Last week, Moody’s rating agency lowered the outlook for health insurers from stable to negative, blaming Obamacare. Few Americans will shed tears for insurance companies. But the Moody’s announcement is a warning sign to taxpayers. They’ll be getting clobbered. Section 1342 of the Affordable Care Act forces taxpayers to make insurers whole for most of the losses incurred selling Obamacare exchange plans through 2016. The bailout is designed to conceal the failure of the president’s signature health law until he is out of office.
No one in the Obama administration talked up the advantages of bailing out insurers. It was kept under wraps until the fall of 2013. That’s when five to six million health plans were canceled because they didn’t comply with Obamacare’s one-size-fits-all-coverage requirements effective January 1, 2014. Insurers developed new plans, as the health law required, set premiums (generally higher) and sent out notices canceling the old plans.
That caused public outrage. Trying to quell it, the president ignored his own law and told insurance companies on November 14 they could keep selling the old plans. Insurers were caught off guard. They predicted there would be less demand for their new plans, and they’d lose money.
Here’s where the plot thickens. On the same day, an Obama administration health official, Gary Cohen, announced that the federal government (taxpayers) will offset most losses, citing section 1342. Sweetening what the law already guarantees, he pledged to “modify” the bailout’s “final rules to provide additional assistance.”
That’s when Congress finally did its job and read section 1342. Senator Marco Rubio (R-FL) called it a “dirty little secret” and offered legislation to repeal it. House Republicans held a hearing at which Secretary of Health and Human Services Kathleen Sebelius confessed that the administration had never tried to estimate what the guarantee could cost taxpayers. Ah, how freely government bureaucrats spend other people’s money.
Last Thursday’s downgrade underscores the likelihood that taxpayers will be socked with bailout costs of unknown proportions unless section 1342 is repealed.
That’s just one reason for repeal. Another is that Section 1342’s purpose is to bamboozle the public and hide Obamacare’s inevitable failure until health “reform” is entrenched beyond turning back.
Inevitable, because anyone with knowledge of health insurance knew from the start that Obamacare’s exchanges could not offer affordable insurance. The premiums have to cover a long list of mandatory benefits and as well as $100 billion in taxes that the law imposes on insurers over the decade. Most significantly, the premiums have to cover the cost of caring for seriously ill people at the same price as the healthy pay. Every state that tried this community-rating scheme (including New York) has seen premiums soar, and healthy people stop buying insurance. It’s called the “death spiral.” All these factors make “affordable” an impossible goal under Obamacare’s rules. That’s what the bailout provision is designed to conceal through 2016.
As the Society of Actuaries explains, the bailout was designed to incentivize insurers to set premiums too low. It's guaranteed to make Obamacare look affordable. That’s beneficial for politicians tied to Obamacare and helpful to insurers who want market share. Of course, since insurers choosing not to participate in the exchanges can’t get bailouts and don’t get subsidies for their customers, you won’t have the option of buying from them for long.
Think about it. If the federal government gave out subsidies to buy only Ford cars and told Ford Motor Company not to worry about pricing the car, because taxpayers will make up Ford’s losses, how long do you think Chrysler and Toyota could compete?
Moody’s also cautioned that its downgrade was due largely to the “ongoing unstable and evolving environment,” as the Obama administration repeatedly revises the Affordable Care Act, decreeing “new regulations and announcements that impose operational changes well after product and pricing decisions were finalized.”
As any business owner will tell you, a temporary bailout is no substitute for the rule of law. The bailout keeps Obamacare on life support, at taxpayers’ expense, while the free market expires and the rule of law disappears. That is the real state of the union.
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