Obamacare Insurers Could Get Billions From Controversial Government Fund

A $5 billion lawsuit filed by a nonprofit insurer against the Obama administration for a program implemented under Obamacare is raising questions about the use of a fund available for settlements with the government and whether Congress can, and should, intervene.

According to legal experts, if the Obama administration decided to settle its class action lawsuit with Health Republic Insurance of Oregon, one of 23 co-ops started under Obamacare, and other insurers for all or part of the $5 billion it’s seeking, the money would come from the Judgment Fund, an indefinite appropriation created by Congress and administered by the Department of Treasury.

Health Republic Insurance of Oregon’s lawsuit was filed on behalf of insurers participating in Obamacare’s risk corridor program, and specifically those who did not receive the full amount of money requested through it.

“In this case, the argument is the statute requires the government to pay out for the risk corridors, but Congress refused to appropriate the money to do that and therefore the court is going to have to award a judgment since the administration, under the direction of Congress, is violating the law,” Timothy Jost, a law professor at Washington and Lee University School of Law, told The Daily Signal of the lawsuit.

“And therefore the money has to come out of the Judgment Fund that the Court of Claims has to award a judgment against the federal government, which is appropriated money,” he continued.

The Obama administration’s use of the Judgment Fund has come under fire in recent years, particularly after it was reported the Justice Department used the fund to pay billions to farmers who alleged discrimination by the Department of Agriculture, circumventing Congress.

“The Obama administration has a history of using the Judgment Fund,” Hans von Spakovsky, a senior legal fellow at The Heritage Foundation, told The Daily Signal. “They cannot be trusted to properly defend the lawsuit.”

Von Spakovsky, who worked at the Justice Department during President George W. Bush’s administration, specifically warned of the White House’s history of “sue and settle cases,” which he said allows parties to circumvent federal statutes and regulations and receive large sums of money through settlements with the government.

“They’re getting political friends to sue them and settle without going to Congress,” he said.

A spokeswoman for the Justice Department said the agency is reviewing the complaint, but had no further comment.

An ‘End Run’

Republicans have criticized the Obama administration for promising insurance companies payouts through the risk corridor program, a temporarily program aimed at mitigating risk for insurers participating in Obamacare.

GOP lawmakers argue the program amounts to an insurer bailout.

Though the Obama administration reassured insurers in a November letter they would use future contributions to the risk corridor program to pay the full requested amounts for 2014, Congress hasn’t signaled it’s willing to cooperate.

“What the insurers are doing is tricky. It’s an end run,” Seth Chandler, a law professor at the University of Houston Law Center, told The Daily Signal. “It’s an end run around congressional prohibition. It’s saying, ‘OK, you said the Treasury couldn’t spend money. You’ve broken your promise, and because you broke your promise, we’re going to sue you for breach of contract.’”

Both Chandler and Jost agreed that though the Justice Department could opt to settle the case with insurers, though they differ on what they believe would be the administration’s position in the case.

“It might appear to be in the Obama administration’s interest to just give the insurance companies either all or some chunk of what they want,” Chandler said. “But in my view, that’s an incredibly foolish position to take because what happens when the next president comes in or the next Congress comes in, makes promises for programs down the road, years hence, and then Congress cuts it off, but now someone claims that they can sue for the money?

“That just eviscerates Congress’ power over appropriations,” he continued.

Jost, meanwhile, said the Justice Department historically defends the position of Congress. In this case, that position would be that Congress never appropriated money for the risk corridor program.

“Even if, as a matter of policy, if the administration disagrees with it, they would still defend it, which is, in fact, what administrations usually do,” he said. “If Congress passes a law, usually the Justice Department defends it. Not always, but usually.”

Congressional Intervention

Because Congress oversaw the appropriation of money for the risk corridor program—or lack thereof—Chandler said lawmakers on Capitol Hill have the power to intervene in the risk corridor lawsuit.

Citing another suit the House of Representatives filed against Department of Health and Human Services Secretary Sylvia Mathews Burwell over cost-sharing reductions, Chandler said Congress could argue they have a legal interest in the case.

