A $5 Billion Obamacare Windfall for Insurers?
Oregon’s health insurance co-operative is yet another Obamacare failure. It squandered taxpayer-backed handouts and loans, disappointed its customers and now has shuttered its operations.
But with an audacity that would make even Donald Trump blush, Health Republic of Oregon wants more taxpayer money. Its executives are suing the federal government to demand more government handouts.
Morningstar Investment Conference: Using Annuities In A Portfolio For Added Stability
Over the past decade, annuities have fallen out of favor with investors. These retirement products became popular in the US during the Great Depression when potential retirees were looking for a secure income stream that would be unaffected by stock market volatility. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More
The Obama administration just might settle the case and give Health Republic and hundreds of other insurers the $5 billion that the class-action lawsuit seeks.
Co-ops like Health Republic were conjured into existence by Obamacare on the theory that people who didn’t know much about insurance — fortified with good intentions and government money — could compete successfully against established and experienced health insurance companies. Oregon, New York and New Jersey were sister co-ops in the Health Republic alliance.
Health Republic had plenty of good intentions, boasting that it was “more than just an insurance company.” It turned out to be quite a bit less. The New Jersey co-op is the only member of its alliance that continues to sell policies, after Oregon and New York folded.
But not before losing a lot of taxpayer money. The Oregon plan received $50 million in federal startup loans and millions of dollars in additional government handouts for 2014 alone.
The co-op’s website blames its failure on the government “not following through on its promise” of an additional $22 million in handouts.
Health Republic expected to get that money through Obamacare’s “risk corridors,” a program in which the government transfers “excess profits” from successful insurers to companies that suffered “excess losses.” As it turned out, “excess losses” among Obamacare plans in 2014 were $2.5 billion greater than “excess profits.” The administration decreed that taxpayers would supply the difference.
Congress said no. It has twice passed laws, both signed by the president, prohibiting the government from paying out more to unsuccessful insurers than it collected from successful ones.
Forbidden to spend taxpayer money, the administration reduced payments to companies that suffered “excess losses.” The smaller payments accelerated Health Republic’s insolvency and prompted the class-action lawsuit, which seeks $5 billion ($2.5 billion for 2014 and 2015) for itself and for hundreds of other insurers that lost money selling Obamacare policies.
In suing the administration, Health Republic might be pushing on an open door. The administration desperately wants to lavish billions on insurers. According to one expert, the lawsuit makes that possible.
University of Michigan law professor Nicholas Bagley argues that the suit has provided the administration with a way to bypass the funding restriction that Congress imposed. Were it to settle the case instead of contesting it, Bagley writes, the administration could pay insurers $5 billion out of the Judgment Fund, a permanently appropriated account from which the Treasury Department pays claims against the government.
The congressional funding restriction applies to the department of Health and Human Services, which oversees the co-ops, and not to the Judgment Fund, Bagley theorizes, clearing the way for a $5 billion windfall for insurers.
Bagley concedes that the government has a duty to defend a challenged law, even one it doesn’t especially like. But that duty, he writes, is not absolute.
The administration frequently has refused to defend or enforce laws it doesn’t care for. Settling this case would be a convenient way to evade another limitation on its power.
It would be almost too convenient. There’s no evidence that the administration encouraged this lawsuit or mentioned it as a way to circumvent the law during the many discussions about risk corridors between White House officials and insurance executives.
But if the administration were to settle the case, reasonable suspicions could arise — something Congress might seek to explore. Taxpayers deserve to have their government protect them against even more Obamacare losses.