Editor's note: This article originally appeared in the October issue of Townhall Magazine.
Americans hate insurance companies. They also hate bailouts. And they especially hate it when insurance companies get bailouts.
But that is exactly what is going to happen next summer unless Republicans in Congress stand up and fight against President Obama’s illegal health insurance company bailout.
A Sweetheart Deal
Our story begins just days after Obama’s landslide victory over Sen. John McCain (R-AZ) in 2008. Sensing an opportunity to increase profits at taxpayer expense, Karen Ignagni, the president of America’s Health Insurance Plans (the trade association that represents the health insurance industry in Washington), quickly signaled that she was ready to do business with the new occupant of the White House.
“No one should fall through the cracks of our health care system,” Ignagni’s November 11, 2008 statement read. “Universal coverage is within reach and can be achieved by building on the current system.”
That last phrase, “and can be achieved by building on the current system” was the health insurance industry’s top priority in the beginning of the Obama administration. And they spent furiously to make sure Obama would protect them. Despite the worst recession since World War II, businesses spent more than $1 billion lobbying on health reform in 2009, a sharp increase from 2008.
Blue Cross/Blue Shield led the league in lobbyist spending, shelling out $15.13 million in 2009, up more than 25 percent from 2008. AHIP shelled out another $8.85 million, while United Health Group added $4.86 million, and Aetna Inc. spent $2.84 million.
These millions turned out to be very wise investments. Health industry lobbyists secured dozens of meetings in the White House throughout 2009 and 2010. They not only met with Obama’s top advisers, but also Obama himself.
These meetings had a very clear impact on the policy that Obama would eventually produce. During a June 24, 2009 ABC News town hall meeting on health care, Obama assured the CEO of Aetna: “Aetna is a well-managed company and I am confident that your shareholders are going to do well.”
And Aetna has done more than “well” under Obamacare. Its stock price has more than doubled, and almost tripled, since Obama publicly promised the company it would “do well” under Obamacare.
And when you look at the basic outline of Obamacare, you can see exactly why. The program forces every American to buy the health insurance industry’s products and also subsidizes those purchases to the tune of more than $1 trillion over just the next decade alone. No wonder health insurance industry stocks are booming.
An Ongoing Relationship
But the relationship between the health insurance industry and the Obama administration did not end on March 23, 2010, the day Obamacare was signed into law. If anything, it was just beginning.
Obamacare’s 2,700-plus pages of legislative text contains literally hundreds of directions for the executive branch to create new regulations. So far the Obama administration has produced more than 20,000 pages of Obamacare regulations, including a dump of more than 1,600 pages right before the most recent July 4 weekend.
And guess who is helping to write all those regulations? That’s right. Health insurance lobbyists. More than 30 former Obama administration officials, former congressmen, and former congressional staffers who helped usher Obamacare through the legislative process are now employed by health care lobbying firms on K Street.
And the health insurance industry isn’t hiding its cooperation with the Obama administration in promoting the new law. Shortly after Obamacare was passed, AHIP announced that it would spend millions of dollars helping promote Obamacare to Americans. “We are participating in it,” AHIP spokesman Robert Zirkelbach said of the organization’s partnership with the progressive activist group Families USA. “The goal is to get everyone covered.”
Between the millions of dollars the health insurance industry spent promoting Obamacare and the millions more it spent lobbying for favorable regulations, the bond between the Obama administration and the industry is airtight.
“Their interests are aligned with our interests in terms of wanting to enroll targeted populations,” a senior White House official told Politico in November 2013. “It is not that we will agree with everything now either, but I would say for some time now there has been a collaboration because of that mutual interest.”
The Three Rs
One might think that a mandate forcing all Americans to buy your product, and $1 trillion in taxpayer funded subsidies to buy that product, would be all that was necessary for any industry to turn a hefty profit. But America’s health insurance industry wanted more.
