How Congress Mysteriously Became a ‘Small Business’ to Qualify for Obamacare Subsidies

It seems that federal officials have worked overtime to undermine public trust. Benghazi, the IRS abuses, the “fast and furious” gun-running fiasco, the solar power boondoggles, and the seemingly endless implementation problems of the Affordable Care Act—all these scandals have common themes: arrogant and abusive bureaucracy, double dealing, lame excuses, and legal hairsplitting.

All these scandals have common themes: arrogant and abusive bureaucracy, double dealing, lame excuses, and legal hairsplitting.

The outrages listed above can be placed squarely at the doorstep of the White House. But one scandal is truly bipartisan: How key administration and congressional officials connived to create, under cover of the Affordable Care Act, also known as Obamacare, special health insurance subsidies for members of Congress.

Here’s how it went down.

Rushing to enact the giant Obamacare bill in March 2010, Congress voted itself out of its own employer-sponsored health insurance coverage—the Federal Employees Health Benefits Program.

Section 1312(d)(3)(D) required members of Congress and staff to enroll in the new health insurance exchange system. But in pulling out of the Federal Employees Health Benefits Program, they also cut themselves off from their employer-based insurance contributions.

(It should be noted that, before final passage, Sen. Charles Grassley, R-Iowa, offered an amendment that would have provided Federal Employees Health Benefits Program subsidies for congressional enrollees in Obamacare, but Senate Democrats defeated it on a procedural vote, 56-43.)

Obamacare’s insurance subsidies for ordinary Americans are generous, but capped by income. No one with an annual income over $47,080 gets a subsidy. That’s well below typical Capitol Hill salaries. Members of Congress make $174,000 annually, and many on their staff have impressive, upper-middle-class paychecks.

Maybe the lawmakers didn’t understand what they were doing, but The New York Times’ perspicacious Robert Pear certainly did.

On April 12, 2010, Pear wryly wrote, “If they did not know exactly what they were doing to themselves, did lawmakers who wrote and passed the bill fully grasp the details of how it would influence the lives of other Americans?”

So, let’s follow the thickening plot:

Act One—Congress Has a Panic Attack

Realizing what they had done, congressional leaders sought desperately to get fatter taxpayer subsidies in the Obamacare exchange system. In a nutshell, they wanted special funding unavailable to other Americans. The standard excuse was that, without a special “sweetener,” a Capitol Hill “brain drain” would ensue; the best and brightest would flee to the private sector to get more affordable employment-based coverage.

From 2010 to 2013, House and Senate leaders schemed to get extra taxpayer subsidies—past “the Tea Party rabble”—without a lot of noise, and secure a nice, quiet “administrative” remedy from the Obama administration.

Their hopes centered on a compliant Office of Personnel Management, the agency that administers the Federal Employees Health Benefits Program, providing the unauthorized relief. No recorded votes. No ugly floor fights.

Act Two—Congress Gets Taxpayers’ Money Without Appropriating It

Anticipating an attempted “end run” around the law, on Aug. 2, 2013, The Heritage Foundation published a detailed paper outlining the legislative history of the controversy. The analysis concluded that neither the Affordable Care Act nor Chapter 89 of Title V (the law governing the Federal Employees Health Benefits Program) authorized the transfer of monies in the Federal Employees Health Benefits Program trust fund for use in health plans outside of the program.

Shortly thereafter, on Aug. 13, 2013, Timothy Jost, professor of law at Washington and Lee University, wrote in his Health Affairs Blog:

The exchanges are only open to individuals and small employers. No large employers can participate in the exchange, at least not yet. There is no provision, therefore for large employers, including the largest—the United States government—to pay for exchange coverage.

Digging into the role of former House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., on Oct. 1, 2013, Politico reported, “OPM initially ruled that lawmakers and staffers couldn’t receive the subsidies once they went into the exchanges.”

But, at a July 31 closed-door meeting with Senate Democrats, President Barack Obama had promised he would “fix” the mess they made of their health coverage.

So, on Aug. 7, 2013, just as Congress was getting out of town for the August recess, the Office of Personnel Management ruled that members of Congress and staff enrolled in the exchange program would get Federal Employees Health Benefits Program subsidies, even though they were no longer in the program.

