The Trump administration announced its intent to stop making risk adjustment payments to insurers on the ACA marketplaces. Just… watch.
Today was a bad day for insurers seeking more than $12 billion in risk corridor money from the United States. Over a dissent, the Federal Circuit ruled that the federal government doesn’t owe them a cent. (I’ve been following the litigation for a long time; you can catch up on my prior posts here.)
The opinion starts on a bright note for insurers. The ACA, the Federal Circuit reasoned, created an enforceable obligation to pay risk corridor claims in full: the statute is “unambiguously mandatory.” The court brushed back the government’s arguments that the ACA created only a budget-neutral risk corridor scheme: “Nothing in section 1342 indicates that the payment methodology is somehow limited by payments in.”
That’s a big deal. If nothing else other than the ACA were in play, insurers would be entitled to recover everything they say they’re owed.
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Unfortunately for insurers, that’s not all that’s in play. Appropriations riders for fiscal years 2015 and 2016 limited funds available to pay risk corridor claims. Here’s the text of one of those riders (the other is identical):
None of the funds made available by this Act from [two available funds], or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services-Program Management” account, may be used for payments under section 1342(b)(1) of [the ACA] (relating to risk corridors).
That’s all it says. By its terms, it doesn’t change the scope of the ACA’s underlying promise. It’s just a restriction on the use of certain funds to pay certain claims.
Nonetheless, the Federal Circuit says that Congress “clearly indicated its intent” in the appropriations riders to amend the risk corridor program:
[Congress] asked GAO what funding would be available to make risk corridors payments, and it cut off the sole source of funding identified beyond payments in. It did so in each of the three years of the program’s existence. And the explanatory statement regarding the amendment containing the first rider of House Appropriations Chairman Rogers confirms that the appropriations language was added with the understanding that HHS’s intent to operate the risk corridors program as a budget neutral program meant the government “will never pay out more than it collects from issuers over the three year period risk corridors are in effect.” 160 Cong. Rec. H9838 (daily ed. Dec. 11, 2014). Plainly, Congress used language similar to the appropriations riders in [prior cases] to temporarily cap the payments required by the statute at the amount of payments in for each of the applicable years—just as those decisions altered statutory payment methodologies.
What else could Congress have intended? It clearly did not intend to consign risk corridors payments “to the fiscal limbo of an account due but not payable.”
This is pretty weak tea. As the dissent points out, Congress tried and failed to amend the ACA to make the risk corridor program budget neutral. The appropriations rider was the best it could do. Chairman Rogers may have wanted to change the scope of the entitlement, but he wasn’t able to lock that down into statutory language. It’s a bad look for the court to privilege the bombastic statement of a bill’s proponent over the text of the law that Congress enacted.
Besides which, it’s completely plausible to think that Congress meant to “consign risk corridors” to “unpayable obligations.” Even as congressional Republicans kicked up a kerfuffle over “bailouts,” HHS was reassuring insurers that the agency would “record risk corridors payments due as an obligation of the United States Government for which full payment is required.” Knowing full well that it had an obligation to pay, Congress shut off the funding stream in a deliberate effort to sabotage the ACA.
And it worked! Loads of co-ops went under in response to the unexpected financial hit. Did Republicans in Congress care that they were reneging on a promise? Not a bit. They saw a chance to hurt Obamacare, and they took it.
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The Federal Circuit’s next move is to reject the insurers’ claim that HHS had made a contractually binding commitments to pay. Insurers argued that HHS used those commitments to “induce insurers to offer plans in the exchanges without an additional premium accounting for the risk of the dearth of data about the expanded market, in reliance on the presence of a fairly comprehensive safety net.”
Without quarreling with any of that, the court held that “the overall scheme of the risk corridors program lacks the trappings of a contractual arrangement that drove the result in [a prior case].” Why? The court thought it was relevant that HHS didn’t employ certain words in entering into this commitment—words like guarantee, offer, or contract. Instead, risk corridors were an “incentive program” for the benefit of third parties, not a “traditional quid pro quo.”
