Obama's $170 Billion Insurer Bailout

The Affordable Care Act has been life changing for millions of working-class Americans: many who once enjoyed affordable coverage now struggle to afford basic plans, some lost their favorite doctors, and others (mostly young adults) live uninsured, hoping they don’t get sick or injured. 

Similar to the Emergency Economic Stabilization Act of 2008 that pulled America’s banks from the brink of disaster, the Obama Administration has stepped in to aid America’s struggling insurance companies. But despite a massive bailout program that could give insurance companies up to $170.8 billion over the next 10 years, insurers are still struggling to break even.

As I wrote earlier this week, companies that haven’t downsized, merged, exited ACA exchanges, or gone out of business are considering serious price hikes of up to 60%. Meanwhile, Obamacare is facing numerous lawsuits regarding the legality (or lack of legality) of these bailouts.

In May, US District Court Judge Rosemary Collyer ruled in favor of House Republicans who had filed a lawsuit against the Obama Administration for handing money to insurance companies without first obtaining an appropriation from Congress. And now, multiple insurers are demanding that the federal government reimburse them for unpaid “risk corridor” funds – funds designed to cushion insurers from incurring major loses (or gains) during Obamacare’s introductory years. 

The outgoing and incoming payments within this risk corridor program (2014-2016) were designed to be budget-neutral, but with the failure of healthcare.gov and the unilateral policy changes made in 2013, CMS (Centers for Medicare and Medicaid Services) decided to use taxpayer funds to offset insurer losses. Afraid that the Administration would use the risk corridor program to launch a taxpayer-funded bailout, Congress passed a law (December 2014) preventing CMS from such behavior. 

In 2014, insurers submitted only $2.87 billion in risk corridor claims – enough to cover less than 15% of funds requested by insurers with losses. In 2015 those losses more than doubled. In November, CMS issued a statement that labeled unpaid risk corridor funds “an obligation of the federal government.” 

While CMS is forbidden from using taxpayer funds for risk corridor claims, it is likely that the Administration will try to settle the insurer lawsuits with money swiped from the Judgment Fund of the Treasury. 

The Affordable Care Act included a second temporary program aimd to stabilize Obamacare during its first years. The program, known as “reinsurance,” requires taxes (“assessments”) on all employer-provided health insurance plans. These taxes are designed to reimburse insurers with high-cost patients (2014-2016) and reimburse the Treasury for the high cost ($5 billion) of a similar but separate program that operated between 2010 and 2013. 

This “slush fund” provided insures with nearly $8 billion in 2014. While the law clearly states that the Treasury will be reimbursed before insurers, Obama decided to take a different approach. In what has since been classified as a direct violation of the Obamacare statute, the Administration decided to prioritize claims to insurers over the requirement to repay taxpayers. 

“The Administration cannot rewrite its own law to make it more convenient for special interests,” says Rep. Tim Murphy (R-PA). “This is a dangerous precedent and is an affront to the separation of powers… Moreover, this program funnels money to insurers – now with money intended for the Treasury – in an attempt to prop up Obamacare.” 

The Affordable Care Act also requires insurance companies to reduce “cost-sharing” (including deductibles and co-payments) for families and individuals whose incomes are under 250% of the poverty level. Section 1402 authorizes the Treasury and Health and Human Services departments to reimburse insurers for these discounts, but does not include an explicit appropriation. 

As ruled by Judge Collyer: “Congress authorized reduced cost sharing but did not appropriate monies for it, in the FY 2014 budget or since. Congress is the only source for such an appropriation, and no public money can be spent without one… Paying out Sec. 1402 reimbursements without an appropriation thus violates the Constitution.”

Although still considered by the Administration as “pending,” Collyer’s ruling prohibits Obama from reimbursing insurers for cost-sharing subsidies until Congress enacts an appropriation.

But the damage is done. In FY 2014, Obama handed out more than $2 billion to insurance companies. In FY 2015, cost-sharing subsidies totaled just over $5 billion. This year, that number is predicted to increase to $6.1 billion – for a total payout (through this September) of $13.9 billion. 

The reinsurance and risk corridor programs are coming to an end, but this cost-sharing bailout program will continue unless Judge Collyer’s ruling is upheld on appeal (or unless a new administration changes the rules). 

Within the next 10 years, spending on cost-sharing subsides will total $130 billion. Combine this with the $33.3 billion already paid out and $7.5 billion in risk-corridor funds and you get a whopping $170.8 billion taxpayer-funded Obamacare bailout to insurance companies. In turning to bailouts to keep his floundering program afloat, Obama is letting the insurance companies control him – and by extension us, the taxpayers.