Republicans on Capitol Hill are questioning the legality of a move by the Obama administration to give billions to insurers under a program implemented under Obamacare that they say is equal to an insurer bailout.
At issue for lawmakers on the House Energy and Commerce Committee is whether the Centers for Medicare and Medicaid Services violated the Affordable Care Act by diverting $3.5 billion intended for the U.S. Treasury to insurance companies.
“[Earlier this month], the administration announced that they would be using billions of taxpayer dollars to make payments to insurance companies under the Obamacare reinsurance program,” Rep. Joe Pitts, R-Penn., said Wednesday during a hearing with Department of Health and Human Services Secretary Sylvia Mathews Burwell.
“The announcement that the administration made represents an illegal wealth transfer from hardworking taxpayers to insurers,” he continued, “and this law is very clear—$5 billion of reinsurance fees must be returned to the taxpayers.”
Experts have pointed out that with the absence of payments to the U.S. Treasury in 2014 and 2015, the Centers for Medicare and Medicaid Services owes the U.S. Treasury $3.5 billion in payments from the transitional reinsurance program—$2 billion for 2014, and $1.5 billion for 2015.
“CMS to date has diverted $3.5 billion from the Treasury to help the insurance companies, effectively bailing out insurance companies with taxpayer dollars,” Pitts said.
Pitts argued that the Centers for Medicare and Medicaid Services violated the law by prioritizing reinsurance payments to insurance companies instead of the U.S. Treasury.
Burwell, though, said the Department of Health and Human Services and Centers for Medicare and Medicaid Services had the statutory authority to defer payments to the U.S. Treasury and direct the money to insurers.
“The consumer or the citizen is what we’ve tried to put at the center, and whether that’s in the decisions of how we’ve done the technology or how we make decisions about ensuring that those dollars actually went to the place where they would most help the consumer with regard to downward price pressure [on premiums],” Burwell told the panel Wednesday. “And it is our belief that we have that authority.”
On Tuesday, the Congressional Research Service addressed questions from both the Ways and Means and Energy and Commerce Committees in a memo regarding the transitional reinsurance program.
The memo explored whether the Centers for Medicare and Medicaid Services had the authority to direct money away from the U.S. Treasury to insurance companies under Obamacare’s reinsurance program.
“Insofar as CMS’ interpretation allows the entire contribution of an issuer in any given year to be used only for reinsurance payments, such that no part of it is allocated for the U.S. Treasury contribution, then that would appear to be in conflict with a plain reading of [the Affordable Care Act],” the Congressional Research Service found.
Under the health care law, the memo continued, contributions from insurance companies collected by the Centers for Medicare and Medicaid Services “contain an amount that reflects ‘its proportionate share’ of the U.S. treasury contribution.”
“CRS has concluded that your action to divert billions to insurance companies appears to be unlawful,” Pitts told Burwell. “Did your department receive any pressure from insurance companies to divert billions from taxpayers to pay off insurers?”
In addition to questioning the legality of the reinsurance payments to insurers, Pitts also pressed Burwell on whether Marilyn Tavenner, former administrator for the Centers for Medicare and Medicaid Services, had discussed the issue with her and other government officials.
Tavenner left the Obama administration last year and now leads America’s Health Insurance Plans, a trade association representing insurers.
In addition to the report submitted to the Energy and Commerce Committee, the Ways and Means Committee has also taken issue with the administration’s diversion of funds from the reinsurance program.
Ways and Means Chairman Kevin Brady, R-Texas; Subcommittee on Oversight Chairman Peter Roskam, R-Ill.; and Subcommittee on Health Chairman Pat Tiberi, R-Ohio, asked Burwell for documents related to the reinsurance program in a letter sent Feb. 9.
“It appears that the administration has illegally diverted funds from the U.S. Treasury to fund the transitional reinsurance program established by the Patient Protection and Affordable Care Act,” they wrote. “Not only is this diversion inconsistent with past policies promulgated by the administration but it is incompatible with clear congressional instructions contained within the ACA. We ask that HHS immediately submit to the Treasury all diverted funds.”
Obamacare’s transitional reinsurance program, which is in place for 2014, 2015, and 2016, was designed to mitigate the risks insurance companies incurred by covering consumers who were uninsured prior to Obamacare’s implementation.
The Affordable Care Act imposed $25 billion in fees on insurance companies selling employer-sponsored and individual market plans spread over the reinsurance program’s short lifespan. The law called for $5 billion to be used for reinsurance contributions to employer and union retiree plans. The remaining $20 billion was to be used for contributions to individual market insurers.
The $5 billion for employer and union retiree plans was allocated immediately after the Affordable Care Act passed in 2009, and the money was spent before the end of 2010.
To repay the U.S. Treasury for the $5 billion doled out to employer and union retiree plans, which happened before the government collected money from insurers, the law specified that $5 billion be remitted to the Treasury in installments of $2 billion in 2014, $2 billion in 2015, and $1 billion in 2016.
Consequently, the Centers for Medicare and Medicaid Services was instructed to raise $12 billion in 2014 and $8 billion in 2015 through contributions to the transitional reinsurance program. Of the $12 billion raised in 2014, the Centers for Medicare and Medicaid Services was supposed to return $2 billion to the U.S. Treasury, with the remaining $10 billion intended to go to insurance companies selling Obamacare plans.
For 2015, the Centers for Medicare and Medicaid Services was supposed to collect $8 billion and remit another $2 billion to the U.S. Treasury.
The agency, though, did not raise the $12 billion it expected to collect. Instead, the Centers for Medicare and Medicaid Services said it estimated it would collect $9.7 billion for 2014. According to an announcement from the Centers for Medicare and Medicaid Services released in September, the Obama administration decided not to repay the Treasury first, as is specified in the Affordable Care Act.
The agency said it would distribute $7.9 billion of the estimated $9.7 billion to insurers. More than $1.6 billion—the amount remaining—was set aside for 2015, with the intent that it, too, would go to insurers selling individual market coverage.
The Centers for Medicare and Medicaid Services’ decision went largely unnoticed, with the exception of a January article in Forbes highlighting the government’s action.
Then, on February 12, the Obama administration announced it would again prioritize payments to insurers over the Treasury, which lawmakers say is a violation of the health care law.
According to the announcement from the Centers for Medicare and Medicaid Services, the government estimated it would collect $6.5 billion through the transitional reinsurance program for 2015. Of that, the federal government said it would distribute $5.5 billion to insurance companies for reinsurance payments and $500 million to the U.S. Treasury. The remaining $500 million would go toward the program’s administrative costs.