billion, according to Andy Koenig, the former policy director for the House Republican Conference and a senior policy adviser to the Freedom Partners Chamber of Commerce.

Acting CMS administrator Andy Slavitt now says the federal government plans to bail out the insurers for at least some of their losses. “HHS will record risk-corridors payments due as an obligation of the United States Government for which full payment is required,” he announced in a September 9 memo. Slavitt suggested the funds to cover these costs would most likely come from the DOJ’s Judgment Fund, a virtually limitless fund reserved for resolving legal disputes involving the federal government.

Paying off ACA insurers with the Judgment Fund would amount to a covert, multibillion-dollar taxpayer bailout of the health-insurance industry. That bailout would circumvent Congress in order to pay for an ACA program that federal law requires to pay for itself. (CMS was originally permitted to use funds outside the risk-corridor program to bail out unprofitable insurers. In 2014, however, Senator Marco Rubio led Congress to prohibit taxpayer money from being used to bail out failing insurers through 2016.) And in so doing, it would seize the power of the purse granted exclusively and explicitly to Congress by the Constitution.

From the Obama administration’s perspective, the move makes sense. In the short term, insurers are dropping out of participating ACA exchanges, citing massive losses and failure to collect from the risk-corridor program, putting the entire system and Obama’s legacy in jeopardy. In the long term, the Obama administration had hoped that a Hillary Clinton presidency would allow Democrats to implement Clinton’s proposed “public option,” permanently entrenching the federal government in the private health-insurance marketplace. But Donald Trump is now the president-elect, and stringing along insurers with promises of taxpayer-funded bailouts may be the only way to keep the ACA exchanges from collapsing until Democrats can regain control of Congress in 2018 and the presidency in 2020.

If HHS is able to keep insurers in the executive branch’s corner long enough with the Judgment Fund as bait, any ACA remnants Trump keeps will sputter along until a Democrat-controlled Congress and president can scapegoat Obama’s and Trump’s laws, replacing them with the trappings of a single-payer system. To be sure, it’s a long shot for Obama given the Democrats’ slim chances of retaking the Senate next cycle, but it is likely the last shot he has left.

The only way to stop such a scheme is for President-elect Trump to prevent CMS from enacting its health-insurer bailout. Trump must then work with the Republican-led Congress to repeal and replace the ACA with patient-centered, free-market reforms that don’t ask taxpayers to prop up the failing Obamacare exchanges and the health-insurance industry.

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