Friday, September 21, 2012

The Obama Administration’s Protection Racket

Shortly, President Obama will be addressing the AARP convention via satellite.  He will undoubtedly say nice things about AARP’s role as a “senior advocate.”  But what he won’t discuss are the ways in which his own Administration has allowed AARP to continue making billions in profits on its insurance business:

  1. AARP’s lucrative Medigap insurance was exempted in Obamacare from the ban on pre-existing conditions; medical loss ratio requirements; caps on insurance industry executive compensation; and the tax on all other health insurance plans.
  2. The Department of Health and Human Services didn’t think all these Obamacare exemptions were enough; last year they also exempted Medigap insurance from premium rate review – even though AARP, which carries the plan with the largest market share, earns greater profits the more seniors pay in premiums.
  3. At a conference hosted by America’s Health Insurance Plans in March 2010, HHS Secretary Sebelius encouraged the insurance industry to give up some of its profits, at a time when health insurance profit margins were about 2 percent.  Yet neither Secretary Sebelius nor anyone else in the Administration ever criticized AARP for making a profit margin of nearly 5 percent on its Medigap insurance.
  4. In April 2010, the Administration engaged in very public efforts to “encourage” insurance companies to ban rescissions and extend coverage to young adults earlier than is required by the law.  But no one from the Administration has taken similar steps to encourage AARP to stop discriminating against sick seniors applying for Medigap coverage.
  5. In a speech at an AARP conference in October 2010, Secretary Sebelius praised AARP as the “gold standard in cutting through spin and complexity to give people the accurate information they need.”  Yet the National Association of Insurance Commissioners (NAIC) has previously expressed concern about the potential for conflicts-of-interest associated with percentage-based compensation arrangements.  So Secretary Sebelius praised as the “gold standard” for “accurate information” an organization that has the types of financial conflicts her insurance commissioner colleagues have criticized as ripe for abuse.

Why might the Administration look the other way despite these abuses?  Documents released by the Energy and Commerce Committee yesterday provide myriad reasons, showing all the political favors senior Administration officials asked of AARP as they rammed Obamacare through Congress:

  • Jim Messina, White House Deputy Chief of Staff: “We need [AARP CEO] Barry Rand to go meet with Ben Nelson personally and just lay it on the line.  ‘We will be with you, we will protect you.  But if you kill this bill, seniors will not forget.’  We are at 59 [votes in the Senate], we have to have him.” (page 7)
  • Jim Messina: “Can we get immediate robo calls into Nebraska urging [Ben] Nelson to vote for cloture?” (page 9)
  • Nancy-Ann DeParle, Director, White House Office of Health Reform: “Can AARP support accountable care orgs [sic] and some other delivery system reforms?” (page 26)
  • Jim Messina: “Latest top 25 targets list from House leadership” (page 35)
  • Ann Widger, Office of Public Engagement: “We would really like AARP to participate in this roundtable.” (page 37)
  • Ann Widger: “Did you guys put out any paper today on the McCain [Medicare] amendment?” (page 39)
  • Jim Messina: “[Rep. Larry] Kissel a problem…Help.” (pages 42-43)
  • Nancy-Ann DeParle: “Can you get me a copy of the [AARP] bulletin we discussed yesterday?” (page 64)

Secretary Sebelius has already admitted she has acted improperly in using her office to conduct political activities; the Office of Special Counsel last week concluded she violated the law to do so.  Given all of the above, it is not unreasonable to question whether the Secretary, and others within the Administration, made a calculated political decision to grant special favors to AARP – and ignore its questionable business practices – because AARP endorsed Obamacare.

Yesterday President Obama claimed that he changed Washington “from the outside” by enacting Obamacare.  The pattern of conduct described above suggests just the opposite: That the President rammed Obamacare through only by establishing what amounts to an inside-the-Beltway protection racket between the Administration and AARP – the former will allow the latter to continue overcharging seniors for insurance, so long as AARP uses its advocacy megaphone to endorse the President’s liberal causes.

 

The Honorable Kathleen Sebelius

Secretary

Department of Health and Human Services

200 Independence Avenue, S.W.

Washington, DC 20201

Dear Secretary Sebelius:

Today my office is releasing a report, “Profits Before Principles,” regarding the insurance practices of AARP. The report finds that AARP has a strong financial interest in keeping Medigap supplemental insurance premiums high – because the organization receives greater profits the more seniors pay in premiums. In addition, AARP’s financial interests have been aided by the Patient Protection and Affordable Care Act (PPACA), which AARP not coincidentally endorsed. Experts agree that PPACA’s provisions will have the effect of driving seniors out of Medicare Advantage health plans and into Medigap supplemental insurance – a market where AARP enjoys the largest market share.

I am greatly concerned by AARP’s questionable business practices, and by the numerous exemptions granted to Medigap insurance – both legislatively and through your Department’s regulatory process – as a result of PPACA. Therefore, I ask you to respond to the following questions:

