Tag Archives: Congressional Research Service

Summary of Testimony: Risk Corridors and the Judgment Fund

Chairman King, Ranking Member Cohen, and Members of the Subcommittee:

Good morning, and thank you for inviting me to testify. As Chairman King stated, my name is Chris Jacobs, and I have focused my career on analyzing issues in health policy—including more than six years on Capitol Hill. My entire written statement is before you, so I will not repeat it, but instead emphasize three main points regarding the use of the Judgment Fund as it pertains to health insurer claims regarding risk corridors currently pending in the Court of Federal Claims.

First, past precedent suggests that, by prohibiting the use of taxpayer funds for the risk corridor program, Congress has “otherwise provided for” claims payments, rendering the Judgment Fund inaccessible to insurers’ claims. The non-partisan Congressional Research Service reached this conclusion more than one year ago, consistent with prior opinions by both the Government Accountability Office and the Justice Department’s Office of Legal Counsel.

Second, the amount of money in dispute regarding risk corridors dwarfs most other Judgment Fund payments. Losses for the risk corridor program in 2014 and 2015 have totaled approximately $8.3 billion. When final numbers are tabulated, total losses over the program’s three years (2014-2016) will likely exceed $10 billion, at minimum. By comparison, the Washington Post noted last September that Department of Health and Human Services (HHS) claims paid out from the Judgment Fund over the last decade total only $18 million. A potential Judgment Fund verdict or settlement regarding risk corridors would vastly exceed last year’s Iran settlement, and the Pigford and other settlements discussed by Professor Figley in his testimony.

Third, last fall the Obama Administration made no secret of the fact that it wished to settle risk corridor cases via the Judgment Fund to circumvent the express congressional prohibition on the Department of Health and Human Services using taxpayer dollars to fund the program. I understand that the status of risk corridors, and President Obama’s health care law in general, have become a matter of no small dispute between the parties. But Members of Congress of both political parties, whether Republican or Democrat, should beware the consequences of such an executive encroachment on Congress’ most important power—the “power of the purse”—for the roles could easily be reversed in a subsequent case regarding another issue.

For this reason, I believe Congress and this Committee should consider codifying past practice and precedents by enacting language to clarify that, where the legislature has enacted limitations or restrictions on appropriations, Congress has “otherwise provided for” payment of claims, and the Judgment Fund should remain off limits.

Thank you for the opportunity to testify this morning. I look forward to your questions.

House Judiciary Committee Testimony: Risk Corridors and the Judgment Fund

A PDF version of this testimony is available here.

Testimony before the House Judiciary

Subcommittee on the Constitution and Civil Justice

 

Hearing on “Oversight of the Judgment Fund”

 

Chairman King, Ranking Member Cohen, and Members of the Subcommittee:

Good morning, and thank you for inviting me to testify. My name is Chris Jacobs, and I am the Founder of Juniper Research Group, a policy and research consulting firm based in Washington. Much of my firm’s work focuses on health care policy, a field in which I have worked for over a decade—including more than six years on Capitol Hill. Given my background and work in health care, I have been asked to testify on the use of the Judgment Fund as it pertains to one particular area: Namely, the ongoing litigation regarding risk corridor payments to insurers under Section 1342 of the Patient Protection and Affordable Care Act (PPACA).

The risk corridor lawsuits provide a good example of a problematic use of the Judgment Fund, and not just due to the sums involved—literally billions of dollars in taxpayer funds are at issue. Any judgments paid out to insurers via the Judgment Fund would undermine the appropriations authority of Congress, in two respects. First, Congress never explicitly appropriated funds to the risk corridor program—either in PPACA or any other statute. Second, once the Obama Administration sent signals indicating a potential desire to use taxpayer dollars to fund risk corridors, notwithstanding the lack of an explicit appropriation, Congress went further, and enacted an express prohibition on such taxpayer funding. Utilizing the Judgment Fund to appropriate through the back door what Congress prohibited through the front door would represent an encroachment by the judiciary and executive on Congress’ foremost legislative power—the “power of the purse.”

Though past precedents and opinions by the Congressional Research Service, Government Accountability Office, and Justice Department Office of Legal Counsel should provide ample justification for the Court of Appeals for the Federal Circuit to deny the risk corridor claims made by insurers when it considers pending appeals of their cases, Congress can take additional action to clarify its prerogatives in this sphere. Specifically, Congress could act to clarify in the risk corridor case, and in any other similar case, that it has “otherwise provided for” funding within the meaning of the Judgment Fund when it has limited or restricted expenditures of funds.

Background on Risk Corridors

PPACA created risk corridors as one of three programs (the others being reinsurance and risk adjustment) designed to stabilize insurance markets in conjunction with the law’s major changes to the individual marketplace.  Section 1342 of the law established risk corridors for three years—calendar years 2014, 2015, and 2016. It further prescribed that insurers suffering losses during those years would have a portion of those losses reimbursed, while insurers achieving financial gains during those years would cede a portion of those profits.[1]

Notably, however, the statute did not provide an explicit appropriation for the risk corridor program—either in Section 1342 or elsewhere. While the law directs the Secretary of Health and Human Services (HHS) to establish a risk corridor program,[2] and make payments to insurers,[3] it does not provide a source for those payments.

History of Risk Corridor Appropriations

The lack of an explicit appropriation for risk corridors was not an unintentional oversight by Congress. The Senate Health, Education, Labor, and Pensions (HELP) Committee included an explicit appropriation for risk corridors in its health care legislation marked up in 2009.[4] Conversely, the Senate Finance Committee’s version of the legislation—the precursor to PPACA—included no appropriation for risk corridors.[5] When merging the HELP and Finance Committee bills, Senators relied upon the Finance Committee’s version of the risk corridor language—the version with no explicit appropriation.

Likewise, the Medicare Modernization Act’s risk corridor program for the Part D prescription drug benefit included an explicit appropriation from the Medicare Prescription Drug Account, an account created by the law as an offshoot of the Medicare Supplementary Medical Insurance Trust Fund.[6] While PPACA specifically states that its risk corridor program “shall be based on the program for regional participating provider organizations under” Medicare Part D, unlike that program, it does not include an appropriation for its operations.[7]

As the Exchanges began operations in 2014, Congress, noting the lack of an express appropriation for risk corridors in PPACA, questioned the source of the statutory authority for HHS to spend money on the program. On February 7, 2014, then-House Energy and Commerce Committee Chairman Fred Upton (R-MI) and then-Senate Budget Committee Ranking Member Jeff Sessions (R-AL) wrote to Comptroller General Gene Dodaro requesting a legal opinion from the Government Accountability Office (GAO) about the availability of an appropriation for the risk corridors program.[8]

In response to inquiries from GAO, HHS replied with a letter stating the Department’s opinion that, while risk corridors did not receive an explicit appropriation in PPACA, the statute requires the Department to establish, manage, and make payments to insurers as part of the risk corridor program. Because risk corridors provide special benefits to insurers by stabilizing the marketplace, HHS argued, risk corridor payments amount to user fees, and the Department could utilize an existing appropriation—the Centers for Medicare and Medicaid Services’ (CMS) Program Management account—to make payments.[9] GAO ultimately accepted the Department’s reasoning, stating the Department had appropriation authority under the existing appropriation for the CMS Program Management account to spend user fees.[10]

The GAO ruling came after Health and Human Services had sent a series of mixed messages regarding the implementation of the risk corridor program. In March 2013, the Department released a final rule noting that “the risk corridors program is not statutorily required to be budget neutral. Regardless of the balance of payments and receipts, HHS will remit payments as required under Section 1342 of” PPACA.[11] However, one year later, on March 11, 2014, HHS reversed its position, announcing the Department’s intent to implement the risk corridor program in a three-year, budget-neutral manner.[12]

