Loose lips spike stocks

On April 1 of this year, the Centers for Medicare and Medicaid Services (CMS) announced a decision to increase funding to the private-sector Medicare Advantage program by $8 billion. In the days before this announcement, there was a surge of trading in the stock of Humana and other private health insurers. The Justice Department and the Securities and Exchange Commission are investigating whether Wall Street investors had advance access to inside information about the then-confidential Medicare funding plan.

Now the Washington Post reports that hundreds of federal employees were given advance word of the CMS’s Medicare decision. A review by Sen. Grassley’s staff of the e-mail records of employees at the Department of Health and Human Services found that 436 such employees had early access to the Medicare decision as much as two weeks before it was made public.

And note that Grassley’s review did not encompass employees at the Office of Management and Budget, which has not made email records available to the Senator. No doubt, some OMB employees also had advance word of the CMS’s decision.

The government cannot, of course, make decisions such as the one involving funding of Medicare Advantage while keeping all of its employees in the dark. But Keith Hall, a former commissioner at the Bureau of Labor Statistics (BLS), says that giving hundreds of government employees advance notice of a policy decision “is way too many.”

Moreover, according to law professor Kathleen Clark, not all federal agencies have tough procedures in place to prevent early disclosure of potentially market-moving information. At the BLS, the roughly two dozen economists who calculate the monthly unemployment and jobs figures are typically locked down for a one-week stretch as they prepare information for public release, with limited access to other employees. And they face the possibility of imprisonment for up to five years and a fine of a quarter of a million dollars for disclosing information early.

But such restrictions and penalties apparently do not exist at other government agencies including the CMS. Maybe they should, at least to some extent.

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