HHS Floats Move to Tap Lawsuit Fund to Bail Out Obamacare Insurers

Published October 26, 2016

A U.S. Department of Health and Human Services (HHS) memo signals the federal agency’s willingness to pay for part of the Affordable Care Act (ACA) by using a special Treasury Department fund reserved for awarding plaintiffs who successfully sue the federal government.

The release of the memo was followed on September 29 by a Government Accountability Office (GAO) analysis stating HHS’s decision to pay insurers before paying the U.S. Treasury violates ACA’s reinsurance program as defined by the law.

ACA’s reinsurance program diverts premiums paid to insurers by individuals in lower-risk pools to insurers of higher-risk pools, to keep insurers from having to charge higher premiums to those in higher-risk pools.

ACA’s risk corridor program was designed to redistribute earnings from more profitable insurers participating in the Obamacare exchanges to less profitable insurers. In December 2014, Congress prohibited CMS from using taxpayer funds to finance the Obamacare risk corridor program. The prohibition expires on December 9, 2016.

“HHS will record risk corridors payments due as an obligation of the United States Government for which full payment is required,” stated Andy Slavitt, acting administrator of the Centers for Medicare and Medicaid Services (CMS), in the September 9 HHS memo.

Citing several lawsuits against HHS from insurers seeking risk corridor payments, Slavitt stated, “[A]s in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”

Settlement payments would likely come from the Judgment Fund, a “permanent, indefinite appropriation available to pay judicially and administratively ordered monetary awards against the United States,” including “amounts owed under compromise agreements,” according to the Treasury Department’s Bureau of the Fiscal Service website.

Backdoor Bailout?

Nathan Nascimento, a senior policy advisor at Freedom Partners, says using the Judgment Fund to cover payments under ACA abuses the intent of each.

“Essentially, this is a transparent attempt to manipulate the justice system to force taxpayers to bail out another failed Obamacare program,” Nascimento said.

Chris Jacobs, founder and CEO of the policy analysis firm Juniper Research Group, says HHS is circumventing Congress to obtain funding for the failed ACA program.

“Mr. Slavitt’s admission means that the Obama administration is seeking to use the Judgment Fund to accomplish via the backdoor what Congress prohibited CMS from doing via the front door: to bail out insurers,” Jacobs said.

Jacobs says CMS will interpret Congress’s failure to renew the prohibition as an invitation to bail out insurers directly, instead of through the Judgment Fund.

“If Congress passes a new appropriations bill to keep funding the government that does not include the explicit bar on using taxpayer funds to backfill risk corridor payments, Slavitt will immediately use this as an opportunity to give billions more in taxpayer dollars to insurers,” Jacobs said.

Count the Cost

Nascimento says tapping the Judgment Fund to settle risk corridor lawsuits would add to existing HHS reinsurance bailouts GAO has found unlawful.

“The administration is already bailing out insurers by prioritizing payments through the ACA’s reinsurance program to them instead of to taxpayers,” Nascimento said. “In other words, customers are already being negatively impacted in terms of skyrocketing costs, plan cancellations, and fewer providers to choose from in spite of the fact that insurers have been bailed out.”

Further bailouts would benefit insurers without reducing health care costs or improving patient care, Nascimento says.

“Using taxpayer dollars to bail out large insurance companies will do nothing to stem the tide of rising health care costs for consumers, nor will it improve the quality of our health care system,” Nascimento said. “The only thing it will do is send billions more in corporate welfare to an industry that doesn’t need it.”

Single Payer, in Effect

Repeatedly bailing out insurers would establish a de facto single-payer health care system, Jacobs said.

“If Congress or the Obama administration bails out insurers, we will at that point effectively have a single-payer system,” Jacobs said. “If insurers know that they are too big to fail, they will take on unnecessary risk. We know that many insurers did just that in Obamacare’s first few years: They underpriced their policies deliberately, believing the federal government would bail them out of their losses.”

The federal government’s habit of heavily regulating and funding health insurers sets up a move to a single-payer system, Jacobs said.

“If this pattern continues, at some point the boom-and-bust cycle will prompt liberals to take the health insurance industry over completely,” Jacobs said. “But whether there is one government-run health plan or several private insurers operate as heavily regulated utilities is ultimately a distinction without a difference.”

‘Morphine Drip’

Papering over ACA’s failures merely extends the law’s harmful effects, Jacobs says.

“Continuing to bail out Obamacare is in many ways equivalent to increasing a patient’s morphine drip,” Jacobs said. “It may alleviate pain, but it doesn’t attempt to solve the underlying disease.”

The cure for the country’s ailing health care system must center on patient choice, not government regulation, Jacobs says.

“The regulations and mandates in Obamacare have created a dysfunctional marketplace for insurance,” Jacobs said. “That’s the problem we need to fix. The real solution lies not in bailouts, but rather through market-oriented efforts that empower patients, not bureaucrats, and can increase choice while bringing down costs.”

Jordan Finney ([email protected]) writes from Boise, Idaho.

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