Moral Hazard, What’s That? Obama Administration Covers Insurance Companies With Taxpayer Money

cmimg_54013The Obama administration has quietly adjusted key provisions of its signature healthcare law to potentially make billions of additional taxpayer dollars available to the insurance industry if companies providing coverage through the Affordable Care Act lose money.

The move was buried in hundreds of pages of new regulations issued late last week. It comes as part of an intensive administration effort to hold down premium increases for next year, a top priority for the White House as the rates will be announced ahead of this fall’s congressional elections.

Administration officials for months have denied charges by opponents that they plan a “bailout” for insurance companies providing coverage under the healthcare law.

They continue to argue that most insurers shouldn’t need to substantially increase premiums because safeguards in the healthcare law will protect them over the next several years.

But the change in regulations essentially provides insurers with another backup: If they keep rate increases modest over the next couple of years but lose money, the administration will tap federal funds as needed to cover shortfalls.

Although little noticed so far, the plan was already beginning to fuel a new round of attacks Tuesday from the healthcare law’s critics.

“If conservatives want to stop the illegal Obamacare insurance bailout before it starts they must start planning now,” wrote Conn Carroll, an editor of the right-leaning news site

On Capitol Hill, Republicans on the Senate Budget Committee began circulating a memo on the issue and urging colleagues to fight what they are calling “another end-run around Congress.”

Obama administration officials said the new regulations would not put taxpayers at risk. “We are confident this three-year program will not create a shortfall,” Health and Human Services spokeswoman Erin Shields Britt said in a statement. “However, we want to be clear that in the highly unlikely event of a shortfall, HHS will use appropriations as available to fill it.”

The stakes are high for President Obama and the healthcare law.

Although more than 8 million people signed up for health coverage under the law, exceeding expectations, insurance companies in several states have been eyeing significant rate increases for next year amid concerns that their new customers are older and sicker than anticipated.

Insurers around the country have started to file proposed 2015 premiums, just as the midterm campaigns are heating up. Obamacare, as the law is often called, remains a top campaign issue, and big premium increases in states with tightly contested races could prove politically disastrous for Democrats.

If rates go up dramatically, consumers may also turn away from insurance marketplaces in some states, leading to their collapse.

Proposed increases in a few states where insurers have already filed 2015 rates have been relatively low, with several major carriers seeking just single-digit hikes. But insurers in closely watched states, such as Florida, Pennsylvania, North Carolina and Arkansas, are still preparing their filings.

“It’s absolutely paramount to keep premiums in check,” said Len Nichols, a health economist at George Mason University who has advised officials working on the law.

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