I’m again at a bit of a loss. You don’t have to use magic words to enter into a contract. You just have to make a promise. What’s more, every contract operates as an “incentive program”: my promise to perform is an incentive for you to perform. And loads of contracts are entered into primarily for the benefit of third parties. That doesn’t make them unenforceable.
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What’s next? The insurers will probably seek en banc review. This is a plausible candidate for full court rehearing: it’s a big money case, it carves a lot of crucial Federal Circuit cases, and (to my eyes) the reasoning is pretty dubious. But en banc review is rare, so insurers can’t pin their hopes on it.
From there, it’s on to the Supreme Court. Who knows if it’ll agree to hear the case? It’s not an implausible candidate for review, and lord knows the Court can afford to take more cases. But the Court might be gun-shy about wading into another case about the ACA.
So this isn’t the end of the road for insurers. But it’s a Michigan-sized pothole in that road. And the opinion reflects a disturbing unwillingness to hold the government accountable for its promises. That’s a point Judge Newman made in concluding her dissent:
The government’s ability to benefit from participation of private enterprise depends on the government’s reputation as a fair partner. By holding that the government can avoid its obligations after they have been incurred, by declining to appropriate funds to pay the bill and by dismissing the availability of judicial recourse, this court undermines the reliability of dealings with the government.
Craig Garthwaite and I sounded the same theme in the New York Times last year. That’s why this decisions disturbs me so much: the costs of being cavalier about our debts extend far beyond a fight over risk corridor money.
A judge on the Court of Federal Claims has entered a $214 million judgment against the United States in favor of Moda Health, an Oregon insurer. Moda sued to recover money owed to it under the risk corridor program, a three-year program that was supposed to protect insurers from excessive losses on the exchanges. In emphatic language, the court ordered the government to pay up.
The Court finds that the ACA requires annual payments to insurers, and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments under the ACA. In the alternative, the Court finds that the ACA constituted an offer for a unilateral contract, and Moda accepted this offer by offering qualified health plans on the [exchanges]. …
Today, the Court directs the Government to fulfill [its] promise. After all, “to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.” Brandt v. Hickel, 427 F.2d 53, 57 (9th Cir. 1970).
This is exactly right. Even before the first risk corridor lawsuit was filed, I argued that insurers had viable claims against the federal government for any deficiencies. I’ve expanded on that view in an article in the New England Journal of Medicine and in extensive coverage on the blog. It was only a matter of time before a court entered a money judgment against the United States.
The stakes are enormous. Under the court’s reasoning, every insurer—not just Moda—can sue to recover its risk corridor money. Already, the government owes $8.3 billion for the first two years of the program. Total liability will certainly exceed $10 billion, and will probably be closer to $15 billion.
Will the government pay up? It’ll appeal to the Federal Circuit, but a pending case is likely to resolve the matter. In November, a different judge on the Court of Federal Claims dismissed a risk corridor lawsuit brought by Land of Lincoln. That decision is wrong, and it’s already been appealed. Land of Lincoln filed its opening brief at the end of January.
I expect the Federal Circuit to side with Land of Lincoln, probably sometime this summer or fall. However it rules, the appellate court’s decision will resolve the legal issue at the heart of all the risk corridor cases. Supreme Court review is then a possibility.
But the real wild card here isn’t the courts. It’s Congress. Without an appropriation, the federal government can’t make any payments from the U.S. Treasury, even to satisfy court judgments. As it stands, an indefinite, open-ended appropriation called the Judgment Fund exists to pay money judgment against the U.S. But Congress can amend the statute governing the Judgment Fund to prohibit any payments in connection with the risk corridor program.
Were Congress to sew up the Judgment Fund, the federal government couldn’t pay the judgments entered against it. The obligations would exist in the abstract, but no money would be available to satisfy them. And because the appropriations power has been vested exclusively in Congress, the courts can’t order Congress to appropriate money if it declines to do so.