“In the cost-sharing reductions lawsuit, what Congress seems to be complain about is the executive branch spending money out of the Treasury without any appropriation by Congress,” he said. “In this lawsuit, it’s the same thing—trying to prevent the lawsuit from becoming a vehicle whereby the administration pays money that has not been appropriated.”

The House passed a resolution in 2014 authorizing the cost-sharing reductions lawsuit against the Obama administration, and because the document approved the initiation of or intervention in any civil action “with respect to implementation of any provision” of Obamacare, Chandler said it gives Congress the authority to intervene in the risk corridor case.

“We don’t know what the administration is going to do, but people in Congress do have reason to be concerned,” he said. “Intervention is the clearest way of proceeding.”

Health Republic Insurance of Oregon filed its $5 billion class action lawsuit against the Obama administration in the U.S. Court of Federal Claims last month.

The lawsuit claims that the Obama administration violated the statutes of the Affordable Care Act outlining the risk corridor program, specifically because the Department of Health and Human Services did not pay out the full amount insurers requested under the program.

The risk corridor program, implemented from 2014 to the end of 2016, was designed to mitigate the risks associated with selling insurance on Obamacare’s federal and state-run exchanges. Insurance companies that reported excess losses were entitled to payments from the Centers for Medicare and Medicaid Services, which were to be funded, in part, by contributions to the program made by insurers who reported excess profits.

Republicans in Congress, led by Sen. Marco Rubio, R-Fla., though, anticipated requested payments to insurers would be greater than contributions into the risk corridor program. The GOP-led Congress prohibited the Obama administration from using any taxpayer dollars to pay insurance companies requesting money.

As a result of the prohibition, which was included in omnibus spending bills for 2015 and 2016, the Obama administration could pay out just 12.6 percent, or $362 million, of the $2.87 billion insurance companies requested and expected to receive for 2014.

Several insurance companies, including Health Republic Insurance of Oregon and five other co-ops, closed their doors after learning they would not receive the full amount requested under the risk corridor program.

Many included their full risk corridor payments in their financial forecasts, which helped pad their bottom lines.


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Will Failed Obamacare Co-Ops Repay Taxpayers’ Money? Senate Panel Seeks Answers

Top Obamacare officials told a Senate panel Thursday that they can’t guarantee the government ever will recover billions of taxpayer dollars loaned to health insurance “co-ops.”

“Today’s hearing is about the families who lost their health care plans, it’s about the taxpayers who were swindled, it’s about the bureaucrats who mismanaged this program, and it’s about the local governments who had to cut budgets from firefighters and schools to make up for Washington’s failures,” Sen. Ben Sasse, R-Neb., said.

During the hearing, held by the Permanent Subcommittee on Investigations within the Senate Homeland Security and Governmental Affairs Committee, senators paid particular attention to the 12 of 23 Obamacare co-ops that have failed.

The Affordable Care Act, popularly known as Obamacare, created consumer oriented and operated plans (co-ops) as a public option for health care. The Department of Health and Human Services awarded $2.4 billion of taxpayer money in the form of startup and solvency loans to the 23 nonprofit co-ops.

Kevin Counihan, CEO of HealthCare.gov, the government’s online health insurance exchange set up by Obamacare, also testified during the hearing. Counihan, deputy director of the Centers for Medicare and Medicaid Services, which oversees Obamacare, told the subcommittee:

The team at CMS has the charge to specifically oversee the federal loans made to these startups with the goal of maximizing the return to taxpayer funds, supporting the co-ops so that consumers have access to uninterrupted, competitive insurance coverage, and providing information to state departments of insurance so they can make the best possible decisions about the future of the co-ops in their state.

When questioned, Andy Slavitt, acting administrator for the Centers for Medicare and Medicaid Services, said it’s “too early to say” whether co-ops will repay any of the taxpayer-backed loans.

“These failed co-ops were a costly experiment gone wrong, and real people got hurt,” Sen. Rob Portman, R-Ohio, chairman of the Permanent Subcommittee on Investigations, said.

