Streetwise Professor

December 15, 2013

Sebelius Plays Santa Claus, By Running Afoul of the Takings Clause

Filed under: Economics,Politics,Regulation — The Professor @ 4:39 pm

The latest extra-legal, ad hoc attempt to stave off the cataclysmic consequences of Obamacare, and the utterly inept implementation thereof, is quite something to behold.  Because the vaunted website does not incorporate a payment function (such an exotic concept, I know) and because insurers are receiving so much bad information, it is likely that a pathetically small fraction of the pathetically small number of individuals who have run the gauntlet to complete an application will actually pay their premiums in time to be covered by 1 January, 2014.  To avoid the catastrophe of large numbers of individuals finding themselves uncovered in the new year, the administration is “strongly encouraging” (euphemism alert!) insurers to play claims on policies that have not been paid for.  Moreover, since there is mounting concern over access to physicians, the administration is also “strongly encouraging” insurers to pay claims for physicians and hospitals that are not in the networks associated with the policies the insurers have issued. Furthermore, there is further “strong encouragement” that insurers pay to renew prescriptions that are not covered under existing policies.

With respect to the paying claims on unpaid-for policies, the administration is essentially enforcing insurers to extend credit in a business that does not normally extend credit.  In private insurance markets, policies doe not come into effect until premiums are paid.  Given that a good fraction of those on exchanges are likely not to be very creditworthy, this exposes insurers to the risk of substantial credit losses.  Since the policies were priced on the presumption that they did not embed credit, insurers are exposed to losses for which they will not be paid.

Are insurers to be compensated for the inevitable credit losses?  By whom? The Federal Government?  If so-has such compensation been duly authorized by Congress?  (Rhetorical question.)  If Congress hasn’t authorized it, where is the money going to come from?

If not-is this diktat not an unconstitutional taking of the property of insurers?  Does it not compel them to provide services without compensation?

Similarly, insurers designed policies, physician and hospital networks, and premiums to trade-off costs and benefits.  To economize on premiums, they limited network access.  Forcing them to provide costly access to a broader network, but not permitting changes in premiums, is yet another taking

In other words, Sebelius is trying to play Santa Claus, but in so doing, is running afoul of the Takings Clause.  The property of private insurers is being taken without compensation. They are being forced to provide valuable things (credit, access to a broad physician network, prescription coverage) for which they are not being paid.  All to shield the administration from the catastrophic consequences of the baked-in defects of Obamacare, and its comical incompetence in implementing it.

The lawlessness of this administration, especially when it comes to Obamacare, is quite beyond belief.

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  1. Not to mention, under the Anti-deficiency Act, the Sec HHS has no authority to commit the government to paying for any insurance losses. A government official cannot commit payment by the government for items not authorized by Congressional appropriation and that has gone thru the wickets of Federal Acquisition process.

    Comment by The Pilot — December 15, 2013 @ 6:19 pm

  2. The story that captures all of the O-gangs attitude towards the law occurred 140+ years ago when Judge Cardozo (the father and shame of the Cardozo, a Tammany Hall / Tweed ring judge and probably the smartest lawyer, until disbarred, in New York) was examining a Tweed Ring State Senator for his bar exam (this was done orally in open court in those days):

    Judge Cardozo: What would your advice to a client be if you determined that some law he wanted would violate the State Constitution?

    Candidate: I would tell him to treat the Constitution like the Rules of the Senate; when they get in the way we vote to suspend them.

    – a burst of laughter from the onlookers –

    Judge Cardozo: You have a great future in constitutional law! Candidate passed.

    Comment by sotos — December 16, 2013 @ 11:43 am

  3. @sotos-Cardoza also played a role in the Black Friday gold corner. He put the clearinghouse (the Gold Exchange Bank) into receivership in order to allow Fisk and Gould to skip on making payments to cover their losses in trading gold. This was the primary charge for which he was disbarred.

    The ProfessorComment by The Professor — December 16, 2013 @ 5:28 pm

  4. That was the charge that was safest to bring. Cardozo also played a key roll in brining down the Tweed Ring when he turned on them. A second level Tweed Ring member, whose name escapes me, had a habit of racing in four in hand coaches; something that is dangerous, even if it wasn’t done where he did it – in the street. He was killed in an accident and one of Samuel Tilden’s allies against Tweed found a trunk full of documents. No one knows exactly what was in it, probably it included the fraudulent issuance of NY County Bonds and the rulings that enabled them.

    Whatever it was they must have had something to do with Cardozo, because the next day Tilden got to him and suddenly he began to issue writs against the Tweed Ring, warrants for NY County records, etc. I don’t think either he or Elegant Oakey Hall or even most of them went to prison. Tilden wanted to run as a reformer, which he was (having helped found the NYC Bar association to fight corruption in the legal profession), but had no illusions about destroying the political machine and did not want the entire of The NY Democratic Party, or Tammany Hal itself to be smeared. Tilden was himself a Grand Sachem, and any such blanket destruction would wreck his chances for the Presidency.

    Comment by Sotos — December 17, 2013 @ 11:03 am

  5. Actually, if memory serves, Cardozo was not actually disbarred and resigned before he could be impeached in the NY State Legislature: a couple of other Judges were impeached and convicted in the Senate.

    Comment by Sotos — December 17, 2013 @ 11:10 am

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