Busted: GAO Finds US Illegally Paid Insurers with Funds Meant for Taxpayers

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Federal auditors ruled on Thursday that the Obama Administration had violated the law by paying health insurance companies more than allowed under the Affordable Care Act in an effort to hold down insurance premiums.

Federal auditors find #Obamacare violated law by overpaying #healthinsurance companies Click To Tweet

According to The New York Times, some of the money was supposed to be deposited in the Treasury, said auditors from the Government Accountability Office (pdf). The administration “ignored the statutory requirement to collect funds for the Treasury,” even though the requirement was expressed in “explicitly mandatory language,” the accountability office said in a legal opinion.

The Obama administration had defended its interpretation of the law, saying the payments to insurers were needed to help moderate increases in premiums under the Affordable Care Act. Seven Republican members of Congress, all opposed to the health law, had asked for the legal review and welcomed its findings.

“The Obama administration can no longer take money from taxpayers to bail out Obamacare,” said Senator John Barrasso, Republican of Wyoming.

The Government Accountability Office is widely regarded as an authority on the legality of federal spending. It does not have enforcement power, but its rulings are usually followed by federal officials, and Congress relies on its work in writing laws and supervising federal agencies.

Matt Inzeo, a spokesman for the Department of Health and Human Services, said the administration “strongly disagrees” with the opinion. The administration said it had discretion to decide how money should be allocated between insurers and the Treasury when the total amount available was–as in this case–less than expected.

Four and a half months before Thursday’s ruling, a federal district judge here ruled that the Department of Health and Human Services had illegally spent billions of dollars on a part of the health law that helps low-income people pay deductibles and other out-of-pocket costs for hospital care and doctors’ services.

In recent weeks, state insurance commissioners have approved rate increases of 25% or more for many insurers in 2017. Insurers say that premiums would be even higher without the extra payments from the federal government.

At issue is a program that collects fees from most insurers and uses the money to help pay high-cost claims for sicker people. The purpose of this temporary “reinsurance program” is to stabilize premiums and to encourage insurers to participate in markets under the healthcare law.

The 2010 law stipulates that some of the money “shall be deposited into the general fund of the Treasury of the United States and may not be used for the program” to provide financial assistance to insurance companies. The auditors found that the Obama administration had flouted this requirement.

Under the law, the government was supposed to collect a total of $25 billion from 2014 to 2016 and deposit $5 billion of that in the Treasury. The administration set the amount to be contributed by each insurance company, but the total collections fell short of the amounts specified in the law. So the administration allocated almost all the money to insurers, “resulting in the deposit of no amounts in the Treasury,” the accountability office said.

The administration “may not use amounts collected for the Treasury to make” payments to insurance companies, said the ruling, signed by Susan A. Poling, the general counsel of the GAO. The law “very clearly directs” the secretary of health and human services to deposit certain amounts in the Treasury, Ms. Poling said.

“The fact that HHS’s collections ultimately fell short of the projected amounts does not alter the meaning of the statute,” she added. (Source: The New York Times)

Steve’s Take: The GAO has no authority to enforce its interpretation of the law, so it’s unclear what happens next. But as a former lawyer for both sides of a federal dispute involving millions (but not billions of dollars as here), I smell huge fees in straightening this mess out.

The GAO finding is only the latest attack against Obamacare’s programs that were designed to provide stability to insurers trying to transition into the new health care landscape. It comes while insurers are already having difficulty with the transition, with exchange premiums on the rise and several plans announcing they will be pulling out of the marketplace in 2017.

Had the administration put reinsurance money into the Treasury, health analysts say insurers would be receiving even less in payments for benefit year 2015 in the midst of their other issues.

“At least as it stands, insurers have their money. If there was some legal action that took the money back from insurers, it would add to the pile of problems insurers have had in the marketplaces,” said Larry Levitt, senior vice president of the Kaiser Family Foundation (Menlo Park CA). “I would be very surprised if the administration did it, unless for some reason they legally had to,” he said. “I don’t think the administration wants to do anything to upset insurers right now.”

Call it The 2016 Full Employment Act for Lawyers, the sums of money involved in the GAO finding and resulting morass are staggering. Will the Obama Administration abide by the GAO finding and try to get the misdirected money back from insurers?

Steve's Take: This GAO finding could lead to a gradual unwinding of #Obamacare Click To Tweet

Now that I would like to see, but seriously doubt will happen. However, depending on who sits in the White House in January, this GAO finding could lead to a gradual unwinding of Obamacare, and wouldn’t one of the candidates love to take the credit for that?