The judge in Moda is right, though. Refusing to pay is a shabby way to treat insurers, which entered the exchanges in reliance on the federal government’s promises. Our president, however, has a track record of stiffing business partners. I wouldn’t be surprised if he signed a law doing just that.
$8.3 billion and counting. (For background, see here.)
The risk corridor program runs from 2014 through this year, and the balance for the 2016 plan year won’t be calculated until next fall. But the federal government has just released figures for 2015, and they’re eye-popping. Insurers are owed $5.9 billion (h/t Charles Gaba) on top of $2.4 billion that they’re still owed for 2014.
That means that the risk corridor lawsuits, taken together, are some of the largest ever brought against the United States. If 2016 looks the same as 2015, the government’s liability will swell to $14.2 billion, or about $43 for every man, woman, and child in the country.
But the lawsuits may not be long for this world. A handful of senators, including Marco Rubio, are sponsoring a bill with the inaccurate but hilarious title of the HHS Slush Fund Elimination Act. If it passes, the bill would sew up the Judgment Fund:
Notwithstanding section 1304 of title 31, United States Code, or any other provision of law … [with one exception], no Federal funds, including amounts appropriated under such section 1304, may be used to pay any final judgment, award, or compromise settlement relating to a covered provision (including interest and costs).
That’s not so different from the language that I floated some weeks back. (Rubio’s website claims that he “identified the bailout provision in the ObamaCare law and was the first in Congress to introduce legislation to stop it.” This is revisionist history: Rubio had little to do with the legislation, which originated in the House.)
If Congress eliminates the Judgment Fund as a source of payment, the federal government can’t settle these cases or pay any court judgments. That’s so even if the insurers are entitled to the money within the meaning of federal law. Although deprivation of an entitlement raises due process concerns, the remedy for any due process violation can’t lie with the courts, which have never claimed the power to instruct Congress to enact an appropriations statute. A remedy would have to come from Congress—and this Congress is unlikely to oblige.
Will the statute be adopted? I expect so. I’m not an expert on congressional procedure, but it looks to me that the Slush Fund Elimination Act affects government spending and could therefore be incorporated into a reconciliation bill. If that happens, Democrats couldn’t filibuster it.
So this is shaping up to be another installment in the long-running reality show called Elections Have Consequences. If Hillary Clinton had been elected, the insurers probably would have gotten paid. But she didn’t, and they likely won’t.
It got lost in the election news last week, but a judge on the Court of Federal Claims has dismissed one of the risk corridor lawsuits. (Background on these lawsuits, which seek several billions of dollars from the U.S. government, is here.)
The opinion in Land of Lincoln v. United States is long and complicated, but in brief:
- The court held that the insurers’ claims were ripe for review, even though the three-year program has not yet come to a close.
- Deferring to the administration’s interpretation of appropriations law, the court held that the ACA did not give insurers an entitlement to risk corridor money.
- By the same token, the court found that HHS’s agreements with health plans did not create a contractual obligation to make risk corridor payments.
I think the court is mistaken on the merits, but the opinion is thorough and mercifully free of partisan shots at Obamacare. We’ll see how it fares on appeal—and how the other judges on the Court of Federal Claims resolve the other pending cases.
Does it matter, though? As I’ve explained before, Congress is free to change appropriations law to prohibit the administration from paying any risk corridor judgments. Hillary Clinton would probably have vetoed any such effort. But with Donald Trump’s victory and unified Republican control of Congress, we’re likely to see renewed interest in sewing up the Judgment Fund.
Insurers know this. They’ll be scrambling to settle these cases before Trump takes office. And I’m not sure what the Obama administration will do in response. The Justice Department was open to settling these cases because it faced considerable litigation risk. Trump’s election, together with this recent dismissal, markedly reduces that risk.
At the same time, HHS probably still wants to pay insurers what it believes they are owed. Doing so will keep the exchanges as healthy as possible for as long as possible, raising the political cost to Republicans of repealing the ACA without a comprehensive replacement.