Act Three—Congress Magically Becomes a Small Business

In a second iteration of its rule-making, the Office of Personnel Management declared that Congress and staff were eligible to enroll in the Washington, D.C., “SHOP” Exchange, a health insurance exchange reserved for small businesses with fewer than 50 employees. The exchange offers special insurance subsidies to participating small businesses.

The problem was, of course, that Congress is not a “small business,” at least under any clinically sane definition of the term, and no section of the Affordable Care Act provided for any congressional exemption from the ban on large employer participation in the SHOP exchanges. It’s hard to imagine a more arbitrary ruling.

Act Four—Congressional Bureaucrats File False Paperwork

In filing to get the special insurance subsidies for enrolling lawmakers and their staff members in the D.C. “SHOP” Exchange, congressional officials claimed that the Senate and House each had only 45 employees. That false information allowed both chambers to meet the magic number requirement.

In Feb. 2015, Sen. David Vitter, R-La., a member of the Senate’s Small Business and Entrepreneurship Committee, attempted to subpoena these un-redacted documents, only to be stymied by all nine committee Democrats and five Republicans.

According to National Review, Vitter’s effort was opposed by the Senate leadership. As for the five committee Republicans, they alibied their votes with excuses that ranged from the merely lame to the transparently absurd.

Now the issue is simmering again. This month, Michael Cannon of the CATO Institute and John Malcolm, director of The Heritage Foundation’s Meese Center for Legal and Judicial Studies, wrote in The Hill:

Documents obtained under the Freedom of Information Act show that unnamed officials who administer benefits for Congress made clearly false statements when they applied to have the House and Senate participate in D.C.’s ‘SHOP’ Exchange for 2014. Notably, they claimed the 435-member House had only 45 members and 45 staffers, while the 100-member Senate had only 45 employees total. Rather than a good faith clerical error, this was an intentional falsehood, which makes it a crime under both federal and D.C. law.

Nicholas Bagley, professor of law at the University of Michigan, says that Malcolm and Cannon’s charge is “irresponsible.” He insists that the Office of Personnel Management’s rule-making legitimizes these bizarre congressional gymnastics. But Bagley’s argument merely assumes what is to be proven. It is the Office of Personnel Management’s behavior, in the first place, that is at issue.

A serious congressional investigation would determine whether or not office’s career staff had indeed determined that the agency could not authorize subsidies outside of the Federal Employees Health Benefits Program.

It would reveal whether or not they were coerced into ruling contrary to their understanding of the law, and who specifically was pressuring them. Of course, such an investigation would secure all relevant Office of Personnel Management documents, including memos, meeting notes, emails, or other communications, especially from the White House.

Congress has options. Congress could, for example, admit that it isn’t a “small business” after all, and re-enroll in the Obamacare health insurance exchange system on the same terms and conditions as every other American participating in the system.

Alternatively, Congress could resurrect the original Grassley amendment, enacting Federal Employees Health Benefits Program subsidies outright, giving them statutory legitimacy, while enrolling the president, cabinet officials, and all political appointees in Obamacare. That, at least, would be constitutional.

Or, Congress could repeal Section 1312(d)(3)(D) and re-enroll members and staff in the Federal Employees Health Benefits Program. This would enable them, as the president initially promised all Americans, to keep the plans they had and they liked. But it has a public relations downside.

Lawmakers can pursue any of these options right away. The best option will take some time. It’s a matter of Congress cleaning up its own self-made mess, and a lot of others, by repealing the Affordable Care Act altogether.

The post How Congress Mysteriously Became a ‘Small Business’ to Qualify for Obamacare Subsidies appeared first on The Daily Signal.

Obama Administration Paves Way for States to Bail Out Remaining Obamacare Co-Ops

The Obama administration is changing its rules for the remaining 11 co-ops started under Obamacare to now allow them to more easily attract outside investors, paving the way for states and large hospital systems to potentially inject cash into the struggling nonprofit insurers.

The Centers for Medicare and Medicaid Services issued an interim final rule last week allowing the remaining consumer operated and oriented plans, or co-ops, to solicit financing from private investors and allow state government agencies and investors to place lower-level officials on the co-ops’ boards of directors.

Allowing states to exercise some control of the co-ops’ governance provides them with an incentive to give the nonprofit insurers a much-needed infusion of cash, Ed Haislmaier, a senior fellow in health policy at The Heritage Foundation, told The Daily Signal.