Subsequent to the GAO ruling, and possibly in response to the varying statements from HHS, Congress enacted in December 2014 appropriations language prohibiting any transfers to the CMS Program Management account to fund shortfalls in the risk corridor program.[13] The explanatory statement of managers accompanying the legislation, noting the March 2014 statement by HHS pledging to implement risk corridors in a budget neutral manner, stated that Congress added the new statutory language “to prevent the CMS Program Management account from being used to support risk corridor payments.”[14] This language was again included in appropriations legislation in December 2015, and remains in effect today.[15]

Losses Lead to Lawsuits

The risk corridor program has incurred significant losses for 2014 and 2015. On October 1, 2015, CMS revealed that insurers paid $387 million into the program, but requested $2.87 billion. As a result of both these losses and the statutory prohibition on the use of additional taxpayer funds, insurers making claims for 2014 received only 12.6 cents on the dollar for their claims that year.[16]

Risk corridor losses continued into 2015. Last September, without disclosing specific dollar amounts, CMS revealed that “all 2015 benefit year collections [i.e., payments into the risk corridor program] will be used towards remaining 2014 benefit year risk corridors payments, and no funds will be available at this time for 2015 benefit year risk corridors payments.”[17]

In November, CMS revealed that risk corridor losses for 2015 increased when compared to 2014. Insurers requested a total of $5.9 billion from the program, while paying only $95 million into risk corridors—all of which went to pay some of the remaining 2014 claims.[18] To date risk corridors face a combined $8.3 billion shortfall for 2014 and 2015—approximately $2.4 billion in unpaid 2014 claims, plus the full $5.9 billion in unpaid 2015 claims. Once losses for 2016 are added in, total losses for the program’s three-year duration will very likely exceed $10 billion, and could exceed $15 billion.

Due to the risk corridor program losses, several insurers have filed suit in the Court of Federal Claims, seeking payment via the Judgment Fund of outstanding risk corridor claims they allege are owed. Thus far, two cases have proceeded to judgment. On November 10, 2016, Judge Charles Lettow dismissed all claims filed by Land of Lincoln Mutual Health Insurance Company, an insurance co-operative created by PPACA that shut down operations in July 2016.[19] Notably, Judge Lettow did not dismiss the case for lack of ripeness, but on the merits of the case themselves. He considered HHS’ decision to implement the program in a budget-neutral manner reasonable, using the tests in Chevron v. Natural Resources Defense Council, and concluded that neither an explicit nor implicit contract existed between HHS and Land of Lincoln.[20]

Conversely, on February 9, 2017, Judge Thomas Wheeler granted summary judgment in favor of Moda Health Plan, an Oregon health insurer, on its risk corridor claims.[21] Judge Wheeler held that PPACA “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 law.[22] And, contra Judge Lettow, Judge Wheeler concluded that an implied contract existed between HHS and Moda, which also granted the insurer right to payment.[23]

Congress “Otherwise Provided For” Risk Corridor Claims

The question of whether or not insurers have a lawful claim on the United States government is separate and distinct from the question of whether or not the Judgment Fund can be utilized to pay those claims. CMS, on behalf of the Department of Health and Human Services, has made clear its views regarding the former question. In announcing its results for risk corridors for 2015, the agency stated that the unpaid balances for each year represented “an obligation of the United States Government for which full payment is required,” and that “HHS will explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments.”[24]

But because insurers seek risk corridor payments from the Judgment Fund, that fund’s permanent appropriation is available only in cases where payment is “not otherwise provided for” by Congress.[25] GAO, in its Principles of Federal Appropriations Law, describes such circumstances in detail:

Payment is otherwise provided for when another appropriation or fund is legally available to satisfy the judgment….Whether payment is otherwise provided for is a question of legal availability rather than actual funding status. In other words, if payment of a particular judgment is otherwise provided for as a matter of law, the fact that the defendant agency has insufficient funds at that particular time does not operate to make the Judgment Fund available. The agency’s only recourse in this situation is to seek additional appropriations from Congress, as it would have to do in any other deficiency situation.[26]

In this circumstance, GAO ruled in September 2014 that payments from insurers for risk corridors represented “user fees” that could be retained in the CMS Program Management account, and spent from same using existing appropriation authority. However, the prohibition on transferring taxpayer dollars to supplement those user fees prevents CMS from spending any additional funds on risk corridor claims other than those paid into the program by insurers themselves.

Given the fact pattern in this case, the non-partisan Congressional Research Service concluded that the Judgment Fund may not be available to insurers:

Based on the existence of an appropriation for the risk corridor payments, it appears that Congress would have “otherwise provided for” any judgments awarding payments under that program to a plaintiff. As a result, the Judgment Fund would not appear to be available to pay for such judgments under current law. This would appear to be the case even if the amounts available in the “Program Management” account had been exhausted. In such a circumstance, it appears that any payment to satisfy a judgment secured by plaintiffs seeking recovery of damages owed under the risk corridors program would need to wait until such funds were made available by Congress.[27]

Because the appropriations power rightly lies with Congress, the Judgment Fund cannot supersede the legislature’s decision regarding a program’s funding, or lack of funding. Congress chose not to provide the risk corridor program with an explicit appropriation; it further chose explicitly to prohibit transfers of taxpayer funds into the program. To allow the Judgment Fund to pay insurers’ risk corridor claims would be to utilize an appropriation after Congress has explicitly declined to do so.

The Justice Department’s Office of Legal Counsel (OLC) has previously upheld the same principle that an agency’s inability to fund judgments does not automatically open the Judgment Fund up to claims:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.[28]

The OLC memo reinforces the opinions of both CRS and the GAO: The Judgment Fund is a payer of last resort, rather than a payer of first instance. Where Congress has provided another source of funding, the Judgment Fund should not be utilized to pay judgments or settlements. Congress’ directives in setting limits on appropriations to the risk corridor program make clear that it has “otherwise provided for” risk corridor claims—therefore, the Judgment Fund should not apply.

Judgment Fund Settlements

Even though past precedent suggests the Judgment Fund should not apply to the risk corridor cases, a position echoed by at least one judge’s ruling on the matter, the Obama Administration prior to leaving office showed a strong desire to settle insurer lawsuits seeking payment for risk corridor claims using Judgment Fund dollars. In its September 9, 2016 memo declaring risk corridor claims an obligation of the United States government, CMS also acknowledged the pending cases regarding risk corridors, and stated that “we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”[29] That language not only solicited insurers suing over risk corridors to seek settlements from the Administration, it also served as an open invitation for other insurers not currently suing the United States to do so—in the hope of achieving a settlement from the executive.

