Fixing the risk corridor program

Last week, the Government Accountability Office released a letter that sets up a potential congressional battle over the future of the risk corridor program. Contrary to how it’s been covered in the press, however, the letter is good news for HHS. It also suggests that the administration has been quite canny in its approach to a big potential problem for the risk corridors.

By way of background, the risk corridor program offers a financial buffer for health plans sold on exchanges. Plans that make more money than anticipated have to give some of their earnings to HHS. In turn, the agency will pass the money along to other plans that have borne unexpectedly large losses.

The trouble? The ACA doesn’t explicitly say that HHS is permitted to spend money to carry out the risk corridor program. This sounds like a minor technicality, but, according to a report from the Congressional Research Service, the absence of an appropriations statute means that HHS can’t pay out a dime of risk corridor money, even to exchange plans that get hammered.

Back in May, I floated a possible solution. I argued that the ACA could be read to establish a “revolving fund” for the risk corridor program, much as the statute authorizing Medicare Part D established a revolving fund for its risk corridors. Some health plans would pay into the fund and others would get paid from that same fund, all without the need for a new appropriations statute.

But HHS took a different approach. In response to questions from a House committee, the agency said that it would treat the risk corridor payments that it collects as “user fees.” Why? Because an appropriations statute for fiscal year 2014 says that HHS can spend any “sums as may be collected from authorized user fees.” Under that appropriation, the agency claimed that it could use risk corridor payments to finance the risk corridor program—for 2014, at least.

I was a little skeptical. Typically, a user fee is a charge imposed on those who take advantage of a given resource. A toll for using a bridge is a user fee; so too is the charge for applying for a patent. But the risk corridor program operates differently. It’s a pooling arrangement: health plans that make a killing share their profits with those that get killed. That means that lots of health plans will never pay a dime to the program. It’s weird to call something a user fee if lots of users never have to pay it.

But GAO bought the argument. In its letter, GAO confirmed that “payments under the risk corridors program are properly characterized as user fees.” That means HHS could have made payments to health plans pursuant to the 2014 appropriations statute. For now, the point is academic: HHS hasn’t begun collecting money or making payments. Nonetheless, GAO’s letter gives HHS a blueprint for making risk corridor payments in the future.

All the agency needs is an appropriations statute that says it can spend user fees. And there’s the rub. As HHS fully understood when it advanced the user fee argument, the 2014 appropriations statute applies only to 2014. Congress would need to enact a similar appropriations statute for 2015 to save the risk corridor program.

What if Congress refuses? Well, let’s game it out. HHS hasn’t ruled out my suggestion that it could construe the ACA to establish a revolving fund for the risk corridor program. Under that interpretation, the risk corridor program could move forward even if Congress did nothing. GAO might not much like that interpretation—as I explained in May, “you have to squint pretty hard to find an appropriation” in the ACA—but it means the administration still has a hand to play.

That’s the beauty of the administration’s approach. By characterizing risk corridor payments as user fees, HHS has given Congress an easy, low-visibility way to keep the risk corridor program running. It just needs to pass the same appropriations language for 2015 as it did for 2014. And if Congress does decide to play hardball, HHS can always argue that the ACA established a revolving fund. Either way, the risk corridor program will be up and running.

Against that backdrop, Congress might not be tempted to withdraw HHS’s authority to spend user fees. Doing so wouldn’t kill risk corridors. It would just force the administration to adopt a contestable interpretation of the ACA in order to keep financing the program. Maybe congressional Republicans would cry foul at that, but they’re unlikely to score many political points in a budget battle over statutory technicalities. In the meantime, the administration could paint Congress as obstructionist for playing games with appropriations.

In other words, HHS should be pleased with GAO’s letter. It doesn’t eliminate the possibility of a messy fight with Congress, but it mitigates it enormously.


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