Portman added:

Over the last nine months, our subcommittee has carefully investigated these failures. We wanted to know whether HHS, when it played the role of investor, made good or bad decisions with taxpayer money. Unfortunately, what we found out is that a lot of bad decisions were made.

When co-ops collapsed, 740,000 residents of 14 states lost their health insurance provider. The 12 failed co-ops also received a total of $1.2 billion in taxpayer dollars that they may never repay.

“The subcommittee obtained the failed co-ops’ most recent financial statements, and those statements show that none of the failed co-ops have repaid a single dollar, not a single dollar [of] principal or interest, of the $1.2 billion in federal loans they received,” Portman said.

Portman presented a new report on the failure of the co-ops, released Thursday by the subcommittee’s Republican staff, at the hearing.

>>>Warning Signs About Failed Co-Ops Ignored by Obama Administration, Senate Report Says

“In my view, it is unlikely they will pay any significant fraction back,” Portman said. “The latest statements show that the failed co-ops’ non-loan liabilities exceed $1.13 billion—which is 93 percent greater than their reported assets, including money they expect to receive. On top of that, they owe $1.2 billion to the federal government. We should not hold our breath on repayment.”

The Centers for Medicare and Medicaid Services’ Slavitt listed three “potential” sources of funds: claims still coming in, a series of receivables, and lawsuits and judgments with contractors and vendors.

Under questioning by Sasse, Slavitt said he could not guess what percentage the government expects to recover of the $1.2 billion in taxpayer loans to the 12 failed co-ops.

“Obviously we don’t expect 100 percent recovery or anything close to that, but we are expecting that between those sources and the strategies that they pursue, that there will be funds recovered for the taxpayers,” Slavitt said.

“Very little, if any, of the $1.24 billion in federal startup and solvency loans to establish those co-ops will be repaid, and at least several will be unable to meet all of their obligations to policyholders and health care providers,” Scott Harrington, professor and chairman of the Health Care Management Department at the University of Pennsylvania’s Wharton School, testified.

In 2014, the co-ops lost $376 million and in 2015, more than $1 billion.

“But despite getting regular reports that co-ops were hemorrhaging cash, HHS took essentially no corrective action for over a year,” Portman said:

Worse, the department approved additional loan awards to three of the now-failed co-ops. This happened in 2014. This was despite clear warnings that these co-ops did not have reliable plans for turning things around.

CoOportunity Health, which operated in Iowa and Nebraska, collapsed after one year in operation.

On Dec. 16, 2014, when people were signing up for 2015 coverage, the Iowa insurance commissioner placed CoOportunity under a supervision order, Sasse said.

“One month later, in January of last year, the Iowa insurance commissioner said that rehabilitation of CoOportunity would be impossible and he sought a court order for liquidation.”

Slavitt acknowledged that CoOportunity should not have entered the 2015 market.

Sasse said:

CoOportunity owed millions of dollars to doctors and hospitals for claims for its enrollees that will not be repaid. To address the insurer collapse, the state of Nebraska has a guaranty fund that pays claims in the event of insurer collapse, such as CoOportunity’s.

The Nebraska Republican added:

To help pay for CoOportunity’s unpaid claims, insurers in Nebraska were assessed fees totaling about $47 million last year alone. … This means that my state will have much less revenue to pay for priorities like education, roads, firefighters, and other local government issues. Thus, Nebraskans are going to have to pay for the CoOportunity failure again. First as individuals became uninsured, and now as taxpayers have to bail out CoOpportunity on top of the $145 million that they as taxpayers made in federal loans to CoOportunity.

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How Much Are Obamacare Deductibles Up in Your State?

Americans across the country are paying higher health care deductibles under Obamacare.

Freedom Partners, a nonprofit dedicated to protecting freedom and expanding opportunity, released an analysis of data tracking the weighted average of 2016 Obamacare deductibles in all 50 states.

A total of 41 states saw an average increase in deductibles.