I don’t know how the administration will resolve this tension. At a minimum, however, insurers are much less likely to get paid than they were last Monday. That gives the Justice Department a lot more bargaining leverage. If it does settle any of the risk corridor lawsuits between now and January 20, I’d expect those settlements to be much smaller than insurers anticipated.
Although it’s been eclipsed by the presidential election, the fight over the risk corridor lawsuits continues to simmer. Last Friday, the House of Representatives moved to file an amicus brief objecting to the administration’s willingness to open settlement negotiations:
The law is clear that insurance companies operating on the health exchanges established pursuant to the [ACA] have no right to government handouts in excess of incoming funds under the Act’s risk corridors program. This is because the program was intended to be budget-neutral and self-funding—i.e., outgoing payments would be covered by incoming payments—and Congress has confirmed this intent, not once but twice, through annual appropriations legislation.
I think the House is mistaken, and the New England Journal of Medicine has just published a piece of mine describing why:
As the Government Accountability Office has explained, “the mere failure to appropriate sufficient funds is not enough” to change the scope of an entitlement. And that’s all the appropriations statutes are: “mere failure[s] to appropriate sufficient funds.” They do not purport to change what health plans are entitled to. So the promise that the ACA made has not been undone.
[In addition], congressional Republicans maintain that the administration cannot settle the cases because Congress hasn’t appropriated the money to pay court judgments. Without an appropriation, they argue, the United States can’t make a payment even if a court orders that the money be paid. In other words, Congress is always free to refuse to honor its debts—and it has refused to honor these particular debts.
The Republicans acknowledge that an existing, permanent appropriation known as the Judgment Fund normally allows the executive branch to settle lawsuits against the United States. By its terms, however, the Judgment Fund is available only when payment is “not otherwise provided for.” Drawing support from a memo compiled by the Congressional Research Service, they believe that they “otherwise provided for” risk-corridor payments when they partially funded the program.
But in fact the Judgment Fund is not unavailable whenever Congress chooses to partially fund a program. It is unavailable only when Congress has designated an alternative source of funds to pay money judgments arising from a failure to fulfill the United States’ financial obligations. Because Congress has made no such designation here, the Judgment Fund appears to be available to settle the risk-corridor lawsuits.
Last week, the Washington Post reported that settlement negotiations with insurers over risk corridor payments are well underway. “One health plan executive, whose attorney has spoken with Justice officials, said the department is trying to reach an agreement with suing insurers in the next two weeks on what percentage of the remaining $2.5 billion would be paid out. At that point, the same offer would be made to every other insurer owed money.”
On Friday, however, the Justice Department filed motions to dismiss in two of the risk corridor lawsuits. In so doing, it made a full-throated argument that the ACA created no entitlement to risk corridor money, that later appropriations riders have circumscribed that entitlement anyhow, and that HHS did not and could not have entered into binding risk corridor contracts with insurers.
In other words, the Justice Department is punching insurers even as it’s trying to cut a deal with them. What gives? For those who—like the Wall Street Journal—think that the Obama administration “is crafting an illegal bailout to prop up the President’s health-care law,” the behavior makes no sense. If health plans need a bailout so badly, wouldn’t the administration throw in the towel and pay up?
Here’s what’s going on: the administration is trying to save taxpayer dollars. You’d be forgiven for missing this if you read the suggestive coverage in the Post about how the administration wants to “draw from an obscure Treasury Department fund” in order to “get around a recent congressional ban.” That’s dark, isn’t it?
The reality is more prosaic. As I’ve said before and will doubtless say again, the administration is playing a losing hand in these risk corridor cases. The insurers aren’t certain to win: the Justice Department makes some plausible arguments in its motion to dismiss. And Congress could always circumscribe the Judgment Fund to preclude payment.
But the insurers are probably going to win—and win big. The Justice Department wants to cut a deal before that happens. Because litigation is long and uncertain, insurers might be willing to settle at a discount. The motions to dismiss increase the pressure on insurers to do so. And settling at a discount would likely save taxpayer money.