In a capitalist economy, big companies manage their own risks. But in a corporatist economy, big companies use Big Government to help socialize risk and privatize profits. Obamacare is corporatism on steroids.
What if too few people signed up for coverage? Or what if those who did sign up were sicker and older than the general population? Health insurance companies would be stuck with far more Obamacare bills from health care providers than they had Obamacare premiums to pay them.
With these questions in mind, Obamacare’s authors created three programs designed to help socialize insurance company risk.
Reinsurance: Obamacare’s reinsurance program is paid for by a $63 tax on all health plans. The money then goes to any health insurance company who spends more than $60,000 on any Obamacare patient in any single year. Since the tax applies to all health care plans, but the benefits only go to Obamacare plans, the reinsurance program is really just a transfer of wealth from those who had insurance coverage before Obamacare to those who are now covered by Obamacare.
Risk Adjustment: The risk adjustment program is designed to stop insurance companies from marketing or pricing their plans in such a way that they only attract healthy, and therefore lower-cost, patients. The program accomplishes this by assessing the patient population of each insurer and then determining which insurers are covering healthier people and which are covering sicker people. The plans covering the healthy people are then forced to pay money to the plans covering sicker people. All transfers between insurance companies even out.
Risk Corridors: The risk corridor program is intended to encourage insurers to price their premiums low by protecting them from losses if their patients turn out to require more care than anticipated. The program uses a complex formula to take money from those insurers that do not spend a lot of money paying for patient health care, and then gives that money to other insurers that do spend a lot of money on patient care.
The big difference between the three programs is that the reinsurance and risk adjustment programs either have a dedicated stream of income (the $63 tax on all health care plans) or the payouts are limited to what the program takes in (all transfers equal out in the risk adjustment program).
But the risk corridor program has no guaranteed stream of funding. What if more health insurance plans underprice their Obamacare plans in an effort to gain market share? What if they all end up spending more on health care than they originally planned?
Then everyone would be demanding payment from the system but no one would be paying in. Who would make up the difference in such a situation?
When the CBO originally scored Obamacare, they assumed the Three Rs would end up costing taxpayers nothing. And then, when they rescored the bill again in February 2014, they optimistically estimated that the risk corridor program would actually save taxpayers $8 billion over the next 10 years.
But CBO’s computer models rarely, if ever, come close to matching reality. And Obamacare has been no different.
Trouble in Paradise
When Obama was making the case for Obamacare back in 2008, 2009, and 2010, he repeatedly promised the American people, “If you like your health insurance plan, you can keep it.”
Many Americans took Obama at his word and were therefore surprised when they started getting letters from their health insurance company informing them that their health insurance plan had been cancelled thanks to Obamacare. Obama had lied to them.
“As you have heard,” one such letter from Aetna read, “the Affordable Care Act is bringing many changes to health insurance. One of these changes is that plans renewing after 2013 cannot have annual dollar limits on essential benefits. Consequently, Aetna is discontinuing these plans and has notified your employer that we cannot renew your group policy after the current year.”
Annual dollar limits were just one of many reasons why millions of health insurance plans were cancelled despite Obama’s promise. Plans that previously didn’t cover maternity care, birth control, or pediatric care also all became non-compliant under Obamacare, as did plans whose co-payments or deductibles were too high.
By early November, Democrats who were up for reelection in 2014 had heard enough from angry constituents. They knew something had to be done and if Obama wasn’t going to fix the problem himself, then some Democrats were threatening to work with Republicans on their own fix.
House Republicans even scheduled a vote on Friday, November 15, 2013, on a bill that would have allowed health insurance companies to sell any plan that was previously legal before Obamacare, through 2014. The White House then desperately scheduled a meeting with House Democrats the Wednesday before the vote and Obama promised that he would unilaterally fix the problem himself.
That Friday, after 39 Democrats voted with Republicans on their bill, Obama announced he was unilaterally changing the law anyway. Health insurance companies in cooperating states would now be allowed to offer non-Obamacare compliant policies again for another year.
