Obamacare Cronyism: Where Does the Bureaucracy End and the Insurance Industry Begin?

When the Affordable Care Act, or Obamacare, was written in 2010, much of it was negotiated behind closed doors with lobbyists from across the health care industry. It's unsurprising, then, that many of those major players—especially in the insurance industry—got sweetheart deals. Requiring Americans to buy health insurance gave insurers instant access to millions of new customers. Assuming that their customer pools had enough healthy people to subsidize beneficiaries who were sicker, insurance companies could expect to make a lot of money—not only through payments from consumers, but also in direct subsidies from the federal government itself.

Well, things are not working exactly has insurers had planned. Just ask United Healthcare.

United Healthcare is the largest U.S. insurer by enrollment, and the company is warning that it may withdraw from Obamacare in 2017. The insurer has already suspended advertising for its Obamacare coverage and stopped paying commissions to insurance brokers for signing people up. It literally doesn’t want consumers to buy its products.

On a United Healthcare call Thursday with Wall Street analysts, Josh Raskin of Barclays asked, “Simply, how long are you willing to lose money in exchanges?” and then followed up, “Are you willing to lose money again in 2017, Steve?” United Healthcare CEO Stephen Hemsley replied: “No, we cannot sustain these losses. We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself,” adding that “we saw no indication of anything actually improving.”

Not only are enrollees in the insurance market sicker than expected, but thanks to budgetary language passed last year, the insurance companies' shortfalls are no longer the taxpayers' problem. Obamacare's "risk corridors" were designed to transfer some money from profitable insurers to less profitable insurers as a way to shield less successful insurers from the deep losses that could force them to leave the marketplace. Under the original plan, taxpayers would pick up the remainder of the shortfall—a bailout for insurers, negotiated by insurers, and financed by taxpayers. Today, the insurers will bear that risk alone, and appropriately so.

Of course, whether these taxpayer protections will endure in the years to come may depend on the pull of insurance industry cronies— not only in the private sector, but also those cronies who are currently part of the adminstration. The Washington Examiner's Timothy Carney vividly captures the current, and appalling, health care scene:

This is where the intimate network of the Obamacare insiders comes in. The Centers for Medicare and Medicaid Services (CMS) — which issued the pledge to fully bail out United Healthcare and its cohorts — is run by acting administrator Andy Slavitt. Slavitt is the former CEO of United Healthcare (while he held that position he contributed to Obama's 2008 election)….

Meanwhile, the insurance lobbyist leading the industry's push for more Obamacare bailout money is Marilyn Tavenner, Obama's previous chief of CMS, now head of America's Health Insurance Plans (AHIP). AHIP says risk corridors aren't the group's top focus, but Tavenner is speaking out on it.

In summary: Tavenner helped build the risk corridor program, and then went to the industry that would get the money. Slavitt left the insurer with the biggest losses, and now is the government official promising to bail out his former employer.

You can call it regulatory capture or you can call it a revolving door, but it is cronyism all the same. And it's of a kind that is especially troubling: the kind where cronies don't just try to regulate their own industry, but also try to loot the Treasury while they're in power. The question now is whether Congress will accommodate these cronies by explicitly removing last year's taxpayer protections or will stand by if Obamacare's bureaucracy tries to sidestep the law and hand out money to insurers anyway. We should find out one way or another in the next month or so; stay tuned.