Contemporaneous press reports last fall indicated that the Obama Administration sought to use the Judgment Fund as the source of funding to pay out risk corridor claims. Specifically, the Washington Post reported advanced stages of negotiations regarding a settlement of over $2.5 billion—many times more than the $18 million in successful Judgment Fund claims made against HHS in the past decade—with over 175 insurers, paid using the Judgment Fund “to get around a recent congressional ban on the use of Health and Human Services money to pay the insurers.”[30]

When testifying before a House Energy and Commerce subcommittee hearing on September 14, 2016, then-CMS Acting Administrator Andy Slavitt declined to state the potential source of funds for the settlements his agency had referenced in the memo released the preceding week.[31] Subsequent to that hearing, Energy and Commerce requested additional documents and details from CMS regarding the matter; that request is still pending.[32]

Even prior to this past fall, the Obama Administration showed a strong inclination to accommodate insurer requests for additional taxpayer funds. A 2014 House Oversight and Government Reform Committee investigative report revealed significant lobbying by insurers regarding both PPACA’s risk corridors and reinsurance programs.[33] Specifically, contacts by insurance industry executives to White House Senior Advisor Valerie Jarrett during the spring of 2014 asking for more generous terms for the risk corridor program yielded changes to the program formula—raising the profit floor from three percent to five percent—in ways that increased payments to insurers, and obligations to the federal government.[34]

Regardless of the Administration’s desire to accommodate insurers, as evidenced by its prior behavior regarding risk corridors, past precedent indicates that the Judgment Fund should not be accessible to pay either claims or settlements regarding risk corridors. A prior OLC memo indicates that “the appropriate source of funds for a settled case is identical to the appropriate source of funds should a judgment in that case be entered against the government.”[35] If a judgment cannot come from the Judgment Fund—and CRS, in noting that Congress has “otherwise provided for” risk corridor claims, believes it cannot—then neither can a settlement come from the Fund.

Given these developments, in October 2016 the Office of the House Counsel, using authority previously granted by the House, moved to file an amicus curiae brief in one of the risk corridor cases, that filed by Health Republic.[36] The House filing, which made arguments on the merits of the case that the Justice Department had not raised, did so precisely to protect Congress’ institutional prerogative and appropriations power—a power Congress expressed first when failing to fund risk corridors in the first place, and a second, more emphatic time when imposing additional restrictions on taxpayer funding to risk corridors.[37] The House filing made clear its stake in the risk corridor dispute:

Allegedly in light of a non-existent ‘litigation risk,’ HHS recently took the extraordinary step of urging insurers to enter into settlement agreements with the United States in order to receive payment on their meritless claims. In other words, HHS is trying to force the U.S. Treasury to disburse billions of dollars of taxpayer funds to insurance companies, even though DOJ [Department of Justice] has convincingly demonstrated that HHS has no legal obligation (and no legal right) to pay these sums. The House strongly disagrees with this scheme to subvert Congressional intent by engineering a massive giveaway of taxpayer money.[38]

The amicus filing illustrates the way in which the executive can through settlements—or, for that matter, failing vigorously to defend a suit against the United States—undermine the intent of Congress by utilizing the Judgment Fund appropriation to finance payments the legislature has otherwise denied.

Conclusion

Both the statute and existing past precedent warrant the dismissal of the risk corridor claims by the Court of Appeals for the Federal Circuit. Congress spoke clearly on the issue of risk corridor funding twice: First when failing to provide an explicit appropriation in PPACA itself; and second when enacting an explicit prohibition on taxpayer funding. Opinions from Congressional Research Service, Government Accountability Office, and Office of Legal Counsel all support the belief that, in taking these actions, Congress has “otherwise provided for” risk corridor funding, therefore prohibiting the use of the Judgment Fund. It defies belief that, having explicitly prohibited the use of taxpayer dollars through one avenue (the CMS Program Management account), the federal government should pay billions of dollars in claims to insurers via the back door route of the Judgment Fund.

However, in the interests of good government, Congress may wish to clarify that, in both the risk corridor cases and any similar case, lawmakers enacting a limitation or restriction on the use of funds should constitute “otherwise provid[ing] for” that program as it relates to the Judgment Fund. Such legislation would codify current practice and precedent, and preserve Congress’ appropriations power by preventing the executive and/or the courts from awarding judgments or settlements using the Judgment Fund where Congress has clearly spoken.

Thank you for the opportunity to testify this morning. I look forward to your questions.



[1] Under the formulae established in Section 1342(b) of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), plans with profit margins between 3 percent and 8 percent pay half their profit margins between those two points into the risk corridor program, while plans with profit margins exceeding 8 percent pay in 2.5 percent of profits (half of their profits between 3 percent and 8 percent), plus 80 percent of any profit above 8 percent. Payments out to insurers work in the inverse manner—insurers with losses below 3 percent absorb the entire loss; those with losses of between 3 and 8 percent will have half their losses over 3 percent repaid; and those with losses exceeding 8 percent will receive 2.5 percent (half of their losses between 3 and 8 percent), plus 80 percent of all losses exceeding 8 percent. 42 U.S.C. 18062(b).

[2] Section 1342(a) of PPACA, 42 U.S.C. 18062(a).

[3] Section 1342(b) of PPACA, 42 U.S.C. 18062(b).

[4] Section 3106 of the Affordable Health Choices Act (S. 1679, 111th Congress), as reported by the Senate HELP Committee, established the Community Health Insurance Option. Section 3106(c)(1)(A) created a Health Benefit Plan Start-Up Fund “to provide loans for the initial operations of a Community Health Insurance Option.” Section 3106(c)(1)(B) appropriated “out of any moneys in the Treasury not otherwise appropriated an amount necessary as requested by the Secretary of Health and Human Services to,” among other things, “make payments under” the risk corridor program created in Section 3106(c)(3).

[5] Section 2214 of America’s Healthy Future Act (S. 1796, 111th Congress), as reported by the Senate Finance Committee, created a risk corridor program substantially similar to (except for date changes) that created in PPACA. Section 2214 did not include an appropriation for risk corridors.

[6] Section 101(a) of the Medicare Modernization Act (P.L. 108-173) created a program of risk corridors at Section 1860D—15(e) of the Social Security Act, 42 U.S.C. 1395w—115(e). Section 101(a) of the MMA also created a Medicare Prescription Drug Account within the Medicare Supplementary Medical Insurance Trust Fund at Section 1860D—16 of the Social Security Act, 42 U.S.C. 1395w—116. Section 1860D—16(c)(3) of the Social Security Act, 42 U.S.C. 1395w—116(c)(3), “authorized to be appropriated, out of any moneys of the Treasury not otherwise appropriated,” amounts necessary to fund the Account. Section 1860D—16(b)(1)(B), 42 U.S.C. 1395w—116(b)(1)(B), authorized the use of Account funds to make payments under Section 1860D—15, the section which established the Part D risk corridor program.

[7] Section 1342(a) of PPACA, 42 U.S.C. 18062(a).

[8] Letter from House Energy and Commerce Committee Chairman Fred Upton and Senate Budget Committee Ranking Member Jeff Sessions to Comptroller General Gene Dodaro, February 7, 2014.

[9] Letter from Department of Health and Human Services General Counsel William Schultz to Government Accountability Office Assistant General Counsel Julie Matta, May 20, 2014.

[10] Government Accountability Office legal decision B-325630, Department of Health and Human Services—Risk Corridor Program, September 30, 2014, http://www.gao.gov/assets/670/666299.pdf.

[11] Department of Health and Human Services, final rule on “Notice of Benefit and Payment Parameters for 2014,” Federal Register March 11, 2013, https://www.gpo.gov/fdsys/pkg/FR-2013-03-11/pdf/2013-04902.pdf, p. 15473.

[12] Department of Health and Human Services, final rule on “Notice of Benefit and Payment Parameters for 2015,” Federal Register March 11, 2014, https://www.gpo.gov/fdsys/pkg/FR-2014-03-11/pdf/2014-05052.pdf, p. 13829.

[13] Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235, Division G, Title II, Section 227.

[14] Explanatory Statement of Managers regarding Consolidated and Further Continuing Appropriations Act, 2015, Congressional Record December 11, 2014, p. H9838.

[15] Consolidated Appropriations Act, 2016, P.L. 114-113, Division H, Title II, Section 225.

[16] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Proration Rate for 2014,” October 1, 2015, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/RiskCorridorsPaymentProrationRatefor2014.pdf.

[17] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Payments for 2015,” September 9, 2016, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Risk-Corridors-for-2015-FINAL.PDF.