“It makes it easier for a state to put somebody on the co-op board [of directors] in exchange for giving them a bailout because they could under this rule put a state employee or state official [on it], probably someone with expertise,” he said. “That might make a bailout more palatable.”

The 23 co-ops created under the Affordable Care Act started with $2.4 billion in startup and solvency loans from the federal government. However, 12 of the nonprofit insurers closed their doors after losing millions of dollars and learning they were getting far less than expected through Obamacare’s risk corridor program.

The remaining 11 co-ops, meanwhile, lost a combined $400 million last year, according to Politico.

In the past, co-ops weren’t expressly barred from seeking financing from the private sector, but federal loan agreements made it difficult for those nonprofit insurers to secure financing.

Additionally, Haislmaier said neither banks nor venture capitalists were likely to provide additional loans or capital to the nonprofit insurers given their structure and high default rate—the Office of Management and Budget predicted in its 2015 budget that 43 percent of co-ops would default on the loans they received.

“A bank is more willing to lend money to go out and go fracking rather than lend to a co-op,” Haislmaier said, “and venture capital money isn’t going to go in there because there’s no way to monetize if it’s successful. A venture capitalist will invest in a firm if it’s high risk and then high reward.”

Loosening the rules regarding the co-ops’ boards of directors and private financing makes it possible for states to offer up more taxpayer dollars to the co-ops while also maintaining some level of oversight.

“I think it’s going to be difficult for a state legislature to justify giving them the money without some condition on it,” Haislmaier said. “This may make it easier for them to do it.”

Other potential investors, he said, are hospital systems with “deep pockets.”

“Most likely is a state bailout,” Haislmaier said. “The second most likely is a hospital system. They might be able to infuse cash in exchange for a preferential relationship.”

The Affordable Care Act originally prohibited a “representative” from the federal, state, or local government from serving on the co-ops’ boards of directors. However, the Centers for Medicare and Medicaid Services changed the definition of the term “representative” under the rule issued last week, now prohibiting only “senior or high-level” representatives of the federal, state, or local government from serving on the boards.

In addition to changing the definition of the term “representative,” the Centers for Medicare and Medicaid Services also changed the makeup of the boards of directors.

Previously, members of the board were to be elected by a majority of the co-op’s members. Now, under the new rule issued by the Centers for Medicare and Medicaid Services, only a majority of board members, as opposed to the full board, are to be elected by co-op members.

The government will now also allow those who aren’t members of the co-op to serve on the boards, opening the door for investors and entities extending loans to sit on the panel.

The rule from the Centers for Medicare and Medicaid Services is an about-face for the Obama administration, which has hailed the nonprofit insurers as competitors of larger, for-profit insurance companies selling coverage on the exchanges, but also characterized the co-ops as startups entering a complex market.

For the co-ops still operating, the administration hopes that allowing the co-ops to seek financing from private investors will help their short- and long-term viability.

“CMS is committed to help strengthen the health insurance marketplace,” Aaron Albright, spokesman for the Centers for Medicare and Medicaid Services, told The Daily Signal in an email. “We are encouraging the co-ops to consider seeking additional sources of capital as they plan for the year ahead.”

Since their launch at the start of Obamacare’s first open enrollment period, more than half of the nonprofit insurance companies have closed their doors after recording millions of dollars in losses and enrolling a population that was sicker and costlier than anticipated.

However, industry experts believe that the new rule will help ensure the remaining 11 co-ops survive.

“Access to additional capital has long been one of the co-ops’ top concerns, and we appreciate CMS’s willingness to clear some of the governance hurdles that have made investing in the co-ops difficult for potential investors,” Kelly Crowe, CEO of the National Alliance of State Health Co-Ops, said in a statement.

Senate Finance Committee Chairman Orrin Hatch, R-Utah, though, said the Obama administration’s new rule isn’t likely to make much of an impact.

“CMS may try questionable, ad hoc methods to shore up the failing co-ops at the expense of taxpayers, but little is likely to change until the administration realizes their experiment is failing and reverses course,” Hatch said in a statement to The Daily Signal. “Instead, with this rule, the administration regrettably puts enrollment numbers ahead of financial viability and protection of scarce taxpayer dollars.”

Haislmaier agreed.

“It’s not clear this [rule] is going to make much of a difference,” he said. “First of all, there’s a bunch of [co-ops] gone. I think rightly people will be skeptical at the state level of throwing good money after bad if the perception for the few [co-ops] that remain is they’re in trouble.”

