Downgraded: Insurance Companies Taste Wrath of ObamaCare

The beginning of the downward spiral.

barack-obama-302Another day, another dose of bad news for ObamaCare. On Thursday, Moody’s Investor Service announced it was downgrading its outlook for America's healthcare insurance sector from "stable" to "negative," due to ObamaCare. “While all of these issues had been on our radar screen as we approached 2014, a new development and a key factor for the change in outlook is the unstable and evolving regulatory environment under which the sector is operating,” Moody's said. “Notably, new regulations and presidential announcements over the last several months with respect to the ACA have imposed operational changes well after product and pricing decisions had been finalized.”

Moody's is being polite. It is no secret that President Obama has made unilateral and constitutionally suspect decisions to postpone or alter major sections of the law. His ham-fisted attempts to mitigate the political damage attending the disastrous website rollout, and his oft-repeated lie that Americans could keep their insurance policies and doctors, has wreaked havoc on insurers struggling to keep up with the massive fiscal adjustments those decisions engendered.

Moody's also cited the the lack of enrollment by younger, healthier Americans needed to keep the healthcare plan fiscally viable as another reason for the downgrade. “Uncertainty over the demographics of those enrolling in individual products through the exchanges is a key factor in Moody’s outlook change,” the ratings agency added.

Moody's must be referring to uncertainty going forward, because it's not uncertain as to what the demographic totals are so far. On January 13, the Health and Human Services Department (HHS) announced that only 24 percent of Americans signing up for ObamaCare were part of the coveted youth demographic. That’s well below the 39 percent the White House contended was necessary for the law to work. They also revealed that as of Dec. 28, the total number of signups for ObamaCare had reached 2.2 million, well below the 3.3 million they had targeted to sign up by that time.

And that's signups. At a House hearing on Jan. 16, Centers for Medicaid & Medicare (CMS) official Gary Cohen, the director of Medicare’s Center for Consumer Information and Insurance Oversight, admitted the administration has no clue how many people have actually paid for their premiums. "We don’t know at this point how many people have actually paid for coverage?” asked Congressman Greg Harper (R-MS) during the hearing. “That’s right,” replied Cohen. Cohen also admitted something far more ominous. “The automated process for payments is still being built, but we have a process in place that is working and payments will be going out next week,” he said.

The "automated process for payments,” also referred to as the "back end" of the ObamaCare website, is the most critical component of the system because it matches peoples' policies and their subsidies with their insurance carriers. Yet back in November, Henry Chao, the deputy chief information officer for the Center for Medicare and Medicaid Services, conceded to Congress that 30-40 percent of the back end still needed to be built. "We still have to build the payment systems to make payments to issuers in January," Chao said.

As Fox News reveals, the effort is hardly proceeding as planned. They note that while the administration remains upbeat in public, "privately it fears one part of the system is so flawed it could bankrupt insurance companies and cripple ObamaCare itself." 

That part of the system is the back end. 

The administration revealed the truth when it fired CGI as the lead contractor, and replaced it with Accenture. Because it gave Accenture a no-bid contract, they had to justify it by releasing documents from the Department of Health and Human Services and the Center for Medicare and Medicaid Services. 

Those documents revealed that problems with the website puts "the entire health insurance industry at risk ... potentially leading to their default and disrupting continued services and coverage to consumers." Even worse, they noted that if the problems weren't fixed by mid-March "they will result in financial harm to the government," and that, absent those fixes, "the entire health care reform program is jeopardized."

HHS Secretary Kathleen Sebelius insisted that everything would work out fine in the end, despite the reality that insurers are currently enduring massive amounts of confusion and uncertainty regarding who is signed up and what subsidies, if any, they are entitled to. "I mean we will get them paid,” she said. “There is no question about that, so we are on track."

That would be the same Kathleen Sebelius who unilaterally changed the signup deadline for ObamaCare from Dec. 23 to Dec. 31, and "strongly encouraged" insurance companies to treat out-of-network providers as in-network and refill prescriptions for medication covered by previous plans until ObamaCare could catch up with reality. Thus, her definition of "on track" is suspect at best. 

And as of now, much like the administration was forced to do to determine whether Americans were eligible for subsidies, they will have to rely on the honor system to determine how much they will owe insurers. Jim Capretta of the Ethics and Public Policy Center illuminated what that means from the insurers’ point of view. "Here's who we think we have, and here's the subsidy we think they're owed," he explains. "Please send us a check from the treasury."

Treasury is a polite way of saying the American taxpayers, whose involvement in underwriting ObamaCare could turn out to be far more expansive than they currently imagine. That's because if the insurance companies do run into financial trouble, ObamaCare puts the taxpayers on the hook to bail them out until 2017. As Charles Krauthammer reveals, Section 1341 of the bill, the "reinsurance fund," collects $63 from each insurer and self-insuring employer, who will undoubtedly pass that cost on to the consumer. That raises approximately $20 billion over three years to cover insurers' potential losses. In addition, Section 1342, the "risk corridor," has taxpayers underwriting up to 80 percent of insurance company losses.

As bad as that is, it gets worse. As Robert Laszewski, a prominent consultant to health insurance companies explains, because they are insulated from losses, they will hold their rates down for one more year, no matter how bad a beating they take. "I expect that the health insurance industry will be content to give the Obama administration one more chance to reboot Obamacare in the fall of 2014, when the 2015 open enrollment takes place," he writes. 

In other words, because the insurance companies don't have to worry about losing money, they'll hold rates down -- no doubt by sheer coincidence -- until after the 2014 election.

"But that is all the patience I see the industry having," Laszewski continues. "While they will continue to be protected from losses in 2016, two years will be enough patience for them and they will be eager to at least begin to transition their rates to the proper level in 2016 rather than face a huge adjustment in 2017 when the reinsurance program ends." That will undoubtedly be huge adjustment upward in insurance rates.

His conclusion? "What consumers/voters will be thinking about Obamacare come November 2014 is still to be determined. But insurers won't be losing a lot of sleep over it."

So why is Moody's losing sleep? Why a downgrade now if taxpayers are being forced to bailout insurance companies until 2017? Bloomberg News columnist Megan McArdle offers a clue. "The law still lacks the political legitimacy to survive in the long term," she writes. "And in a bid to increase that legitimacy, the administration has set two very dangerous precedents: It has convinced voters that no unpopular provisions should ever be allowed to take effect, and it has asserted an executive right to rewrite the law, which Republicans can just as easily use to unravel this tangled web altogether."

With regard to Republicans, Krauthammer has already suggested as much, saying the GOP should pass "The No Bailout for Insurance Companies Act of 2014" and tie it, and nothing else, to the debt ceiling debate. "Dare the president to stand up and say: 'I’m willing to let the country default in order to preserve a massive bailout for insurance companies,'” he writes. He foresees the gambit as a win-win for Republicans. "Let the Senate Democrats decide: Support the bailout and lose the Senate. Or oppose the bailout and bury Obamacare."

In December, Treasury Secretary Jack Lew reminded Congress that the debt limit needs to be raised. It has been suspended until Feb. 7 as part of the deal that re-opened the government following the shutdown. He urged lawmakers to raise it before that date and "certainly before late February." 

Michael Steel, spokesman for House Majority Leader John Boehner (R-OH), insisted that "a 'clean' debt limit increase simply won’t pass in the House." Looks like Krauthammer is onto something. Moody's may be as well. Both may have come to the same conclusion: an "unstable and evolving regulatory environment" can cut both ways.

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