[18] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Payment and Charge Amounts for the 2015 Benefit Year,” https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-RC-Issuer-level-Report-11-18-16-FINAL-v2.pdf.

[19] Land of Lincoln Mutual Health Insurance Company v. United States, Court of Federal Claims No. 16-744C, ruling of Judge Charles Lettow, November 10, 2016, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0744-47-0.

[20] Ibid.

[21] Moda Health Plan v. United States, Court of Federal Claims No. 16-649C, ruling of Judge Thomas Wheeler, February 9, 2017, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0649-23-0.

[22] Ibid., p. 2.

[23] Ibid., pp. 34-39.

[24] CMS, “Risk Corridors Payments for 2015.”

[25] 31 U.S.C. 1304(a)(1).

[26] Government Accountability Office, 3 Principles of Federal Appropriations Law 14-39, http://www.gao.gov/assets/210/203470.pdf.

[28] Justice Department Office of Legal Counsel, “Appropriate Source for Payment of Judgment and Settlements in United States v. Winstar Corp.,” July 22, 1998, Opinions of the Office of Legal Counsel in Volume 22, https://www.justice.gov/sites/default/files/olc/opinions/1998/07/31/op-olc-v022-p0141.pdf, p. 153.

[29] CMS, “Risk Corridors Payments for 2015.”

[31] Testimony of CMS Acting Administrator Andy Slavitt before House Energy and Commerce Health Subcommittee Hearing on “The Affordable Care Act on Shaky Ground: Outlook and Oversight,” September 14, 2016, http://docs.house.gov/meetings/IF/IF02/20160914/105306/HHRG-114-IF02-Transcript-20160914.pdf, pp. 84-89.

[32] Letter from House Energy and Commerce Committee Chairman Fred Upton et al. to Health and Human Services Secretary Sylvia Burwell regarding risk corridor settlements, September 20, 2016, https://energycommerce.house.gov/news-center/letters/letter-hhs-regarding-risk-corridors-program.

[33] House Oversight and Government Reform Committee, staff report on “Obamacare’s Taxpayer Bailout of Health Insurers and the White House’s Involvement to Increase Bailout Size,” July 28, 2014, http://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf.

[34] Ibid., pp. 22-29.

[35] OLC, “Appropriate Source of Payment,” p. 141.

[36] H.Res. 676 of the 113th Congress gave the Speaker the authority “to initiate or intervene in one or more civil actions on behalf of the House…regarding the failure of the President, the head of any department or agency, or any other officer or employee of the executive branch, to act in a manner consistent with that official’s duties under the Constitution and the laws of the United States with respect to implementation of any provision of” PPACA. Section 2(f)(2)(C) of H.Res. 5, the opening day rules package for the 114th Congress, extended this authority for the duration of the 114th Congress.

[37] Motion for Leave to File Amicus Curiae on behalf of the United States House of Representatives, Health Republic Insurance Company v. United States, October 14, 2016, http://www.speaker.gov/sites/speaker.house.gov/files/documents/2016.10.13%20-%20Motion%20-%20Amicus%20Brief.pdf?Source=GovD.

[38] Ibid., p. 2.

Four Ways Donald Trump Can Start Dismantling Obamacare on Day One

Having led a populist uprising that propelled him to the presidency, Donald Trump will now face pressure to make good on his campaign promise to repeal Obamacare. However, because President Obama used executive overreach to implement so much of the law, Trump can begin dismantling it immediately upon taking office.

The short version comes down to this: End cronyist bailouts, and confront the health insurers behind them. Want more details? Read on.

1. End Unconstitutional Cost-Sharing Subsidies

In May, Judge Rosemary Collyer ruled in a lawsuit brought by the House of Representatives that the Obama administration had illegally disbursed cost-sharing subsidies to insurers without an appropriation. These subsidies—separate and distinct from the law’s premium subsidies—reimburse insurers for discounted deductibles and co-payments they provide to some low-income beneficiaries.

While the text of the law provides an explicit appropriation for the premium subsidies, Congress nowhere granted the executive authority to spend money on the cost-sharing subsidies. President Obama, ignoring this clear legal restraint, has paid out roughly $14 billion in cost-sharing subsidies anyway.

Trump should immediately 1) revoke the Obama administration’s appeal of Collyer’s ruling in the House’s lawsuit, House v. Burwell, and 2) stop providing cost-sharing subsidies to insurers unless and until Congress grants an explicit appropriation for same.

2. Follow the Law on Reinsurance

House v. Burwell represents but one case in which legal experts have ruled the Obama administration violated the law by bailing out insurers. In September, the Government Accountability Office (GAO) handed down a ruling in the separate case of Obamacare’s reinsurance program.

The law states that, once reinsurance funds come in, Treasury should get repaid for the $5 billion cost of a transitional Obamacare program before insurers receive reimbursement for their high-cost patients. GAO, like the non-partisan Congressional Research Service before it, concluded that the Obama administration violated the text of Obamacare by prioritizing payments to insurers over and above payments to the Treasury.

Trump should immediately ensure that Treasury is repaid all the $5 billion it is owed before insurance companies get repaid, as the law currently requires. He can also look to sue insurance companies to make the Treasury whole.

3. Prevent a Risk Corridor Bailout

In recent weeks, the Obama administration has sought to settle lawsuits raised by insurance companies looking to resolve unpaid claims on Obamacare’s risk corridor program. While Congress prohibited taxpayer funds from being used to bail out insurance companies—twice—the administration apparently wishes to enact a backdoor bailout prior to leaving office.

Under this mechanism, Justice Department attorneys would sign off on using the obscure Judgment Fund to settle the risk corridor lawsuits, in an attempt to circumvent the congressional appropriations restriction.

Trump should immediately 1) direct the Justice Department and the Centers for Medicare and Medicaid Services (CMS) not to settle any risk corridor lawsuits, 2) direct the Treasury not to make payments from the Judgment Fund for any settlements related to such lawsuits, and 3) ask Congress for clarifying language to prohibit the Judgment Fund from being used to pay out any settlements related to such lawsuits.

4. Rage Against the (Insurance) Machine

Trump ran as a populist against the corrupting influence of special interests. To that end, he would do well to point out that health insurance companies have made record profits, nearly doubling during the Obama years to a whopping $15 billion in 2015. It’s also worth noting that special interests enthusiastically embraced Obamacare as a way to fatten their bottom lines—witness the pharmaceutical industry’s “rock solid deal” supporting the law, and the ads they ran seeking its passage.

As others have noted elsewhere, if Trump ends the flow of cost-sharing subsidies upon taking office, insurers may attempt to argue that legal clauses permit them to exit the Obamacare exchanges immediately. Over and above the legal question of whether CMS had the authority to make such an agreement—binding the federal government to a continuous flow of unconstitutional spending—lies a broader political question: Would insurers, while making record profits, deliberately throw the country’s insurance markets into chaos because a newly elected administration would not continue paying them tribute in the form of unconstitutional bailouts?

For years, Democrats sought political profit by portraying Republicans as “the handmaidens of the insurance companies.” Anger against premium increases by Anthem in 2010 helped compel Democrats to enact Obamacare, even after Scott Brown’s stunning Senate upset in Massachusetts. It would be a delicious irony indeed for a Trump administration to continue the political realignment begun last evening by demonstrating to the American public just how much Democrats have relied upon crony capitalism and corrupting special interests to enact their agenda. Nancy Pelosi and K Street lobbyists were made for each other—perhaps it only took Donald Trump to bring them together.

This post was originally published at The Federalist.

