When a state’s insurance market stands on the verge of collapse, as Tennessee Insurance Commissioner Julie Mix McPeak claimed in 2016, why would she and her colleagues fail to consider another potential change that could precipitate a full-on implosion? Congress should analyze this question as it examines Obamacare’s health insurance markets.
Unfortunately, however, Tennessee Sen. Lamar Alexander seems more interested in stuffing the coffers of the insurance industry than in conducting robust oversight of McPeak’s regulatory debacle.
The issue surrounds President Trump’s October decision to stop making Obamacare’s cost-sharing reduction payments to insurers. Under existing law, insurers will have to reduce cost-sharing (i.e., deductibles and co-payments) for certain Obamacare enrollees, but following Trump’s October decision, will not get paid by the federal government for doing so. America’s Health Insurance Plans, the industry’s trade association, claimed in a court filing that insurers will suffer $1.75 billion in losses over the remainder of 2017 due to the decision.
A recent public records request confirms that when health insurers filed their 2017 rates in the summer of 2016, Tennessee’s Department of Insurance failed to contemplate that the incoming presidential administration could cancel the cost-sharing payments. As a result, Tennessee insurers will incur their share of the $1.75 billion in losses insurers face nationally this year. The department’s lack of planning and preparation left Tennessee consumers—to say nothing of health insurers themselves—exposed.
Tennessee Should Have Seen This Coming
McPeak cannot say she was not warned about the vulnerability of insurers’ cost-sharing subsidies. In May 2016, federal court Judge Rosemary Collyer ruled the payments unconstitutional, because Obamacare did not include an explicit appropriation for them. While Collyer stayed her ruling as the Obama administration appealed, I noted that month that the incoming president could easily concede the lawsuit and halt the payments unilaterally—exactly what President Trump did in October.
As one insurance expert noted recently, the “hand grenade” of stopping the cost-sharing reduction payments, “if it was thrown in January or February of this year, would have forced a lot of carriers to do midyear exits and it would have destroyed the exchanges in some states.” Yet the recent public records request revealed that Tennessee regulators did not send so much as a single e-mail considering whether this “hand grenade” would explode—taking the state’s exchange down with it—before approving insurance rates for 2017 last fall.
Congress should have spent the past several months asking tough questions of insurance commissioners like McPeak why they did not anticipate and plan for the loss of the cost-sharing payments last year. Unfortunately, however, lawmakers have not asked a single question about why the state insurance commissioners collectively dropped the ball—a recipe for more regulatory debacles in the future.
Senators Seem to Prefer Bailouts to Accountability
Tennessee’s Alexander has played a leading role in ignoring insurance commissioners’ questionable behavior. In September, Alexander convened a hearing of the Health, Education, Labor, and Pensions (HELP) Committee he chairs to take testimony from insurance commissioners, including McPeak, about state insurance markets. At no point did Alexander or any other senator ask McPeak or her fellow commissioners why they failed to consider, let alone predict, the withdrawal of the cost-sharing payments last year.
Instead of examining the regulatory failures of commissioners like McPeak, Alexander has dedicated his energies toward solving the problem McPeak’s ignorance helped to create. His legislation would appropriate approximately $25 billion in taxpayer funds for the cost-sharing reduction payments to insurers.
Unfortunately, Alexander’s legislation would result in a major windfall for health insurers, according to the Congressional Budget Office (CBO). Because insurers have already raised their premiums for 2018 to compensate for the loss of the cost-sharing reduction payments, Alexander’s bill would effectively pay them twice. While the CBO believes insurers will rebate some—not all, but only some—of these “extra” payments back to the government, insurers could pocket between $4-6 billion in additional windfall profits thanks to Alexander’s legislation.
Alexander’s actions may make sense to him personally, given that Blue Cross insurers represent his largest source of campaign contributions, but they do not help taxpayers. Alexander should spend much more time investigating the regulatory lapses by McPeak and her colleagues, and less time giving health insurers billions of dollars in windfall profits.
Mr. Jacobs is founder and CEO of Juniper Research Group, a policy consulting firm. He is on Twitter: @chrisjacobsHC.