While this solution mollified many Democrats, Obama’s health insurance allies began to panic. Their panic rose in December when Obama announced that those who had their health insurance cancelled due to Obamacare no longer had to comply with the Obamacare mandate to buy health insurance.
The health insurance companies knew that those who already had insurance were healthier on average than those without insurance. The only reason they agreed to support and promote Obamacare was because they knew many of their existing customers would be forced into new, higher priced Obamacare plans.
But now Obama was not only allowing people to keep their cheaper pre-Obamacare plans, he was also allowing them to not buy insurance at all! This was going to leave a huge hole in insurance company bottom lines.
Obamacare Bailout to the Rescue
Health insurance CEOs immediately demanded a meeting with Obama, which happened in the White House the day after his Friday announcement. According to health insurance lobbyist emails obtained by the House Committee on Oversight and Government Reform, Obama agreed that day to increase payments for both the risk corridor and reinsurance programs.
But some savvy Republicans on Capitol Hill were watching this drama and began to push back. Sen. Marco Rubio (R-FL) even introduced a bill just four days after Obama’s November 15th rule change that would have repealed the risk corridor program entirely. “Washington’s bailout culture must end, and eliminating ObamaCare’s blank check for a bailout of insurance companies is a common sense step to protect taxpayers when ObamaCare fails,” Rubio said in a statement.
Not wanting a fight with Republicans over insurance company bailouts, the first draft of HHS’s regulation governing the risk corridor program, published in March 2014, promised that the program would be implemented in “a budget neutral manner.” In other words, payments out of the program would not be greater than payments into the program. There would be no bailout.
The health insurance industry promptly freaked out. According to emails obtained by the House Committee on Oversight and Government Reform, Blue Cross/Blue Shield CEO Chet Burrell sent Obama Senior Adviser Valerie Jarrett a memo threatening health insurance premium spikes of “as much as 20 percent” if the risk corridor program was run in a “budget neutral” manner.
Obama got the message. The final HHS regulation published in May 2014 said that, “In the unlikely event of a shortfall for the 2015 program year ... HHS will use other sources of funding for the risk corridor payments.”
In other words, the risk corridor bailout is on.
And according to a survey of Obamacare insurers conducted by the House Committee on Oversight and Government Reform, the Obama administration is expected to make $725 billion in net payments out of the risk corridor program in 2015 alone. Throw in the increased reinsurance payments and the bailout will top $1 billion.
An Illegal Bailout to Boot
Not only will American taxpayers be bailing out health insurance companies for the foreseeable future, it will be an illegal bailout as well.
According to long-standing federal rules, in order for Congress to properly authorize payment, both the directive to pay an amount, and the source of funds for that payment, must be identified.
And while the risk corridor program does identify who is to be paid (the insurance companies), it never identifies where those funds should come from.
Therefore, in order to fund the risk corridor program at all, Congress must specifically authorize funds to be spent on the program. But the original Obamacare legislation never did this and no subsequent Congress has done so either.
Despite all this, Obama has signaled he will ignore longstanding federal rules and make the risk corridor payments anyway.
What Can Republicans Do Now?
Obama’s risk corridor bailout would not be the first time appropriations were illegally conjured up to save Obamacare. The original Obamacare legislation did not contain any appropriations to build the federal health insurance exchange either. So Obama simply stole $454 million from the law’s “Prevention Fund” program and used it to build the exchanges instead.
Republicans did nothing to stop this illegal spending and they probably will not act to stop the insurance bailout either.
If they wanted to act, they could insert language into the next HHS spending bill specifically forbidding the spending of any funds on the risk corridor program. Then they could dare Obama to veto it.
Will the GOP go to bat for the American people and stop Obama’s illegal insurance company bailout? We will find out next June when the first payment from HHS to insurance companies is set to begin. •