Healthcare.gov can't calculate subsidies, so will pay insurance companies whatever they ask for

Thomas Lifson
The federal government is dumping the consequences of its Obamacare website failures onto the private sector health insurance companies. The private sector is now expected to scramble and under severe time pressure do what the feds couldn't in the three-plus years. Unable to calculate what subsidies should be for lower-income insurance buyers, it is asking insurers to estimate the subsidies, and it will cut a check to them for whatever they ask for. Roberta Rampton and Caroline Humer of Reuters write:

President Barack Obama's administration has found a short-term fix to pay insurance companies for plans selected on HealthCare.gov, the not-yet-complete government website used to shop for insurance required under Obama's healthcare program.

The Centers for Medicare and Medicaid Services (CMS) has not yet finished building the part of the website that would transfer billions of dollars in subsidies for plan premiums and cost-sharing payments to insurance companies. (snip)

The administration is planning a "workaround" for payments, said Daniel Durham, vice president for policy and regulatory affairs at America's Health Insurance Plans.

Health plans will estimate how much they are owed, and submit that estimate to the government. Once the system is built, the government and insurers can reconcile the payments made with the plan data to "true up" payments, he said.

"The intent is to make sure plans get paid on time, which is a good thing," Durham told Reuters.

The fix puts an additional "burden" on insurance companies, already taxed by having to double-check faulty enrollment data from the HealthCare.gov system.

Now, companies need to quickly put together financial management systems to make the payment estimates, so they can be paid beginning in January, he said.

As with so many other aspects of Obamacare, decisions are being made on the fly, to cover up for systemic failures. The consequences on other parties will be severe, and serious complications are foreseeable. No private sector company could possibly operate in such a slipshod fashion.

The plan is to pay insurance companies whatever they calculate the subsidies should be, and then in the future, when (if?) the government is able to calculate the actual subsidies, settle up. Consider, for a moment, the incentives facing health insurance companies, already hard-pressed to re-do the cancelled insurance policies, now that by presidential decree they are supposed continue offering the "substandard" plans O-care declared intolerable.

If insurance companies generously calculate the subsidies, that means they will charge consumers lower prices, counting on the subsidy to make up the difference. If the feds decide that the subsidy was too high, then the insurance companies will have to go to the policy holders and demand more money. Does anyone think that would be a smooth process? How many lower income people would even be able to come up with the extra scratch? How long would it take, and at what cost, to collect from millions of hard-pressed consumers?

So, it seems to me that the insurance companies have a strong incentive to low-ball the subsidies. But that will result in higher premiums being paid by consumers. And that will not be to the liking of Obamacare officials. Given the track record, we can expect denunciation of the "bad apple" insurance companies that had the gall to offer "substandard" policies in the first place, and which now have their hands full redoing all their calculations to be able to continue offering them based on presidential fiat.

The linchpin of Obamacare's appeal to the Democrats' low income constituency is the system of subsidies, whereby taxpayers subsidize people making up to 400% of the poverty level. Yet, stunningly, last November 19th, Henry Chao, Deputy Chief Information Officer for the healthcare.gov website revealed that:

...up to 40 percent of IT systems supporting the exchange still need to be built. (snip)

"It's not that it's not working," Chao told lawmakers at an Energy and Commerce Oversight and Investigations subcommittee hearing. "It's still being developed and tested."

Financial management tools remain unfinished, he said, particularly the process that will deliver payments to insurers.

A Health and Human Services source said the health plans can receive the payments consumers make when they enroll. The system isn't yet ready to deliver federal subsidies to insurers.

There have been a number of famous failures of the corporate world, the most famous of which was the Edsel. Obamacare overshadows all of them combined.

This "trust me" open checkbook policy for bad apple insurance companies means that the hole Obamacare has dug is continuing to be excavated.

The federal government is dumping the consequences of its Obamacare website failures onto the private sector health insurance companies. The private sector is now expected to scramble and under severe time pressure do what the feds couldn't in the three-plus years. Unable to calculate what subsidies should be for lower-income insurance buyers, it is asking insurers to estimate the subsidies, and it will cut a check to them for whatever they ask for. Roberta Rampton and Caroline Humer of Reuters write:

President Barack Obama's administration has found a short-term fix to pay insurance companies for plans selected on HealthCare.gov, the not-yet-complete government website used to shop for insurance required under Obama's healthcare program.

The Centers for Medicare and Medicaid Services (CMS) has not yet finished building the part of the website that would transfer billions of dollars in subsidies for plan premiums and cost-sharing payments to insurance companies. (snip)

The administration is planning a "workaround" for payments, said Daniel Durham, vice president for policy and regulatory affairs at America's Health Insurance Plans.

Health plans will estimate how much they are owed, and submit that estimate to the government. Once the system is built, the government and insurers can reconcile the payments made with the plan data to "true up" payments, he said.

"The intent is to make sure plans get paid on time, which is a good thing," Durham told Reuters.

The fix puts an additional "burden" on insurance companies, already taxed by having to double-check faulty enrollment data from the HealthCare.gov system.

Now, companies need to quickly put together financial management systems to make the payment estimates, so they can be paid beginning in January, he said.

As with so many other aspects of Obamacare, decisions are being made on the fly, to cover up for systemic failures. The consequences on other parties will be severe, and serious complications are foreseeable. No private sector company could possibly operate in such a slipshod fashion.

The plan is to pay insurance companies whatever they calculate the subsidies should be, and then in the future, when (if?) the government is able to calculate the actual subsidies, settle up. Consider, for a moment, the incentives facing health insurance companies, already hard-pressed to re-do the cancelled insurance policies, now that by presidential decree they are supposed continue offering the "substandard" plans O-care declared intolerable.

If insurance companies generously calculate the subsidies, that means they will charge consumers lower prices, counting on the subsidy to make up the difference. If the feds decide that the subsidy was too high, then the insurance companies will have to go to the policy holders and demand more money. Does anyone think that would be a smooth process? How many lower income people would even be able to come up with the extra scratch? How long would it take, and at what cost, to collect from millions of hard-pressed consumers?

So, it seems to me that the insurance companies have a strong incentive to low-ball the subsidies. But that will result in higher premiums being paid by consumers. And that will not be to the liking of Obamacare officials. Given the track record, we can expect denunciation of the "bad apple" insurance companies that had the gall to offer "substandard" policies in the first place, and which now have their hands full redoing all their calculations to be able to continue offering them based on presidential fiat.

The linchpin of Obamacare's appeal to the Democrats' low income constituency is the system of subsidies, whereby taxpayers subsidize people making up to 400% of the poverty level. Yet, stunningly, last November 19th, Henry Chao, Deputy Chief Information Officer for the healthcare.gov website revealed that:

...up to 40 percent of IT systems supporting the exchange still need to be built. (snip)

"It's not that it's not working," Chao told lawmakers at an Energy and Commerce Oversight and Investigations subcommittee hearing. "It's still being developed and tested."

Financial management tools remain unfinished, he said, particularly the process that will deliver payments to insurers.

A Health and Human Services source said the health plans can receive the payments consumers make when they enroll. The system isn't yet ready to deliver federal subsidies to insurers.

There have been a number of famous failures of the corporate world, the most famous of which was the Edsel. Obamacare overshadows all of them combined.

This "trust me" open checkbook policy for bad apple insurance companies means that the hole Obamacare has dug is continuing to be excavated.