The Obama administration is set to use an obscure Treasury Department fund to bail out big insurance companies that were complicit in the president’s illegal effort to save Obamacare. So reports the Washington Post, though not in these terms. It took Christoper Jacobs at the Federalist to explain what’s really going on.

Most readers will recall that in 2013, millions of Americans received notices informing them that their existing health insurance plan would disappear once Obamacare’s major provisions took effect. President Obama’s “if you like your health care plan you can keep your health care plan” mantra was exposed as a lie.

In response, the Centers for Medicare and Medicaid Services (CMS) agreed to ignore the requirements of Obamacare and allow people to keep their prior coverage. Insurers could permit individuals who purchased coverage after the law’s enactment but before October 2013 to keep their plan for a few more months (later extended until December 2017).

But, as Jacob explains, this move, in addition to being unlawful, placed insurers in an untenable financial position. Healthy individuals kept their existing plans and stayed out of the Obamacare risk pool, while sicker individuals signed up for Obamacare in drove. Because insurers hadn’t anticipated the Obama administration’s rule change that produced this phenomenon, they had substantially underpriced their Obamacare products.

To induce insurers to maintain existing plans, CMS stated that “the risk corridor program should help ameliorate unanticipated changes in premium revenue” and that it “intend[s] to explore ways to modify the risk corridor program final rules to provide additional assistance” to insurers. As Jacobs puts it:

The administration conjured a political bailout. It pledged not to enforce the law [requiring cancellation of polices], so people could keep their plans, and President Obama could get off the hook for misleading the American people. This necessitated a financial bailout through risk corridors.

Actuaries can debate how much of the unpaid risk corridor claims stem from this specific policy change, but there can be no doubt that the “like your plan” fix increased those claims. CMS itself admitted as much when announcing the policy.

The risk corridor money has proved to be grossly inadequate to cover the losses of insurers. Several health plans have sued the U.S. to collect the shortfall. According to the Post, the Justice Department has signaled its willingness to settle the claims and, indeed, to offer payments to approximately 175 health plans selling coverage on ACA marketplaces.

The money would come from the obscure fund mentioned above, known as the Judgment Fund. In this way, the recent congressional ban on the use of Health and Human Services money to pay the insurers would be avoided. The Obama administration would, in effect, collude with the insurers by rolling over in lawsuits (and encouraging additional lawsuits in which to roll over) in order to bail out insurers

This raises the following question, posed by Jacobs:

Why should the executive be allowed to break the law [which didn’t allow the continuation of non-Obamacare compliant plans]. . .and then force. . .taxpayers to pay the tab for the financial consequences of that lawbreaking?

It is not a sufficient answer to cite the needs of insurance companies. They are not victims. Jacobs points out:

They could have cancelled all pre-Obamacare plans regardless of the president’s announced policy, demanded the opportunity to adjust their premium rates in response, pulled off the exchanges altogether, taken legal action against the administration — or all of the above. They chose instead to complain behind closed doors, get their lobbying machine to work, and hope to cut yet another backroom deal to save their bacon.

If there is, nonetheless, a case for bailing out insurers, let that case be made to Congress. If Congress finds it persuasive, the bailout can proceed.

But Congress has already rejected that case. So, in effect, the case will be made to a judge (or judges) who will be asked to approve collusive settlements between insurers and the Obama administration, to be funded by American taxpayers. Any judge confronted with such a settlement should think long and hard about approving it.

Meanwhile, congressional Republicans are doing what they can to head off the bailout. Among things, they have obtained two memo from the Congressional Research Service. The essence of both is that the fund Obama wants to use for the bailout cannot be put to that purpose.

Stay tuned.

UPDATE: Well, now the Obama administration reportedly has reversed itself and is contesting the lawsuits filed by two big insurers. It has filed motions to dismiss their lawsuits on Friday on the grounds that the federal government isn’t responsible for the insurers’ losses.

Why the reversal? It’s possible that the action taken by congressional Republicans, including the two Congressional Research Service letters described above, made an impact.

Or maybe the administration is trying to improve its position in settlement negotiations with insurers in the hope of obtaining a settlement it can present to the court[s] as the product of genuine negotiations in seriously contested litigation.

However, Christopher Jacobs, quoted extensively by me in this piece, calls the administration’s motions a “meaningful” development. And if the administration has really presented a compelling case that the insurers have no claim, it may be difficult to turn around and get a substantial settlement agreement approved in court.

Perhaps Team Obama has decided to let the insurance industry go down in flames as a prelude for a push by the Clinton administration for single payer.