A Victory for Taxpayers — And the Rule of Law

Once again, President Obama’s vaunted pen and phone have run into trouble with the law. This time, the nonpartisan Government Accountability Office (GAO), acting in its function as comptroller general, concluded that the administration has implemented Obamacare’s reinsurance program in an illegal and impermissible manner. Rather than focusing first on repaying the Treasury, as the text of the statute requires, the administration has placed its first and highest priority on bailing out insurers.

In an opinion requested by numerous members of Congress and released this afternoon, the GAO explained:

We conclude that HHS [Health and Human Services] lacks authority to ignore the statute’s directive to deposit amounts from collections under the transitional reinsurance program in the Treasury and instead make deposits to the Treasury only if its collections reach the amounts for reinsurance payments specified in section 1341. This prioritization of collections for payment to issuers over payments to the Treasury is not authorized. 

As I have previously explained, the reinsurance funds collected from employers had two – distinct purposes: first, to repay Treasury for the $5 billion cost of a separate program in place from 2010 through 2013; and, second to subsidize insurers selling Obamacare plans to high-cost patients during the law’s first three years.

When collections from employers turned out to be less than expected, HHS prioritized the second objective to the exclusion of the first – an action that, according to the GAO, violates the plain text of the statute. As the opinion noted, “the fact that HHS’s collections ultimately fell short of the projected amounts does not alter the meaning of the statute.” The memo continued that, because agencies must “‘effectuate the statutory scheme as much as possible’ . . . HHS continues to have an obligation to carry out the statutory scheme using a method reflective of the specified amounts even though actual collections were lower than projected.” As a result, the GAO concluded that the Department has no authority to divert to insurers approximately $3 billion in reinsurance contributions that should be allocated to the Treasury.

The GAO legal team found HHS’s justification for its actions to date unpersuasive:

HHS’s position regarding prioritization of collections for reinsurance payments appears to be driven solely by the factual circumstances presented here, namely, lower than expected collections. However, a funding shortfall does not give an agency “a hinge for enlarging its discretion to decide which [priorities] to fund.” 

The law isn’t a Chinese menu, where federal bureaucrats can pick and choose which portions they wish to follow. They must follow all of the law, as closely as possible — even the portions they disagree with.

In reaching its conclusion, the GAO agreed with the nonpartisan Congressional Research Service and with other outside experts, each of whom said that HHS had violated the law in a way that was not subject to regulatory deference. And while the GAO’s reinsurance opinion is the most recent legal smackdown of the Obama administration’s craven efforts to bail out insurers, it is by no means the first: In May, Judge Rosemary Collyer ruled that the administration violated the constitution by spending funds on cost-sharing subsidies that Congress never appropriated.

More and more insurers are announcing their departure from Obamacare’s exchanges — Blue Cross Blue Shield announced this month that it is pulling out of the Obamacare marketplace in Nebraska and in most of Tennessee. Given these implosions, the return of $3 billion in taxpayer funds to the Treasury represents a blow to HHS’s bailout strategy. It demonstrates the law’s fundamentally flawed design, whereby the administration can keep insurers offering coverage on exchanges only by flouting the law to give them billions of dollars in taxpayer funds they do not deserve.

Conservatives should applaud the members of Congress who requested this ruling, which helps to staunch the flow of crony-capitalist dollars to insurers. Much more work remains, however. Congress should also act to protect its power of the purse with respect to Obamacare’s risk corridors — ensuring that the administration does not fund through a backroom legal settlement the payments to insurers that Congress explicitly prohibited two years ago. When they return in November, members should step up their oversight of both the risk-corridor and reinsurance programs: They should find out why HHS acted in such an illegal manner in the first place and whether insurance-company lobbyists encouraged the administration to violate the statute’s plain text.

For now, however, conservatives should rightly celebrate the legal victory that GAO’s opinion represents. Obamacare represented a massive increase in government spending and a similarly large increase in government authority. Today’s opinion has clipped both — a victory for taxpayers and the rule of law.

This post was originally published at National Review.

Responding to Nicholas Bagley on Risk Corridors

Over at the Incidental Economist, Nicholas Bagley has a post that finally acknowledges some legal precedent for the argument I and others have been making for months, most recently on Monday—that the Judgment Fund cannot be used to settle lawsuits regarding Obamacare’s risk corridors. I noted in my Monday post that three non-partisan sources have issued rulings agreeing with my argument: The Justice Department’s own Office of Legal Counsel (OLC), the Comptroller General, and the Congressional Research Service (CRS). Unfortunately, Bagley mis-represented the first opinion, ignored the second entirely, and called the third one an outlier (which it isn’t) that he didn’t agree with.

While Bagley agrees that the Judgment Fund cannot be utilized where Congress has “otherwise provided for” payment, he argues that the circumstances where Congress has “otherwise provided for” payment are exceedingly rare. He claims “the Judgment Fund is unavailable only if Congress has designated an alternative source of funds to pay judgments arising from litigation.” [Emphasis original.]

Bagley alleges that the 1998 opinion from the Justice Department’s Office of Legal Counsel, cited in my Monday post, illustrates his point. He claims the OLC opinion “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.” But, funny enough, he doesn’t quote from the memo itself. That might be because, as I noted on Monday, the memo contradicts Bagley:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.

The memo says nothing about how specific and express a statute must be for the Judgment Fund not to apply, as Bagley claims. Instead, it sets up a rather broad rule of construction: If a source of funding exists to pay claims, the Judgment Fund cannot be used to pay claims—it only serves as a payer of last resort. If another source of funding exists, but lacks sufficient cash to pay the judgment in full, then Congress—and not the Judgment Fund or the courts—must fill in the deficit through a new appropriation.

The 1998 memo from the Justice Department mirrors another 1998 ruling by the Comptroller General—the keeper of the handbook of appropriations law. In that case, Congress had imposed appropriations restrictions prohibiting the federal government from paying the cost of re-running a Teamsters union election. This fact pattern mirrors the statutory restrictions Congress imposed to prevent additional taxpayer funds being used to bail out risk corridors. And the Comptroller General’s ruling made clear that the Judgment Fund could not be utilized to circumvent the appropriations restriction:

The costs of supervising the 1996 election rerun, like the 1996 election, are programmatic costs that, but for the restrictions in sections 619 and 518 of the 1998 Justice and Labor Appropriations Acts, would be payable from available Justice and Labor operating accounts. The fact that Congress has chosen to bar the use of funds made available in the 1998 Justice and Labor Appropriations Acts to pay the cost of the Election Officer’s supervision of the 1996 election rerun should not be viewed as an open invitation to convert the Judgment Fund from an appropriation to pay damage awards against the United States to a program account to circumvent congressional restrictions on the appropriations that would otherwise be available to cover these expenses. Accordingly, we believe that the Judgment Fund would not be available to pay such an order, even if the court were to award a specific sum equivalent to the actual or anticipated costs of supervising the rerun.

While Bagley chose to ignore this ruling entirely, the precedent again indicates that the Judgment Fund cannot be utilized as a “piggy bank”—in this case, that it cannot fund that which Congress has expressly forbidden.

Particularly viewed in combination with these other two rulings, the Congressional Research Service report then stands not as the anomaly Bagley portrays it, but as illustrating the consistent principle that the Judgment Fund cannot be used to circumvent appropriations decisions rightly within the purview of Congress. The CRS memo references the prior opinions by the Comptroller General and OLC discussed above, as well as a separate legal precedent involving payments under the Ryan White HIV/AIDS program. In that case, the Court of Appeals for the Second Circuit also held that a lack of funds in program coffers did not make the Judgment Fund available—instead, the plaintiffs had to appeal to Congress for additional appropriations to pay claims.