“Higher Obamacare deductibles increase, by hundreds of dollars, what families must pay out of pocket to access their health insurance,” Nathan Nascimento, senior policy adviser at Freedom Partners, said in a prepared statement. “Instead of reducing costs, Obamacare regulations and mandates continue to drive up these costs and make quality care less accessible for hardworking families.”

According to Freedom Partners, the largest percentage increases in deductibles were in Mississippi (39 percent), Washington (31 percent), South Carolina (26 percent), Louisiana (24 percent), Florida (23 percent), Minnesota and Vermont (22 percent), Arizona (21 percent), and North Carolina (20 percent). Look up your state here.

Deductibles, separate from insurance premiums paid to an insurer, are the amount a consumer owes for health care services before health insurance coverage kicks in. For example, a $1,000 deductible means that under some health care plans, the insurer will not pay for covered services until the consumer has paid that $1,000 out-of-pocket cost.

Americans in 17 states face deductibles increasing by double-digit percentages. In many states, deductible costs are now $3,000 or more.

Freedom Partners analyzed gold, silver, and bronze plans under Obamacare, formally called the Affordable Care Act. Deductibles across these levels in the Obamacare health exchanges increased this year at an average of 8.4 percent (or $265). Some states saw increases over $1,000.

“Deductibles increasing in the exchanges is expected, as we have observed already that deductibles have been increasing at a vigorous rate in the majority of insurance markets,” Drew Gonshorowski, a senior policy analyst in the Center for Data Analysis at The Heritage Foundation, told The Daily Signal.  

The average general annual deductible among all covered workers on employer-sponsored health insurance in 2015 was $1,077 for single coverage, compared to $303 in 2006, according to a survey from the Kaiser Family Foundation and the Health Research and Educational Trust.

The same survey found that since 2010, deductibles for all workers have increased by 67 percent, almost three times as fast as premiums and about seven times as fast as wages and inflation.  

In Obamacare marketplace plans with combined medical and prescription drug deductibles, sold to individuals in the 38 states that are facilitated through the federal marketplace, an average medical deductible in 2016 for gold plans is $1,247, for silver plans $3,064 (up from $2,556), and $5,765 for bronze plans (up from $5,328), according to analysis from Kaiser.

The District of Columbia and the states of Illinois, New Mexico, Oklahoma, Oregon, and Texas were the only jurisdictions to see an average decrease in deductible costs across Obamacare health plans.

Other states saw a decrease in deductibles in some of their plans but had an overall average increase.

Premiums under Obamacare also increased this year. A premium increase tracker by Freedom Partners found that premiums for individual health care plans in all 50 states increased by an average of 14.9 percent this year.

“After enduring double-digit premium increases and canceled plans under the Affordable Care Act, surging out-of-pocket costs—specifically deductibles—are making it difficult for Americans across the country to access the health care plans they were mandated to purchase,” Freedom Partners says.

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The Obama Administration’s $5 Billion Obamacare Problem

One of the more than 20 failed or struggling “consumer-oriented” insurers created by Obamacare is suing the U.S. government for as much as $5 billion in payments it claims are owed to itself and other insurers.

Health Republic Insurance of Oregon filed a class action complaint in the U.S. Court of Federal Claims in Washington, D.C., seeking $2.5 billion.

Dawn Bonder, CEO of Health Republic, told the Portland Business Journal the company hopes to win as much as $5 billion for insurers.

Health Republic, which closed its doors at the end of 2015, attributed its demise to an announcement from the Department of Health and Human Services in October that Obamacare’s “risk corridor program” would pay a prorated rate of 12.6 percent of the funds insurance companies requested and expected to receive in 2014.

“The government’s failure to satisfy its monetary obligations and make its required risk corridor payments will have wide-reaching effects on millions of Americans in the form of restricted health plans and higher insurance premiums,” the lawsuit, filed Feb. 24, says.

>>> Two More Government-Funded Co-Ops to Close

The Affordable Care Act, colloquially known as Obamacare, provided for nonprofit, consumer-operated and oriented entities—dubbed “co-ops”—to make affordable health care available.

