Will HHS Get Away With A $3.5 Billion Heist?

CMS administrator Andy Slavitt has a $3.5 billion problem. Will Congress and presidential candidates talk about it? [Credit:nextgov]

CMS administrator Andy Slavitt is planning to short the U.S. Treasury $3.5 billion. Will Congress and presidential candidates talk about it? [Credit:nextgov]

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.

7 thoughts on “Will HHS Get Away With A $3.5 Billion Heist?

  1. Also important to remember that HHS ended up changing the rules and paying a greater amount then originally authorized in the law for 2014. The program structure had all insured people pay into the pool then HHS would take these funds and pay insurers who lost money with a percentage of high claims between a set limit.

    Originally it was supposed to cover 80% of high claims that insurers incurred between $60k to $250k.
    HHS increased the percentage to 100% and lowered the high claims amount down to $45k while keeping the high end at $250k.

    • Very good point. They made the reinsurance payments far more generous than originally planned and still ended up with $1.7 billion in unspent funds for the 2014 benefit year. The law required that they remit that $1.7 billioon (and $300 million more) to the Treasury. Instead, they will use it to pay insurers for the 2015 benefit year, with the money to be disbursed next month. It really is a flagrant violation of the law.

  2. As a physician on the receiving end of these payments/ expenses, who cares? In a $4 trillion budget, this amount is pocket change. As a businessman with decades of 7 figure personal business risk, I’m more than happy to take $ from the self serving government financial amateurs facilitating cash flow to my corporation. It’s a great system. Print baseless paper money and distribute it to chosen winners and losers in an attempt to maintain personal and collective power. I’m voting for…___________.!

  3. Interesting article that only tips the iceberg…. As an insurance agent that has invested a ton in good faith to licensing, education, training and fees to sell Obamacare only to receive notice that all policies written outside of open enrollment will NOT be paid any commissions. Thankfully, the state of CA has discovered the travesty and is making United Healthcare pay. What say you?

    • The brokers are being treated pretty shabbily all around. The Administration probably hates them more than they hate insurers, but they need the insurers more … at least at this point. United has been pretty open about its frustrations with the Obamacare market, although their exposure is fairly small as a percent of their overall businesses. I’ve seen various articles in some specialty publications about their ceasing to pay commissions in certain states. I don’t think it’s anything personal against agents, they just don’t want to sell more policies. They’re losing money on each one and obviously can’t make it up in volume. Didn’t know that the California regulators had stepped in. Good for them.

  4. A textbook case of anti-selection and poor underwriting required under federal law. The consequences were readily predictable. I find it not at all surprising.

    • Unsurprising … except for the part about unlawfully diverting $3.5 billion from the Treasury to private companies, right?

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