Though Bagley does not admit it in his piece, all the non-partisan experts in appropriations law—the Comptroller General, the Congressional Research Service, and even the Justice Department’s own legal team—agree that the Judgment Fund cannot be used to pay claims where Congress has provided another avenue of payment. Despite this overwhelming evidence, Bagley attempts to argue that “every entitlement program has some source of appropriated funds, suggesting that the Judgment Fund would be unavailable in every lawsuit involving an entitlement.” [Emphasis original.]

Here again, Bagley errs—there are entitlements without a permanent appropriations source, including risk corridors. The Comptroller General’s opinion classifying risk corridors as “user fees” notes very clearly that “Section 1342 [of Obamacare, which established risk corridors], by its terms, did not enact an appropriation to make the payments specified [by the law]”—in other words, it created an entitlement without an appropriation. Moreover, Judge Rosemary Collyer’s May ruling in House v. Burwell, litigation regarding Obamacare’s cost-sharing subsidies—which also lacked an explicit statutory appropriation—noted multiple examples of entitlements without a permanent appropriation, including a 1979 Comptroller General opinion relating to payments to Guam. As her ruling noted:

The [Comptroller General’s] risk corridors decision illustrates that a statute can authorize a program, mandate that payments be made, and yet fail to appropriate the necessary funds. Thus, not only is it possible for a statute to authorize and mandate payments without making an appropriation, but [the Comptroller General] has found a prime example in [Obamacare].

Bagley’s argument therefore fails due to his faulty premise—that every entitlement must have an appropriated source of funds.

One other matter worth noting: The Clinton administration’s 1998 Office of Legal Counsel opinion should also prevent settlements—as opposed to judicial verdicts—from being paid from the Judgment Fund. The opinion cites a prior 1989 OLC memo to note that “The appropriate source of funds for a settled case is identical to the appropriate source of funds should a judgment in that case be entered against the government.” Again, the Comptroller General agrees in its Principles of Federal Appropriations Law:

A compromise settlement is payable from the same source that would apply to a judgment in the same suit….The resolution of a case does not alter the source of funds. A contrary view, as Justice points out, might encourage settlements driven by source-of-funds considerations rather than the best interests of the United States.

If the Obama administration cannot pay out a judgment regarding risk corridors—and for all the reasons above, it cannot—then it also cannot settle the lawsuit using Judgment Fund dollars. But that’s exactly what this administration intends to do—circumvent the express will of Congress, and opinions by his own Justice Department, to muscle through a massive insurer bailout “on the nod.”

Mr. Bagley has been encouraging such a backdoor bailout for months, claiming that insurers can claim risk corridor cash via the Judgment Fund. But only this week did he finally “discover” the Congressional Research Service memo directly contradicting his claims, which Sen. Marco Rubio’s office publicly released in May. And in attempting to rebut that memo, he did not acknowledge the Comptroller General’s similar opinion, mis-represented the Office of Legal Counsel’s position, and falsely claimed every entitlement must have an appropriation. Regardless of whether motivated by a lack of information or a desire to avoid inconvenient truths, his flawed and incomplete analysis vastly understates the strength of the argument that the actions the Obama administration contemplates in settling the risk corridor lawsuits violate appropriations law and practice.

Is Another Illegal Obamacare Bailout on the Way?

As Ronald Reagan might say, “There they go again.” The Obamacare Perpetual Bailout Machine went into high gear again on Friday, in a typical late-afternoon news dump released by the Centers for Medicare and Medicaid Services (CMS). In a five-paragraph memo, CMS invited insurers to settle outstanding lawsuits regarding an Obamacare bailout program — providing K Street a handy roadmap to obtaining more of federal taxpayers’ hard-earned cash, which administration officials apparently will distribute to insurers on their way out the door.

The lawsuits revolve around Obamacare’s risk-corridor program, one of two ostensibly temporary programs, scheduled to expire this December, that provided a transition to the new Obamacare regime. Plans with high profits would pay into the risk-corridor program, and their spending would offset deficits incurred by insurers with large losses.

As with most things Obamacare, risk corridors haven’t turned out quite like the administration promised. In 2014, insurers paid in a total of $362 million into the risk-corridor program — but requested $2.87 billion in disbursements. Fortunately, an appropriations rider enacted in December 2014, and subsequently renewed, has thus far prevented CMS from using taxpayer funds to bail out the risk-corridor losses. But where there’s a will to give a bailout, the Obama administration thinks it has a way. CMS in the last paragraph of its Friday memo states:

We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.

Translation: “Insurers — you want a bailout? Come right in and let’s chat. After all, we’re here only until January 20 . . . ”

Apart from being bad policy — and a violation of Congress’s express language forbidding a taxpayer bailout — such a settlement could also violate the Justice Department’s own legal guidelines. Insurers are seeking to obtain from the Judgment Fund, the entity that pays out claims stemming from federal lawsuits, what they could not obtain from Congress. But a 1998 opinion from the Justice Department’s Office of Legal Counsel (OLC) called these backdoor bailouts improper and illegal:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.

That’s exactly the situation facing CMS regarding risk corridors. Risk corridors are considered “user fees,” and CMS has a statutory appropriation to make those payments. But Congress explicitly prohibited CMS from using taxpayer funds to supplement those user fees. In other words, Congress has “otherwise provided for” risk-corridor payments — and insurers can’t use the Judgment Fund as an alternative source for bailout because they didn’t like Congress’s prohibition on a taxpayer-funded bailout. Friday’s memo clearly indicates the Obama administration’s desire for some type of corrupt bargain on its way out the door.

At least, so say the Office of Legal Counsel in its 1998 memo (issued by the Clinton administration, remember), the comptroller general, and the non-partisan Congressional Research Service. But CMS, and possibly the Obama Justice Department, have other ideas. In defending the insurer lawsuits, Justice has not yet cited the OLC memo or made any claim that Congress, consistent with both the law and past precedent, should have the last word on any judgment. Friday’s memo clearly indicates the Obama administration’s desire for some type of corrupt bargain on its way out the door.

Congress could try to act legislatively to block a potential settlement, but it has another option at its disposal. Section 2(f)(2)(C) of the rules package adopted by the House of Representatives on the first day of the 114th Congress last January provided that “the authorities provided by House Resolution 676 of the 113th Congress remain in full force and effect in the 114th Congress.” That resolution, which led to the filing of the House v. Burwell case regarding Obamacare’s cost-sharing subsidies, gave the House speaker authorization

to initiate or intervene in one or more civil actions on behalf of the House . . . regarding the failure of the President, the head of any department or agency, or any other officer or employee of the executive branch, to act in a manner consistent with that official’s duties under the Constitution and the laws of the United States with respect to implementation of any provision of [Obamacare].

In other words, Speaker Ryan already has the authority necessary to intervene in the risk-corridor cases — to ensure that any potential “settlement” adheres to both Congress’s express will regarding bailouts and existing legal practice as outlined by both the comptroller general and the Department of Justice itself.

Whether judicially, legislatively, or both, Congress should act — and act now. The time between now and January 20 is short, and the potential for mischief high. The legislature should go to work immediately to stop both a massive illegal bailout and another massive usurpation of Congress’s own authority by an imperial executive.

This post was originally published at National Review.

What Blue Cross Blue Shield Didn’t Tell You About Reinsurance

An hour ago, the Blue Cross Blue Shield Association released a blast e-mail to Hill staff trying to justify their support for Obamacare’s reinsurance bailout. The full e-mail is pasted below, but here is a quick fact check of their claims:

CLAIM: “Health plans were required to reduce their premiums based on the federal reinsurance rules in place.”