Health Republic of Oregon is one of the 23 originally created. The government loaned $2.4 billion to them, but 22 lost money in 2014, and 12, including Health Republic, have shuttered since.

As The Daily Signal has reported that at least six of the 22 struggling or closed organizations pointed to lower than expected risk corridor payments as a reason for their flopping.

“The problem that you have here is, some insurers basically counted on this money, and the others didn’t,” Ed Haislmaier, a senior research fellow in health policy studies at The Heritage Foundation, told The Daily Signal. “That’s why half of the co-ops are still with us.”

The Affordable Care Act designed a temporary risk corridor program to run from 2014 to 2016. It was to help entice insurance companies to participate by acting as a safety net and cutting the risk associated with insurers’ entering Obamacare’s health care marketplace, or exchange.

The Centers for Medicare and Medicaid Services, which oversees implementation of Obamacare, paid insurers $362 million of $2.87 billion requested through the program for 2014.

The insurance companies say they didn’t receive over $2.5 billion in requested funds.

Health Republic filed the class action against the U.S. government, acting through the Centers for Medicare and Medicaid Services and its parent agency, the Department of Health and Human Services.

Health Republic determined that it is owed $7.1 million under the risk corridor program. It estimated that it will be owed about $15 million in payments for 2015, with the exact amount to be determined later this year.

The lawsuit seeks, on behalf of Health Republic and similarly situated insurers, immediate payment in full for 2014 and for 2015 as soon as the amount is finalized. Other issuers and insurers also could benefit financially.

“Health Republic did exactly what we were asked to do under the ACA [Affordable Care Act]: We designed and priced our plans for the market we hoped would materialize, not for the market we feared would materialize,” Bonder said in a prepared statement, the Portland Tribune reported. She added:

Like every health insurer in the post-ACA market, we knew the costs of this new population could be astronomical, but we couldn’t be sure until we learned who purchased our plans and analyzed their medical costs under the new ACA plans. Without the risk-sharing provisions in the ACA, especially [the] risk corridor, we, along with every other health insurer across the nation, would have been forced to think long and hard about how to proceed in these new uncharted waters created by the ACA. It is unconscionable for the government to default on their obligation to pay the risk corridor amounts owed in a timely manner.

Health Republic of Oregon received $60.6 million in taxpayer-backed start-up loans before it began providing health insurance coverage in 2014.

Bonder said full risk corridor repayment would allow it to pay back the federal loans, the Portland Business Journal reported.

Heritage’s Haislmaier wrote in an article published in Forbes:

Differences in management styles were also reflected in the differing assumptions that insurers made about the ACA’s ‘risk corridor’ program. Under that program, insurers with higher than expected gains pay into a pool, with those funds then distributed to carriers with larger than expected losses.

Several of the failed co-ops have publicly blamed the federal government for pushing them over the edge by not giving them sufficient risk corridor payments. In particular, they fault the administration for misleading them about how much money would be available and Congress for insisting that the program operate on a budget-neutral basis.

The lawsuit points to provisions included by Congress in spending bills for 2015 and 2016 that prohibit taxpayer dollars being used to bail out insurers under Obamacare’s risk corridor program. It claims that those provisions are a reason insurers did not receive the full $2.5 billion.

>>> How Spending Deal’s Provision Would Affect Obamacare Co-Ops

“Health Republic’s personal experience demonstrates the cascading, fatal effects the spending bill provisions have had, even on companies that did everything right,” the complaint says. It adds:

When it began providing insurance coverage under the Affordable Care Act, Health Republic offered plans with bronze, silver, gold and platinum-level coverage all at extremely competitive prices. It bears noting that Health Republic was not the lowest priced plans in the market; their rates were in the middle of the pack of the 10 carriers listing on the Oregon insurance exchange.

Had Health Republic known the risk corridors could not be relied upon as a safety net, it would have increased its rates—not to cover expected losses, but to cover the risk of greater than expected losses.

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