So don’t buy the hype. The risk corridor lawsuits may have gotten wrapped up in the bruising politics surrounding the ACA, but they’re still just lawsuits. And there’s nothing unusual or nefarious about settling lawsuits. It happens all the time.
Congressional Republicans will have to confront at least three tough strategic questions as they move to shut off risk corridor payments. (Prior coverage is here.)
First, the courts will entertain congressional objections to any risk corridor settlements only if the House has standing to intervene in the litigation. But the question of whether the House has standing to bring an appropriations lawsuit is already teed up in House v. Burwell, which is now pending on appeal at the D.C. Circuit.
In House v. Burwell, court is likely to be suspicious of the House’s standing argument for fear that it might open the floodgates to similar appropriations disputes. The House will need to emphasize that such cases are rare, almost unique. Intervening in the risk corridor dispute would embarrass that claim. Litigation strategy in House v. Burwell thus counsels against intervening to stop the risk corridor payments.
Second, the ACA’s private-market reforms rely on the private sector to distribute government-supported benefits. In this, they reflect a conservative suspicion of the public sector and a desire to embrace private ordering. Think of proposals to voucherize Medicare or privatize Social Security.
Will private actors agree to work with the government on anything remotely controversial if they know that shifting political winds might lead Congress would renege on its financial obligations? Refusing to make risk corridor payments may advance Republicans’ effort to undermine the ACA, but at the cost of undermining the long-term viability of privatization strategies.
Third, in late 2015, the Obama administration really wanted to make full risk corridor payments. It knew that a bunch of health plans, especially the co-ops, might otherwise go under—and that’s exactly what happened.
Matters are different now. With 2016 coming to a close, the risk corridor program is about to wrap up. The insurers that can’t weather the loss of risk corridor payments have mainly shuttered already. For 2017 and beyond, those plans that are still in business will participate on the exchanges if they think they can make money. Whether they also get their risk corridor payments probably doesn’t much matter to the health of the exchanges.
That changes the politics. Cutting a big check to insurance companies is a bad look, and the Obama administration knows it. For good reason, the administration may feel some legal responsibility to settle. But if the Republicans try to amend the Judgment Fund and foreclose these lawsuits, I don’t know how vigorously a newly sworn in President Clinton would object. She might be secretly relieved if Republicans decide to throw her into that particular briar patch.
From the Wall Street Journal.
Congressional Republicans are warning the Obama administration not to settle with insurers that have sued the government over an Affordable Care Act program to compensate them for losses under the law, saying such a move would bypass spending limits set by Congress.
I get what the Republicans are doing here. It’s easy to score points by railing against insurer “bailouts.” But the Obama administration isn’t exploring settlement (as Chairman Upton of the House Committee on Energy and Commerce says) because it “is panicked, and this ‘Better Call Saul’ sue-and-settle scheme is the pinnacle of desperation as the health law crumbles.”
In point of fact, whether risk corridor payments are made doesn’t much matter to the future of the ACA. Sure, Republicans’ refusal to fully fund the program contributed to the collapse of a bunch of co-ops and small insurers. But that damage is done.
For insurers that weathered the storm, they’ll participate on the exchanges if they think they can make money. Whether they win their lawsuits will affect their earnings, not their participation.
No, the Obama administration is exploring settlement because it thinks it’s probably going to lose these lawsuits. As I have explained many times, the risk corridor program creates an entitlement in health plans to risk corridor payments. If HHS can’t make those payments directly—and it can’t, on account of congressional appropriations riders—health plans can seek damages in the Court of Federal Claims.
Any judgment against the United States can then be paid out through the Judgment Fund, as is generally the case for suits against the government. And if the Judgment Fund is available to pay judgments, the government can settle claims out of the same fund.
Nonetheless, in a letter sent to HHS on Tuesday, Chairman Upton claims that using the Judgment Fund to settle the lawsuits would “be a direct circumvention of clear Congressional intent to prohibit the expenditure of federal dollars on this program.”