FACT: What this talking point fails to mention is that reinsurance “assessments” — $63 per person in 2014, $44 in 2015, and $27 this year — RAISED premiums for the majority of Americans with employer-provided health plans — 175 million in 2014 — so that a select few individuals with Exchange coverage could have slightly lower rates.  Raising premiums for some people to lower people for others is “spreading the wealth around,” to use Barack Obama’s famous phrase — but it doesn’t lower underlying health costs, and it doesn’t represent the $2,500 in lower premiums Barack Obama repeatedly promised.

CLAIM: “The transitional reinsurance program receives no federal funds.”

FACT: The reinsurance program uses the coercive power of the federal government to collect the dollars — making them federal funds.  Even the BCBS-distributed literature admits reinsurance funds were collected by “assessments” — i.e., a non-voluntary requirement on all health plans to pay the federal government.

Most federal entitlement programs — Social Security, Medicare, welfare, food stamps — are by their nature redistributive, taking money from some people and giving them to others.  Do Republicans believe THOSE programs do not represent “federal funds?”  Of course not.  The same principle applies here.  Or do BCBS representatives believe all Americans with employer plans would willingly pay $63 per year in higher premiums to help out their friendly health insurers?

CLAIM: “Reinsurance payments to health plans have been below the amounts specified in the statute.”

FACT: This claim misses two points.  First, on a per-enrollee basis, insurers in 2014 received nearly 50% more in reinsurance funds than they assumed when setting premiums for that year. And you don’t have to take my word for it — that conclusion comes from a paper released by the Commonwealth Fund, not exactly a bastion of conservatism.

Second, in 2014 the federal Treasury received exactly ZERO dollars from the reinsurance program — even though the Congressional Research Service and other independent experts have said the law is clear: The Treasury Department, and NOT insurers, stand first in priority for reinsurance assessment funds.

CLAIM: “The privately funded reinsurance program reduced costs for taxpayers.”

FACT: First, because the Obama Administration illegally prioritized insurers over the Treasury as explained above, the reinsurance program stands to stiff taxpayers out of billions of dollars in repayments.  Second, any supposed reduction in the cost of federal insurance subsidies came solely as a result of “assessments” — i.e., taxes — on employer-provided health plans.  Whether taxpayers pay as a result of a front-end reinsurance “assessment” or as a result of the back-end cost of federal insurance subsidies is essentially immaterial — a tax is a tax is a tax.

The fact of the matter remains: The reinsurance program remains an illegally-manipulated system of corporate welfare, and insurers are fighting to retain money that legally belongs in the Treasury.  It’s worth noting that nowhere in the BCBS documents do the Blues even attempt to argue the legality of the program as rejiggered by the Obama Administration.  Their argument to Congress therefore amounts to, essentially, “We stole that money fair and square!”

Members of Congress who want to 1) stand on the side of taxpayers, 2) oppose crony capitalism, and 3) oppose Obamacare should support every attempt to reclaim funds from the reinsurance program — and prevent a risk corridor bailout.

From: ”Pray, Jason”
Date: September 7, 2016 at 11:11:55 AM EDT
To: ”Pray, Jason”
Subject: H.R.5904 – Taxpayers Before Insurers Act

Hi everyone – I hate to come out of the post-recess box like this but, in the strongest possible terms, we encourage your office to not get on this bill as a cosponsor.

In short – Congress should oppose efforts to eliminate or limit the ACA reinsurance program; here are facts about the program:

• Health plans were required to reduce their premiums based on the federal reinsurance rules in place;

• The transitional reinsurance program receives no federal funds;

• Reinsurance payments to health plans have been below the amounts specified in the statute; and

• The privately funded reinsurance program reduced costs for taxpayers.

Limiting or eliminating the reinsurance program simply amounts to a retroactive tax on insurance companies and higher premiums going forward.

Please see the attached documents and feel free to contact me with any questions.

-          Jason

Jason Pray

Executive Director, Congressional Relations

BlueCross & BlueShield Association

Liberals’ Agenda: Tax Health Benefits to Fund Corporate Welfare

A feature article in Sunday’s Washington Post provided the latest summary of Obamacare’s woes: Premiums set to spike dramatically, insurers leaving in droves, and millions of Americans held hostage to a lengthening comedy of errors. But liberals stand ready with their answer: More of the same government taxes and spending that created the problem in the first place. To wit, the Left would tax Americans’ employer-provided health benefits to fund a permanent bailout fund for insurance companies.

In a brief released earlier this month, the liberal Robert Wood Johnson Foundation had several possible “solutions” to solve the problem of low enrollment, and low insurer participation, in Obamacare’s health insurance exchanges. In the document, the foundation suggested making program of reinsurance now scheduled to expire at year’s end permanent:

Extending [Obamacare’s] reinsurance program and its mechanism of financing would more likely have a stabilizing influence [on insurers]. The program could be authorized permanently…or for a set period of time, with authority for CMS [the Centers for Medicare and Medicaid Services] to continue it if needed….Funds for the reinsurance pool would need to be, as they are currently, collected from individual market insurers, group market insurers, and self-funded plans.

In other words, individuals who do not purchase coverage from an exchange should have their benefits taxed, to fund more corporate welfare subsidies to health insurers, in the hopes that they will continue to offer exchange coverage.

That was the basic premise of the law’s reinsurance mechanism. Put slightly more charitably, Section 1341 of Obamacare imposed an assessment on Americans with employer-provided coverage, or those who purchase health coverage directly from an insurance carrier rather than through a government-run exchange, to help subsidize exchange insurers with high-cost patients.

The assessments were set to last three years—from 2014 through 2016—serving as a transition while the new marketplaces developed. But after three years, the exchanges are in worse shape than ever. Healthy and wealthy individuals have not purchased coverage, making the exchange population sicker than the average employer plan.

Rather than fixing a problem that onerous government regulations—a mandated package of benefits, and rating requirements that have raised premiums so substantially for healthy individuals that many have chosen to forgo coverage—the Left just wants more of the same. The Robert Wood Johnson Foundation paper included numerous “solutions” straight out of the liberal playbook: Requiring insurers to participate on exchanges; a government-run “public option” intended to destroy private coverage, richer subsidies; and new penalties for late enrollment. In other words, more of the taxes, spending, and regulations that brought us this mess in the first place—not to mention the permanent insurer bailout fund.

Two clear ironies stand out when it comes to the reinsurance proposal. First, the Obama administration has already given insurers far more than they expected—or the law allows—on the reinsurance front. Government officials have repeatedly increased reinsurance reimbursement levels, giving insurers nearly 50% more support from the program in 2014 than they originally expected. And the non-partisan Congressional Research Service believes that the Administration has violated the law by prioritizing payments to insurers over payments to the Treasury—giving insurers billions of dollars in extra funding that legally should be returned to taxpayers.

Second, Barack Obama himself campaigned vigorously against “taxing health benefits” in 2008. He ran ads attacking John McCain for making health insurance subject to income tax, saying the tax would fund subsidies that would go straight to insurance companies. Yet Obamacare contained not one, but two, separate “assessments” (read: taxes) on health plans—the first to fund comparative effectiveness research that could be utilized by health plans reimbursement and coverage decisions, and the second for the “temporary” reinsurance program. After violating his campaign pledge not once, but twice, in Obamacare itself, the president’s allies want Congress to make permanent the tax on health benefits—to finance a bailout fund that will go—you guessed it!—straight to the insurance companies.

With labor force participation still historically low, and Americans struggling with high health costs, now is certainly not the time to tax the health coverage that businesses provide to working families so that insurers can receive billions more dollars in bailout funds. Congress should not even think about throwing good money after bad in a vain attempt to keep the sinking Obamacare ship afloat.

