Nobody should be surprised that President Obama's Department of Health and Human Services has proposed a new bailout for insurers.
Whenever Obama sees a problem, he proposes a regulation. When that regulation hurts someone, he proposes a subsidy. That subsidy, in turn, justifies a new tax or regulation, then more bailouts.
It may seem like he’s swinging back and forth — pro-business, then anti-business — but he’s marching in a straight line: more state control of industry. It's the ratchet of state corporatism, and Obama is pretty handy with it.
Health insurers and the federal government were intertwined in a web of subsidies and regulations before Obamacare, of course. The federal government exempted insurance from wage and price controls, and later made it an untaxed benefit. These rules not only subsidized insurance, but by favoring the employer-based market over the individual market, they insulated insurers from competition.
Meanwhile, the federal government and states piled on regulations, including coverage requirements. In Maryland, for instance, insurers are required to cover in-vitro fertilization.
Obamacare takes state corporatism to a whole new level.
In his 2008 campaign, Obama promised to force insurers to cover pre-existing conditions, to take all comers and to charge roughly the same price regardless of risk. These regulations, though, would break the industry: Sick and risky people would buy insurance, prices would rise for everyone, making insurance a bad deal for the young and healthy, who would then drop insurance. It’s called a death spiral.
To prevent the death spiral, Obama (contrary to his campaign-trail promises) gave the insurers their holy grail: an individual mandate requiring people to buy insurance. Because he further required this insurance to be fairly comprehensive, it forced low-risk customers to pay for more insurance than they needed, subsidizing the insurance industry's coverage of high-risk people.
Is it unfair to young, healthy people of moderate income? Of course it is. So, following the standard pattern, Obamacare patches up this costly mandate with insurance subsidies, paid through the exchanges.
But these subsidies are also insurance subsidies. Every subsidy gives birth to a new tax or regulation. In this case, it’s tens of billions a year in a new federal fee on health insurers. Regulate, subsidize, tax …
Requiring insurers to take all comers — and restricting insurers’ ability to price risk into premiums — creates another problem besides the death spiral: the possibility that some insurers will get a particularly risky pool of customers.
To guard against this eventuality, Obamacare created a complex subsidy-tax combo called “risk corridors.”
In short, if an insurer gets a healthy pool of customers, pays out less money in benefits than normal and thus reaps big profits, then the insurer has to fork over some of those profits to Uncle Sam. If an insurer gets a risky pool, though, and ends up losing money or making only small profits, the federal government subsidizes that company. More regulations, more subsidies, more taxes.
But we’re not done with this Obamacare merry-go-round.
Remember the outrage when Americans learned that Obamacare outlawed many low-premium health-care plans, so people who liked their plans couldn't keep them? To patch things over, the administration changed the rules to allow customers to keep plans they like. But this hurts insurers who were counting on healthy customers buying plans that were more comprehensive — and more expensive — than they needed.
Time for another subsidy! The Obama administration proposed on Monday to tweak the “risk corridor” rules so as to boost subsidies to insurers. Under the original rules, for instance, profit margins up to 3 percent can be counted as “administrative expenses” and thus not really profits. But the administration can change that number at will. Count profits up to 5 percent as “administrative” and a pretty profitable company could pocket subsidies through the risk corridor. This is the sort of thing HHS's proposed new rule would allow.
This tweak would also save some very profitable insurers from having to pay the fee. Of course, this sticks taxpayers with the tab for subsidizing the insurers — and that’s the way the subsidize-regulate-subsidize game always ends.