Blog

No More Obamacare Bailouts

Aug 07, 2017

Background 

In an effort to win the support of health insurance companies during the debate over Obamacare in 2009, three health insurer bailout provisions were written into the bill to compensate health insurance companies for insuring high-cost consumers in the Obamacare state exchanges. These three bailout provisions include risk corridors, reinsurance and cost-sharing reduction subsidies. Combined, these could cost taxpayers $170 billion over the next decade. The risk corridor and reinsurance provisions expired last year, while cost-sharing reduction subsidies are currently in flux.

Cost-Sharing Reduction Subsidies 

This third Obamacare bailout provision uses taxpayer dollars to subsidize health insurance deductibles and co-payments for plans bought by households with incomes less than 250 percent of the federal poverty line. While Obamacare intended to create cost-sharing reduction subsidies, the bill text does not include language funding the subsidies. However, the Obama administration ignored the plain reading of the law and paid for the subsidies using taxpayer dollars to the tune of nearly $14 billion.

In response, Congress sued the Obama administration in November of 2014 in U.S. House of Representatives v. Burwell. The House argued that the White House violated its Constitutional authority by spending money not authorized by Congress. In May of 2016, federal district court Judge Rosemary Collyer ruled in favor of the House, but the Obama administration appealed the decision to the D.C. Circuit Court. Now with President Trump in the White House, the last Obamacare bailout can be eliminated permanently. All President Trump has to do is accept the court’s initial ruling and stop paying the subsidies.

Problem 

Since the November 2016 elections, congressional Republicans worked on legislation to repeal and replace parts of Obamacare. The House narrowly passed the American Health Care Act (AHCA) on May 4th, 2017 by a vote of 217 to 213, but Senate Republicans failed to pass their version of the bill called the Better Care Reconciliation Act (BCRA) or even a scaled down version of Obamacare repeal called the “Skinny Repeal” bill. The latter failed when moderate Republicans refused to allow the bill to proceed to a conference committee where revised legislation could have been crafted and voted on. While individual mandate penalty was eliminated as part of the new tax reform law, much of Obamacare remains on the books.

Instead of repealing and replacing Obamacare, moderate Republicans are now working with Democrats to appropriate the Obamacare cost-sharing reduction subsidies to bail out insurance companies and prop up Obamacare. First, a restoration of Cost Sharing Reduction (CSR) payments as proposed by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA). Second, a federal reinsurance scheme proposed by Senators Susan Collins (R-ME) and Bill Nelson (D-FL). In exchange for her vote in favor of the Tax Cuts and Jobs Act last year, Collins was reportedly promised both bills would become law.

Ed Haislmaier, an expert in health care policy and markets at The Heritage Foundation, explains the continuation of the cost-sharing reduction subsidies “will not help stabilize the broader individual market because the cost-sharing reductions apply only to plans purchased through the Obamacare exchanges.”

Solution 

Under Obamacare, average individual market premiums more than doubled while health insurance companies fled the marketplace leaving 70 percent of U.S. counties with only one or two insurers. This all took place while President Obama was illegally paying out the cost-sharing subsidies. Authorizing the subsidies will do nothing to fix the underlying problems of our broken U.S. health care system spurred on by Obamacare. “What is instead needed to stabilize the unsubsidized market is the removal of Obamacare’s cost-increasing insurance mandates and misguided regulations,” Haislmaier explained. Heritage Action chief executive officer Michael A. Needham recently stated:

“The Senate’s inability to produce 51 votes for a piece of legislation that delivers on a seven-year campaign promise to repeal and replace Obamacare is not license for a bipartisan bailout of a failing law. Networks continue to narrow. Premiums continue to rise. And choice continues to decline. Obamacare is becoming a zombie law, and throwing more taxpayer money at Zombiecare is unacceptable.”

In a letter to President Trump and congressional leaders, a group of conservative leaders and health care experts urged action on Obamacare in 2018:

“Instead of trying to adjust the subsidy mechanisms in Obamacare, [Graham-Cassidy] took a new approach of providing block grants to the states to give them new resources and greater regulatory flexibility to revive their individual and small group health insurance markets.

“This new platform of returning power and authority to the states, and ultimately to individuals, charts a new path for health reform.

“We have been meeting with congressional leaders, White House officials, and others in the policy community since last fall to refine these new policy recommendations. We are eager and willing to work with you in advancing these policies, which we believe would have greater traction with members of Congress and voters.”

The Trump administration and congressional Republicans must reject bailouts and embrace the evolving plan to repeal and replace Obamacare.