29 Jul 2014 National Center Shareholder Activism Precedes Congressional Bailout Bombshell

Of the increase of the relationship between big business and big government, there shall be no end.  That is, unless the American people decide to stand up and do something about it.

Concerning the current and growing confluence of large corporations and big government, the media is often silent.  While the mainstream press is generally wary of the affairs of big business, their collective adoration of big government policies often causes them to turn a blind eye to when the two work together.

These business/government relationships desperately need more sunshine because, in the equation of big government plus big business, the loser is often the American people generally and American taxpayers specifically.

So left unfettered, business and government grow in tandem while liberty is trampled.

ObamaCare is perhaps the most striking example of this phenomenon.  But the National Center’s Free Enterprise Project is fighting back.  Through its intensive program of shareholder activism – with 50 meetings under its belt this year – National Center representatives often combat this symbiotic relationship.

As written, ObamaCare provides multiple mechanisms by which health insurance companies might obtain funds to cover potential shortfalls.  One such mechanism is known as the risk corridor.  As the National Center’s David Hogberg Ph.D. has explained:

ObamaCare’s risk corridors are a temporary program that is supposed to help insurers mitigate the enormous amount of risk inherent in the ObamaCare exchanges.  Under this program, an insurer in the exchange whose costs amount to 97% or less of its premiums must contribute part of its profits to reimburse insurers whose costs are 103% or greater of their premiums.  Insurers who are profitable contribute only a portion of their profits while insurers who are not profitable see only portion of their losses reimbursed.

Hogberg rightly points out that risk corridors are just a different way of saying bailouts.

As the theory of ObamaCare started to become a reality with its disastrous rollout, the dangers that conservatives had warned about for years also sprung up – including the potential for a massive taxpayer bailout of the health insurance industry.

As it turns out, the risk corridor provisions as they were written into the law weren’t sweet enough for the health insurance industry, so many of its lobbyists and leaders went back to the Obama Administration with their hands out asking for more.  Team Obama, led by senior advisor Valerie Jarrett, seemed more than happy to accommodate them.

Now, thanks to a report published yesterday by the U.S. House of Representatives Committee on Oversight and Government Reform, we know just how involved the health insurance industry was in securing this ever-growing bailout as well as how much the Obama Administration accommodated them.

The report details communications between White House officials and health insurance executives/lobbyists that shows a very similar and simple pattern.  Health insurance officials demand more money and flexibility and the White House obliges.  Insurance leaders, representatives and lobbyists from companies such as Aetna, Humana, Blue Cross Blue Shield, Health Net Inc., WellPoint and CareFirst were all intimately involved in discussions to increase the risk corridor bailout.

The report notes that:

According to information obtained by the Committee, several insurers expected Risk Corridor payments prior to the start of open enrollment, and appear to have underpriced their ObamaCare-compliant plans as a result.

After the Administration received negative press attention about a possible taxpayer-funded bailout of health insurance companies, the Administration signaled in March 2014 that it would implement the Risk Corridor provision in a budget neutral manner.

Insurance companies were generally displeased with this announcement and started a powerful lobbying campaign.  Part of the insurers’ lobbying campaign was a direct appeal to the President’s most senior advisors including Valarie Jarrett.  Insurance companies and their chief trade group warned that a budget neutral Risk Corridor program would lead to large premium increases for exchange plans in 2015.  Essentially, insurance companies presented the Administration with a choice: face significantly higher premium increases in 2015 for exchange plans or make taxpayers bail out insurance companies.

Documents show that Ms. Jarrett took the warnings of the insurance companies very seriously and indicated that the Administration had given insurers 80 percent of what they sought.  Insurers were not satisfied with the Administration’s first change and lobbied for additional protection.  In May 2014, the Administration delivered to insurers, modifying the risk corridor payment formula to increase the size of the bailout insurers could expect to receive.

Again, the odd man out in this calculus is the American people.

So, earlier this year, while conservative pundits and congressional leaders took the fight over ObamaCare to the courts and the Administration, the National Center focused its sights not just on the White House, but also the corporations that played a major role in creating – and are now exacerbating – the law’s devastating effects.

National Center representatives quizzed the CEOs of many of the major health insurers about whether they would accept a taxpayer bailout through ObamaCare’s risk corridor provisions.

For example, at the annual meeting of Humana shareholders, the National Center’s Hogberg asked Humana CEO Bruce Broussard, in part:

In February, Forbes reported that Humana planned to take up between $250 million and $450 million from the ‘risk adjustment mechanisms in ObamaCare’ including the risk corridor.  Then in March, the Obama Administration proposed changes to the ACA that may increase this potential bailout for insurers in 2015 by ballooning the amount that taxpayers may have to pay insurers for company losses.

The taxpayers are already on the hook for so much of this law.  So, my question to you is, if the situation arises where Humana qualifies for taxpayer money through the risk corridor, can we get your promise that you will reject it?

Broussard (who is listed in the Committee on Oversight and Government Reform report as having attended a meeting with Valarie Jarrett regarding ObamaCare’s messaging and problems) said that Humana would be taking the taxpayer money if available.

And so too did the CEOs of WellPoint, Aetna and UnitedHealth (whose CEO was less than enthusiastic about taking taxpayer money, but nonetheless declined to decline.)

We had every expectation that these CEOs would confirm that they would take the money.  Indeed, we now know that health insurance industry leaders working for, and representing, these companies were working behind the scenes to increase the risk corridor bailout.

So why did we bother asking the question?

The answer is two-fold.  First, it was to get the companies on the record on this massively important issue.  From here on out, Aetna, Humana, WellPoint and UnitedHealth are all on record as willing to take a taxpayer bailout.  The second reason relates back to Dr. Hogberg’s definition of the risk corridors in which he noted that they are supposed to be temporary.  A sunset provision in the law means that the risk corridors are going to expire at the end of 2016.  However, in a press release following the WellPoint shareholder meeting, Dr. Hogberg warned that:

I also doubt that the risk corridor will have a beginning and an end.  If the exchange risk pools prove unstable — that is, if the young and healthy people leave after 2014 and 2015 in the face of premium hikes — then insurers will likely be petitioning the Obama Administration to extend the risk corridors beyond three years.

That is exactly what we are working to prevent.  By exposing the industry and applying pressure on companies who willingly take taxpayer bailouts, the reputational risk to the likes of Aetna and Humana may start to outweigh the taxpayer largess.

The Committee on Oversight and Government Reform report clearly shows that the Obama Administration appears more than willing to do the bidding of the health insurance industry.  This means it is vital to cut the snake off at its head before it can request even more taxpayer bailouts.

And these bailouts may be massive.  The Committee report rightly notes that the bailout is “potentially unlimited,” and the Weekly Standard notes the bailout “is now likely to be in the ballpark of $1 billion.  To put that into perspective, the year before Obama took office, the ten largest health insurers’ total profits were only $8 billion — combined.”

Bailouts do not occur in a vacuum.  Like any transaction, there must be a willing buyer and a willing seller.  The problem here is that the buyer (the health insurance industry) is asking a seller (the government, which doesn’t really have any skin in the game of its own) for something that is yours and mine – our tax dollars.

I, for one, have had enough.