Democrats’ Priorities: Obamacare or Zika?

If Nero was the emperor who fiddled while Rome burned, Barack Obama must surely qualify as the president who dithered while his signature initiative rapidly crumbled. Despite a public-health emergency in sections of the southern United States, the president seems more interested in shoveling money to insurers than in stopping the threat from the Zika virus.

Last week the New York Times reported that the Obama administration was attempting yet another Obamacare relaunch, this one including a federally funded “advertising campaign featuring newly insured individuals, as well as direct appeals to young people hit by tax penalties this year for failing to enroll.” With enrollment in the law’s exchanges well below original estimates, insurers leaving in droves, and premiums ready to spike, the move seems to be a desperate attempt to increase sign-ups and keep insurers at the Obamacare table.

But the timing of the announcement could not be more incongruous. Even as the Department of Health and Human Services wastes taxpayer dollars to promote yet again a measure enacted into law six years ago — on which public opinion has remained decidedly stable (and negative) — HHS also claims that it desperately needs additional funding to fight the Zika virus. Senate Majority Leader Mitch McConnell wrote to HHS on Friday to ask why the agency’s leaders  believe that taxpayer dollars “would be better spent propping up the failed Obamacare exchanges than other important public health priorities — such as preventing the spread of Zika.”

The fact remains, however, that HHS’s top priority is propping up the failed Obamacare experiment — a bigger priority than obeying the text of Obamacare itself. The non-partisan Congressional Research Service and other outside experts have concluded that, in implementing Obamacare’s reinsurance program, the administration violated the law by prioritizing payments to insurers over payments to the Treasury. As a result, insurers will receive billions of dollars in extra funding that legally should be returned to taxpayers.

To sum up the situation: The Obama administration is funneling billions of dollars to “greedy” insurers that Democrats hate, while Nancy Pelosi and other Democrats have called for Congress to return from its recess to pass billions of dollars in spending to fight Zika. There is, however, an easy win-win solution: Use the reinsurance funds to pay for the new Zika spending, rather than giving insurance companies another Obamacare bailout.

The Zika conference report that the House passed in June did pay for new spending on the virus by rescinding some unspent Obamacare funds. Two-thirds of the funds rescinded, however ($543 million in total), came from an account used to establish Obamacare exchanges in United States territories. With exchanges having been established for years, this “rescission” amounts to Congress agreeing not to spend money that was never going to be spent anyway — a “pay for” on paper rather than in reality.

By contrast, utilizing reinsurance funds to finance Zika spending would represent a legitimate savings to taxpayers. Such a move would reclaim billions of dollars that otherwise would have been (unlawfully) diverted to insurance companies — some of which would fund the new Zika spending, and some of which would be returned to the taxpayers to whom the funds belonged in the first place.

Using reinsurance dollars to fund a Zika package would be not only good policy but good politics as well. Most Americans would put the health of infants and pregnant women over the health of insurance companies’ bottom lines — and so should Congress. If Democrats wish to defend crony capitalism and corporate-welfare payments to insurers, that is their right. But particularly after the premium spikes hit this fall, few may wish to do so.

As the old saying goes, to govern is to choose. Senator McConnell rightly pointed out last week that this administration has prioritized its failed Obamacare experiment over protecting Americans from the Zika virus. When it comes to finding any new source to pay for new Zika spending, ending Obamacare’s reinsurance bailout should stand at the top of the priority list.

This post was originally published at National Review.

An Important Test in the Fight Against Obamacare Bailouts

On Wednesday, a House Republican task force is scheduled to release its recommendations regarding a health-care alternative that Congress and a new president can enact next year. It’s an important step in the fight against Obamacare, but a much more immediate, though less publicized, battle will also occur this week — one over the use of the Judgment Fund to pay out certain claims or settlements. This fight will test whether House Republicans can take concrete actions to undermine Obamacare.

The battle will occur in an unlikely venue: Consideration of the Financial Services and General Government appropriations measure, expected on the House floor beginning Wednesday. With that piece of legislation, the House can pass a provision I’ve written about recently at NRO: a prohibition on the use of the Judgment Fund to pay out rewards related to “risk corridor” lawsuits.

Some background on the issue, and the lawsuits: Risk corridors are one of two transitional programs designed to cushion insurers’ losses in Obamacare’s first three years. Through risk corridors, plans achieving high profits on insurance exchanges in the years 2014–16 would forfeit some of those gains, which would subsidize insurers who suffered large losses. At least, that’s the way it was supposed to work.

The reality has proven far different. While the administration repeatedly claimed that risk corridors would be budget-neutral — that is, payments to insurers with losses would equal payments into the system by insurers with gains — that hasn’t happened and isn’t likely to happen. The balky insurance exchanges, the administration’s unilateral change allowing some individuals to keep their pre-Obamacare insurance temporarily, and enrollment by sicker-than-average individuals all mean that insurers have lost billions selling Obamacare plans. As a result, insurers put in claims totaling $2.87 billion for 2014, asking the government to reimburse them. But because few insurers made profits, plans had paid only $362 million into the risk-corridor program, meaning that the administration could pay only 12.6 percent of the risk-corridor payment requests in 2014.

In a November 2015 memo, the Obama administration stated that the $2.5 billion in unpaid 2014 risk-corridor claims represented an outstanding obligation of the federal government. But an appropriations restriction enacted by Congress in 2015 prevents the Centers for Medicare and Medicaid Services (CMS), which manages Obamacare and the exchanges, from using additional taxpayer funds on unpaid risk-corridor claims.

Here’s where the Judgment Fund comes in. Multiple insurers have filed lawsuits seeking their unpaid risk-corridor claims from the federal government. The Obama administration, while sympathetic to their case, remains hamstrung by the language that prohibits CMS from bailing out insurers. But the Judgment Fund — administered by the Treasury, not CMS — currently contains no such restriction.

And that’s why the Financial Services appropriations bill this week matters in the fight against Obamacare. Enacting a restriction on the use of the Judgment Fund to pay any claims or settlements related to the risk-corridor lawsuits would prevent the Obama administration from using the fund as a back-door insurer bailout. Democrats have essentially encouraged the administration to do just that — settle the cases, pay the claims from the Treasury to circumvent the prohibition on a CMS-funded bailout, and give insurers a big, wet, multi-billion-dollar, taxpayer-funded kiss.

While Congress has multiple policy justifications — an aversion to both bailouts and Obamacare — to prohibit the use of the Judgment Fund to pay risk-corridor claims, it also has constitutional prerogatives to protect. The text of Obamacare nowhere contained an explicit appropriation for risk corridors, which is one reason CMS had to create a system by which incoming funds from some insurers had to finance funds outgoing to others. Then Congress went even further and explicitly included a prohibition on taxpayer-funded bailouts. Congress did this not once, but twice: first in December 2014 and then again last winter.

The Obama administration would like nothing better than to chuck those explicit congressional restrictions out the window and use the Judgment Fund to bail out its Obamacare partners-in-crime, Big Insurance. While the Congressional Research Service and the Comptroller General of the Government Accountability Office have both ruled that the Judgment Fund cannot be used to spend money where Congress has explicitly declined to appropriate funds, the House should not rest on its laurels and assume that this imperial president will follow the guidance of these nonpartisan experts. It can, and should, go further to protect taxpayer funds and rein in the administration.

Even as it unveils its alternative to the law, House Republicans have the chance to take a critically important step to undermine Obamacare this week. Both to save the country from Obamacare and to preserve its constitutional power of the purse, the House should match deeds with words and prevent the Judgment Fund from being used for a multi-billion-dollar Obamacare bailout.

This post was originally published at National Review.