  1. The text of PPACA exempts Medigap supplemental insurance plans from several new requirements: Section 1103 exempts plans from medical-loss ratio requirements; Section 1202(2)(A) exempts plans from the prohibition on pre-existing condition exclusions; Section 9014 exempts plans from caps on industry executive compensation; and Section 10905(d) exempts plans from the tax applied to all other health insurers. Does the Administration support all these special exemptions for Medigap plans? Why or why not?
  2. My staff attended a PPACA implementation briefing for Senate Republican staff in April 2010. At that time, Jeanne Lambrew of your Department’s Office of Health Reform admitted that PPACA exempted Medigap insurance from the law’s new regulatory regime. If in fact the Administration does NOT support PPACA’s numerous exemptions for Medigap plans, why has your Department done nothing to publicize that fact in the intervening two-plus years since that briefing?
  3. Your Department continues to claim that PPACA “ended many of the insurance industry’s worst abuses” – even though you are fully aware that these changes do not apply to Medigap plans. For instance, HHS previously released a publicity brochure that says “starting in 2014, discrimination based on a pre-existing condition by an insurer will be prohibited in every state.” Why has your Department continued to repeat these misleading slogans, even though your staff admitted that seniors applying for Medigap insurance remain subject to pre-existing condition discrimination due to the special carve-outs included in PPACA?
  4. In your speech to the Democratic National Convention on September 4, 2012, you criticized Republicans for “let[ting] insurance companies continue to cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market.” Likewise, during his speech at the Democratic National Convention, President Obama said that “no American should have to spend their golden years at the mercy of insurance companies.” Please detail the specific provisions included in PPACA that place new limits on Medigap insurers’ ability to “cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market,” and ensure that no applicant for Medigap coverage with a pre-existing condition will be left “at the mercy of insurance companies.”
  5. In a speech on September 8, 2012, President Obama claimed that Medicare premium support proposals would lead to billions of dollars in greater profits for insurance companies. But a 2011 House Ways and Means Committee member report found that PPACA itself could lead to billions in profits for AARP, because the law’s cuts to Medicare Advantage will reduce enrollment in that program, and encourage seniors to purchase supplemental Medigap insurance instead. Do you agree with the Ways and Means Committee report’s premise that PPACA will lead seniors to migrate from Medicare Advantage coverage to Medigap plans – thereby increasing profits to AARP? If not, on what basis do you disagree with the non-partisan experts at the Congressional Budget Office and the Medicare Office of the Actuary, who have concluded the law will reduce Medicare Advantage enrollment by millions?
  6. In addition to the above exemptions, your Department added yet another Medigap carve-out to the ones included in the statute, by exempting Medigap insurance from PPACA’s rate review process. Why do seniors not deserve this supposed protection? If PPACA’s benefits are so good, why didn’t your Department extend them to seniors as well?
  7. Did AARP, or anyone associated with or paid by it, influence or attempt to influence the Administration regarding the numerous exemptions given to Medigap insurance in PPACA, or the regulatory interpretations of PPACA? If so, please provide details as to the dates, persons, positions, and circumstances of said efforts.
  8. The 2011 House Ways and Means Committee member report noted that for its Medigap plans, AARP receives 4.95% of every premium dollar paid by seniors. As a former insurance commissioner, do you think it’s appropriate that AARP has a perverse financial incentive to keep Medigap insurance premiums high?
  9. In a speech at an AARP conference in October 2010, you praised that organization as the “gold standard in cutting through spin and complexity to give people the accurate information they need.” As a former insurance commissioner, how exactly do you believe AARP can serve as a “gold standard” giving seniors “accurate information” about Medigap insurance plans, when the organization has a financial incentive to sell seniors more insurance than they may need or want?
  10. As a former insurance commissioner, you are no doubt aware that the National Association of Insurance Commissioners (NAIC) has previously expressed concern about the potential for conflicts-of-interest associated with percentage-based compensation arrangements. In fact, Section 18 of NAIC’s Producer Model Licensing Act recommends that states require explicit disclosure by insurer affiliates, and clear written acknowledgement by consumers, of any percentage-based compensation arrangement, due to the potential for financial abuses. Did you undertake any due diligence to ensure that AARP’s Medigap percentage-based compensation model was in full compliance with both the letter and spirit of Section 18 of the Producer Model Licensing Act prior to making your assertion that AARP constitutes the “gold standard” for giving seniors “accurate information?” If not, why not?
  11. Given that AARP holds the largest share of the Medigap market, why did your Department grant a special exemption for Medigap insurance from PPACA rate review? Why do you believe that AARP can act in a proper manner to control premium increases – even though the organization gains profits for every additional dollar Medigap premiums rise?
  12. At a conference hosted by America’s Health Insurance Plans in March 2010, you encouraged the insurance industry to give up some of its profits, at a time when health insurers were earning between 2 and 3 cents of profit for every dollar of revenue, according to Fortune 500 estimates. If you criticized other insurers for earning between 2 and 3 cents of every premium dollar in profits, why haven’t you criticized AARP for taking 4.95 cents of every Medigap premium dollar as pure profit?
  13. In April 2010, the Administration and you personally engaged in very public efforts to “encourage” insurance companies to ban rescissions and extend coverage to young adults earlier than was required by PPACA. Why haven’t you taken similar steps to encourage AARP to stop discriminating against sick seniors applying for Medigap coverage?
  14. At the April 2010 Senate Republican briefing, staff asked whether your Department would write a letter to AARP asking them to stop denying Medigap applications for individuals with pre-existing conditions. Jeanne Lambrew of the Office of Health Reform promised to look into the matter, but the letter was never sent. Why has your Department waited more than two and a half years to ask AARP to stop discriminating against sick and disabled individuals applying for Medigap insurance?
  15. Finally, please forward copies of any and all Administration documents – including those originating from outside your Department – from January 20, 2009 through today inclusive regarding: 1) the Medigap exemptions included in PPACA, and the Administration’s viewpoints and/or technical assistance provided regarding same during the drafting process; 2) the Administration’s administrative interpretations of the Medigap exemptions during the rulemaking process; 3) AARP’s positions on Medigap insurance plans, including but not limited to the exemptions included in PPACA; and 4) AARP’s position on PPACA, including but not limited to any policy changes AARP said it required to be included in the legislation for the bill to receive the organization’s endorsement.

I look forward to receiving your response on these issues within two weeks. If you have any questions, feel free to contact Alec Aramanda or Chris Jacobs of my staff. Thank you for your time, and I look forward to your reply.