Chairman Upton is mistaken. Congress hasn’t expressed any such intention. It could easily do so. It just has to enact a statute that looks like this:
No funds appropriated under section 1304 of chapter 31 of the U.S. Code [i.e., the Judgment Fund] may be used to make any payments in connection with the risk corridor program established under section 1342 of the Patient Protection and Affordable Care Act, Public Law 111-148.
Conspicuously, Congress hasn’t done that. Instead, it has enacted two annual appropriations statutes saying that the administration can’t use money appropriated in those statutes to make risk corridor payments. Congress has said nothing about other sources of payment. Here’s the language if you don’t believe me:
None of the funds made available by this Act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this Act to the ‘‘Centers for Medicare and Medicaid Services—Program Management’’ account, may be used for payments under section 1342(b)(1) of Public Law 111–148 (relating to risk corridors)
That’s it. There’s nothing there about the Judgment Fund. House Republicans might wish that they’d said more—but they haven’t, at least not yet.
In the meantime, the Obama administration seems to realize that it’s playing a losing hand. Any prudent litigator would think about settling these cases. Heck, the administration might even be able to settle them for less than their face value, which would save taxpayer dollars.
I understand that Republicans don’t much like the ACA. But the fight here is over what the law demands, not whether you love or hate health reform. Unless and until Congress passes a statute limiting the use of the Judgment Fund, the Obama administration is right to think about settlement.
In a January memo to Senator Rubio, the Congressional Research Service laid out an argument for why the Obama administration can’t use the Judgment Fund to settle risk corridor lawsuits. (For prior coverage, see my posts here.) I think CRS is mistaken, and it’s worth explaining why—even if it means getting deep into the weeds of appropriations law.
In the memo, CRS rightly observes that the Judgment Fund is available only if payment is “not otherwise provided for.” CRS believes that payment is otherwise provided for the risk corridor program because Congress has already appropriated money for it—specifically, by allowing CMS to dip into “user fees” to make risk corridor payments. Because the “user fees” appropriation is available for the risk corridor program, CRS believes that the Judgment Fund is unavailable—even if the user fees are insufficient to pay the court judgments.
Here’s where I think CRS gets it wrong. (In its defense, the Second Circuit made the same mistake in dicta in a case that CRS relies on heavily.) Payment isn’t “otherwise provided for” within the meaning of the Judgment Fund just because Congress has appropriated money for the program in question. Instead, the Judgment Fund is unavailable only if Congress has designated an alternative source of funds to pay judgments arising from litigation.
From time to time, Congress does designate funds other than the Judgment Fund to pay court judgments. But cases in which payment is “otherwise provided for” tend to involve specific, unusual programs where litigation is routine and a program-specific source of funds is available to pay the inevitable judgments. Think here of tax refund cases, condemnation suits, and cases where an agency operates a revolving fund.
For cases like that, a program-specific appropriations statute can sometimes be read to reflect Congress’s intent that money judgments should come out of that appropriation, not the Judgment Fund. But not any old appropriations statute will do. A memo from the Office of Legal Counsel, starting on p. 152, offers an example of how “specific and express” a statute has to be before Congress will be understood to have “otherwise provided for” the payment of money damages.
Here, there’s no hint in any law that Congress meant money judgments involving the risk corridor program to be paid from anywhere other than the Judgment Fund. User fees aren’t earmarked for litigation; they can only be used to discharge CMS’s general “responsibilities.” The money is for funding agency operations, not paying damages.
Indeed, if a general appropriation were sufficient to displace the Judgment Fund, then the fund would be pretty useless. Every entitlement program has some source of appropriated funds, suggesting that the Judgment Fund would be unavailable in every lawsuit involving an entitlement. And that would give the lie to the general rule that a failure to appropriate the money to pay an entitlement “is unlikely to prevent recovery by way of a lawsuit.”
In other words, there’s nothing unseemly or illegal about settling these cases out of the Judgment Fund. To the contrary, settling is the responsible thing to do.