By Doug Badger
The Department of Health and Human Services (HHS) announced Friday night that it was in the process of shorting the U.S. Treasury $3.5 billion.
Well, they didn’t exactly announce it. You had to read between the lines.
The theft of $3.5 billion will help prop up insurers that have agreed to sell Obamacare policies in the individual market. Behind all the happy talk from Administration officials about the program’s success lies an unpleasant truth: insurers that participate in Obamacare exchanges are bleeding money.
Those losses are coming despite billions of dollars in handouts the government is providing the industry. Some of those handouts are entirely lawful; others, not so much.
The so-called “reinsurance” program falls into the latter category. Under this program, nearly every man, woman and child with health insurance is quietly being taxed a total of $107 in 2015 and 2016. For a family of four, that tax amounts to $428.
The tax isn’t reported on your W-2 because, the government reasons, it is not a tax. It is a contribution you’re required to make—or, more accurately, that your employer or insurer is obliged to make on your behalf—to help insurance companies that sell Obamacare policies keep their heads above water. The government has been collecting the money from the premiums that are supposed to pay for your family’s medical care without bothering to let you know.
Last year, these assessments were supposed to raise $12 billion. Of that sum, HHS was required to remit $2 billion to the U.S. Treasury, leaving $10 billion to be distributed to companies selling Obamacare policies. But the assessments you paid only raised a bit less than $10 billion, more than $2 billion short of the total.
What to do? The Obamacare statute itself answers that question plainly and unambiguously: pay Treasury its $2 billion first, then dole out the rest to insurance companies (section 1341(b)(4)).
But in a remarkable post that appeared last month on the Forbes website, University of Houston professor Seth Chandler wrote about the astounding decision HHS made: in defiance of the Obamacare statute, it would stiff the U.S. Treasury.
All of the money would be distributed to health insurance issuers that sold Obamacare policies in the individual market. The Treasury would not receive a dime. Almost no one—
save for Chandler—noticed.
Having gotten away with the heist last year, CMS doubled down. It announced on February 12 that it would filch an additional $1.5 billion from the Treasury this year, bringing the two-year total to $3.5 billion.
And they just might get away with it. The issue is obscure enough, complicated enough and important enough to Obamacare’s survival that the agency will likely stand its ground even if Congress were to call it out.
None of the obvious remedies available to HHS are palatable. The agency could reverse course and obey the law, but that would be disastrous for insurance companies. This year’s assessments are expected to total $6.5 billion, according to the February 12 announcement. Paying Treasury the $3.5 billion the law requires would mean shorting insurers by that amount. Most of those companies have been absorbing losses selling an unappealing product, losses that are piling up despite billions in government handouts. If HHS were to pay them less than it has promised, many might decide to stop selling on the exchanges, a political outcome unacceptable to the Administration.
Alternatively, they could increase the assessments on you. You haven’t noticed them so far (neither the government nor your employer has told you about them), so would you really notice if HHS were to increase them? The problem is that organized labor is very much aware of them. They have long objected to the assessments, which adversely affect their members. They surely would object were HHS to meet its legal obligations by hiking the amount it takes from group health plans.
The Administration is no more likely to snub the unions than it is to stint on payments to insurance companies. So HHS can be expected to continue to defy the law.
Congress could, of course, call attention to this heist. So could presidential candidates. Marco Rubio took a leadership role in clamping down on a separate Obamacare bailout scheme a few years back.
He and his rivals might want to take a careful look at this one as well.
Badger is a former White House and U.S. Senate policy adviser and is a senior fellow at the Galen Institute. He can be reached at [email protected].
Posted on aBriefCase, February 18, 2016.
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