California’s Health Insurance Debacle
When it comes to the changes in health insurance markets this year, Peter Lee, the head of California’s health insurance Exchange, is quick to criticize officials in other states: “Shame on the insurance commissioners who didn’t think ahead,” he told Politico in October. But to quote Winston Churchill, Mr. Lee should be more modest—because he has much to be modest about.
Responses to Public Records Act requests reveal that neither Mr. Lee nor any official at Covered California, the state-run Exchange, even considered the withdrawal of cost-sharing reduction payments to insurers when setting rates for the 2017 plan year. Just as Mr. Lee has accused others of not preparing for insurance market changes in the coming year, so too he and his colleagues failed to anticipate the sizable changes that took place this year when setting 2017 rates last fall.
This October, President Trump withdrew those cost-sharing reduction payments to insurers. His decision should not have come as a shock, and not just because he had threatened to do so for some time. The payments themselves had been on shaky ground for over a year; Judge Rosemary Collyer called the payments unconstitutional and ordered them stopped in a May 2016 ruling.
When California and other states finalized 2017 premium rates last summer, the cost-sharing payments appeared in significant jeopardy. Judge Collyer had stayed her May 2016 ruling as the Obama Administration appealed it, but another court could have ordered the payments stopped. Moreover, as I noted last year, the incoming Administration could easily stop the payments unilaterally in a matter of days—what President Trump ultimately did in October.
Given this tenuous environment for cost-sharing payments, what due diligence did Covered California undertake last year to determine whether the federal government would continue making payments in 2017? In a word, nothing. Not an e-mail, not a legal analysis, not a memo—nothing.
Only months after Covered California finalized its premium rates for 2017 did Mr. Lee finally jump into action. Two weeks after Trump’s election, a series of urgent e-mails including Mr. Lee discussed the court case regarding cost-sharing payments. Covered California invoked attorney-client privilege to redact the contents of the e-mail chain, but it doesn’t take a rocket scientist to determine that the chain consisted of panicked officials responding to events they had not anticipated.
Because they did not anticipate those events when setting 2017 premiums last summer, California health insurers will suffer financial losses. Insurers must now lower deductibles and co-payments for low-income individuals—a federal requirement under the health care law—without the federal government reimbursing them for that reduced cost-sharing. As a result, insurers in the Golden State will incur their share of up to $1.75 billion in losses nationwide, according to a recent court filing by the industry’s trade association.
Just as they failed to anticipate the loss of cost-sharing subsidies when setting rates for 2017, California officials have failed to accept responsibility for their regulatory failure. When in June I wrote that California’s Insurance Commissioner, Dave Jones, also failed to consider the impact of cost-sharing payments on rates for 2017, Mr. Jones responded with a series of attacks on President Trump. But if Mr. Trump represents such a threat to California’s health insurance market, then Messrs. Jones and Lee both should have spent time analyzing the impact of a Trump presidency on that market prior to his election. The record clearly demonstrates that neither did so.
Mr. Lee’s negligent behavior towards California’s individual health insurance market may stem from the fact that he does not participate in it himself. Despite receiving an annual salary of $436,800, and bonuses in the tens of thousands of dollars, Mr. Lee refuses to buy the Exchange policies he sells, choosing instead to have taxpayers fund his health insurance through CalPERS.
Perhaps Covered California should make a one-percenter like Mr. Lee purchase his insurance with the hoi polloi, so that he might understand the needs of Exchange customers by actually becoming one himself. Better yet, it could find a new Executive Director, one who spends less time tooting his own horn and more time anticipating changes in the market that were predictable—and predicted—long ago.
This post was originally published at the Orange County Register.