In January, Centers for Medicare and Medicaid Services Acting Administrator Andy Slavitt told members of Hatch’s committee that his agency would be open to allowing private financiers to invest in the remaining 11 co-ops.

“We need to make it easier for co-ops to attract outside capital, or a merger partner,” Slavitt told lawmakers. “I want to loosen up the capital rules so we can lengthen the runway.”

He didn’t elaborate at the time as to what changes his agency would make.

The rule from the Obama administration, released last week, comes as the Department of Health and Human Services prepares to decide which of the co-ops will be financially stable enough to continue selling coverage on the exchanges. The agency will determine this summer whether the nonprofit insurers should participate in the 2017 open enrollment period.

Created under the Affordable Care Act, the co-ops were designed to inject competition and choice in areas where little existed. Originally, 23 co-ops launched with $2.4 billion in startup and solvency loans from the federal government.

The majority of the 12 failed co-ops cited lower payments from Obamacare’s risk corridor program as the reason for their failure. In October, the Obama administration announced the nonprofit insurers would receive just 12.6 percent of risk corridor payments they each requested, delivering a blow to those who were counting on the funding to boost their financial outlook.

Slavitt hasn’t definitely said whether the 12 failed co-ops will repay the more than $1.2 billion they received in loans. However, he has told lawmakers that the Centers for Medicare and Medicaid Services is working with the Justice Department to recoup the money.

The post Obama Administration Paves Way for States to Bail Out Remaining Obamacare Co-Ops appeared first on The Daily Signal.

Is the establishment still winning in spite of Trump?

Conventional wisdom tells us the establishment is having a tough year as evidenced by the rise of Donald Trump to the status of “presumptive nominee.” But, as I have been saying for years, I believe we focus too much on the presidency. It’s like a shiny object at which the people cannot stop staring. As […]

An Insurance Exodus From Obamacare Could Come in 2017

UnitedHealthcare’s decision to not offer Affordable Care Act exchange plans next year in “at least 26 of the 34 states where it sold 2016 coverage” may soon be followed by similar announcements from other health care insurers.

At least that is one implication that can be drawn from the findings reported in a new paper analyzing the performance of insurers that offered exchange coverage in 2014.

The paper’s authors—Heritage Foundation senior research fellow Ed Haislmaier, Mercatus Center senior research fellow Brian Blase, and Galen Institute senior fellow Doug Badger—examined enrollment and financial data for the 289 Qualified Health Plans sold on the exchanges in 2014.

They found that, in the aggregate, insurers incurred substantial losses offering exchange coverage. Furthermore, the poor results were despite insurers receiving substantial subsidies—indeed, more than they originally expected—through the Affordable Care Act’s “reinsurance” program. Specifically, they found that aggregate insurer losses were in excess of $2.2 billion, despite insurers receiving net reinsurance payments of $6.7 billion.

They also discovered wide variation in insurer performance selling exchange plans in 2014. Insurers with narrow provider networks appear to have done relatively well, while the Affordable Care Act created health insurance cooperatives, established with government funding, incurred the greatest losses.

Additionally, the authors estimate that without the reinsurance subsidies, average exchange premiums in 2014 would have needed to be 26 percent higher to cover insurer costs. But they point out,

If premiums had been 26 percent higher, on average, enrollment would have been lower and adverse selection would have increased. Relatively healthy people and higher income enrollees, who qualify for smaller subsidies if they qualify for any subsidies, would have been deterred to a greater degree than people who expected to use more health care services. As a result of this dynamic effect, the premium increase would likely have needed to be substantially greater than 26 percent for insurers to break even on their Qualified Health Plans in 2014.

That is significant because the Affordable Care Act set the reinsurance program to operate for only the years 2014 through 2016. Thus, starting in 2017, insurers will need to charge premiums for exchange plans that are high enough to cover their costs without those subsidies.

As Haislmaier and his colleagues note, “the key question is whether insurers that continue offering Qualified Health Plans can reverse their losses through some combination of higher premiums and [insurance] plan redesign.”

Of course, another possibility is that in the coming months more insurers will simply follow the lead of UnitedHealthcare and head for the exits.

The post An Insurance Exodus From Obamacare Could Come in 2017 appeared first on The Daily Signal.