Both Left and Right rebelled Thursday afternoon against the “Cromnibus” — the combination continuing resolution/omnibus appropriations bill.
The problem wasn’t the spending levels, it was the non-spending items stuck into the must-pass bill without proper debate. Cromnibus was a fruit basket of special-interest provisions that K Street had been requesting for years.
If you read to the very end of the bill — page 1,602 of 1,603 — you would find a section titled “Modification of Treatment of Certain Health Organizations.”
This provision would provide protection from an Obamacare provision for exactly one entity: Blue Cross Blue Shield. Conservative writer Yuval Levin explained:
“This section is, simply put, a special favor for Blue Cross/Blue Shield allowing them to count ‘quality improvement’ spending as part of the medical loss ratio calculation required of them under Obamacare. And it’s made retroactive for four years, saving them loads of money.”
“Medical loss ratio” is basically the portion of revenue that an insurer pays out in claims. Obamacare requires insurers to have an MLR of at least 85 percent; they must fork over any excess to their customers.
Most insurers can include as “medical losses” various efforts to improve the quality of healthcare provided to their customers, such as the credentialing of providers. Because the Blues get special treatment under the tax code, Obamacare gave them stricter MLR rules, so they can’t count quality improvements as medical losses.
The Cromnibus would change that, saving the Blues some serious dough. There’s no clear right or wrong in this matter. It’s hard to determine fairness when you begin with arbitrary profit caps and a tax code that gives special treatment to one group of insurers. But providing Obamacare relief to exactly one corporation by tacking an opaque provision onto the end of a 1,603-page bill hardly smells of good governance.
Or look at page 1,153, which reauthorizes a federal agency whose job is to subsidize American-owned foreign businesses and the banks that finance them. The Overseas Private Investment Corporation extends taxpayer-backed loans and guarantees to U.S. companies when they set up shop overseas.
OPIC is naked corporate welfare. Subsidizing foreign businesses makes little economic sense (except for the subsidized businesses and their bankers who get to offload all risk to the taxpayer), and often it hurts the U.S. economy in direct ways. Consider a recent $6 million loan OPIC made to subsidize to subsidize a Brazilian granite facility. This harms U.S. granite quarries.
Republican candidates have fueled their big gains in 2010 and 2014 with tirades against corporate welfare. Shouldn’t such a dubious agency as OPIC be considered in the light of day, with floor debates and votes in both chambers? That way voters could at least see which lawmakers vote for a taxpayer backstop to multinationals.
The Left’s objections to Cromnibus focus on Section 630, beginning on page 615. This section creates a new loophole in federal bank regulation.
In short, the 2010 Dodd-Frank financial reform bill prohibits banks from holding certain derivatives (called “swaps”) in the division of the company that holds customers’ deposits and is thus insured by the Federal Deposit Insurance Corporation.
The logic of this regulation is clear and sensible even to free-market eyes: Banks can play with derivatives, but not by using money that’s backed by Uncle Sam.
Cromnibus would give the banks a bit of wiggle room: An FDIC-insured bank division could hold swaps as long as they involve hedging and mitigating risk incurred through the bank’s regular lending activity. For instance, if a bank gave a loan to finance an oil rig, this provision would allow that division to take a short position on oil prices to mitigate the bank’s risk.
This is a reasonable explanation, but nobody believes the banks when they say they would use this freedom only to mitigate risk. JPMorgan Chase supposedly was engaged only in hedging when it lost billions in the notorious “London Whale” trade.
Bank lobbyists and regulators can articulate a difference between speculation and hedging, but the line is often invisible. Commodities traders, appreciating this hedging-speculation ambiguity, used to speak of “hedgulation.”
The bank lobbyists’ complaints about Dodd-Frank sound legitimate: If they can’t hedge against their loans, they will just make fewer loans. But it’s not clear that their solution is the right one. Maybe this is the sort of thing that should be hashed out between the two chambers. (The House passed a bill giving banks this very liberty, but the Senate never did.)
Bills like Cromnibus, crafted in darkness and presented as must-pass legislation, allow the special interests to get what they want. A free and open debate on these issues is what the country needs.Timothy P. Carney, the Washington Examiner's senior political columnist, can be contacted at email@example.com. His column appears Sunday and Wednesday on washingtonexaminer.com.