Tag Archives: Congressional Research Service

Five Factors That Could Interfere with Graham-Cassidy’s State Health Care Waivers

Some conservative writers—including others who write for this publication—have opined that the legislation written by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA) offers states the ability to innovate and reform their health care systems. Most conservatives, including this one, consider state flexibility an admirable goal.

Certainly reforming Medicaid—through a block grant or per capita cap, coupled with additional flexibility to allow states to manage their programs more freely—would go a long way towards improving care, and reducing health care costs.

But does Graham-Cassidy as written deliver on its promise regarding Obamacare insurance regulations? On the two critical questions surrounding the legislation—will it lower insurance premiums, and will it generate a system that works for states?—a textual analysis of the bill yields significant doubts. At least five issues could hinder the results its sponsors have promised, and which all conservatives hope for.

1. Subsidizing Moral Hazard

The language on the top of page 15 explicitly links waivers to funding from the new system of block grants the bill creates. Any waiver will only apply to 1) coverage provided by an insurer receiving block grant funding and 2) coverage “provided to an individual who is receiving a direct benefit (including reduced premium costs or reduced out-of-pocket costs)” under the block grant.

This requirement that each and every person subjected to a non-Obamacare-compliant plan must receive a “direct benefit” subsidized by federal taxpayers has several potential perverse consequences. By definition, it encourages moral hazard. Because individuals will know that if they are subjected to health underwriting, or an otherwise noncompliant plan, they must receive federal subsidies, it will encourage them not to buy health insurance until they need it.

It means that either states will have to extend taxpayer-subsidized benefits to highly affluent individuals (allowing them to buy noncompliant plans), or have to permit only low- and middle-income families to buy noncompliant plans (to restrict the subsidies to low-income families). Both scenarios seem politically problematic to the point of being untenable.

If states try to provide a de minimis direct benefit—say, a $1 monthly premium subsidy—to some enrollees to minimize the two problems described above, they would face high overhead costs, and a complex system to administer.

When considering the two considerations above—will the bill lower premiums, and will it work?—this provision alone seems destined to preclude either from occurring. The moral hazard could increase premiums, not lower them, driving more healthy people out of the marketplace by telling them they will receive subsidies if and when they become sick and need coverage. The requirement that every person subjected to a waiver must receive subsidized benefits appears potentially destabilizing to insurance markets, while also creating political problems and administrative complexity.

2. Encouraging Lawsuits

The provision on page 12 requiring states applying for waivers to describe “how the state intends to maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions” presents two concerns. First, a future Democratic administration could use rulemaking to define “adequate and affordable health insurance coverage” so narrowly—prohibiting co-payments or cost-sharing of more than $5, for instance—that no state could maintain access to “adequate and affordable” coverage, thereby eliminating their ability to apply for and receive a waiver.

Second, courts have ruled that Medicaid waiver applications are subject to judicial review, a standard that would presumably apply to the Graham-Cassidy waivers as well. While a Congressional Research Service report notes that courts have traditionally given deference to the Centers for Medicare and Medicaid Services (CMS) on waiver applications, the Ninth Circuit Court of Appeals in 1994 did in fact strike down a California waiver application that CMS had previously approved.

If a state receives a waiver, it seems highly likely that individuals affected, with the strong encouragement of liberal activists, will seek relief in court, and point to the page 12 language to argue that the court should strike down the waiver for not providing “adequate and affordable coverage” to people with pre-existing conditions. At minimum, the ensuing legal uncertainty could place states’ waiver programs in limbo for months or even years. And only one judge, or one circuit court, that views the pre-existing condition language as applying to more than states’ waiver application could undermine the program.

Congress could theoretically include language in Graham-Cassidy precluding judicial review of administrative decisions regarding waivers, as Democrats did 13 separate times in Obamacare. But on this particular bill, such a provision likely would not pass muster with the “Byrd rule” that applies to budget reconciliation measures.

Specifically, language prohibiting judicial review would have no (or a minimal) budgetary impact, and would represent matter outside the committees with jurisdiction over the reconciliation bill (Senate Judiciary versus Senate Finance and HELP Committees), both points of order that would see the provision stricken absent 60 Senate votes (which the bill does not have) to retain it.

Given the ongoing political controversy surrounding pre-existing conditions, some moderates may view the inclusion of this phrase as critical to their support for the bill. But its inclusion could ultimately undermine the entire waiver process and one of conservatives’ prime goals from the “repeal-and-replace” process, namely relief from Washington-imposed regulatory burdens.

3. Encourages Activist Judges and Bureaucrats

Language on page 13 of the bill includes language limiting any regulatory waiver: “A health insurance issuer may not vary premium rates based on an individual’s sex or membership in a protected class under the Constitution of the United States.” Here again, a future Democratic administration, or activist judges, could easily take an expansive view of “protected class” to include age, family status, gender identity, etc., in ways that undermine the waivers’ supposed regulatory relief.

4. Allows States to Waive Only Some Regulations

While states may waive some Obamacare regulations, they can’t waive others, an internal inconsistency that belies the promise of “flexibility.” For instance, states cannot waive the under-26 mandate if they so choose. Moreover, language on page 15 prohibiting a waiver of “any requirement under a federal statute enacted before January 1, 2009” precludes states from waiving regulations that preceded Obamacare, such as those related to mental health parity.

If the sponsors believe in state flexibility, they should allow states to waive all federal insurance regulations, even ones, such as the under-26 mandate or mental health parity, they may personally support. Or better yet, they should move to repeal the regulations entirely, and let states decide which ones they want to re-enact on the state level.

5. No Funding Equals No Waivers

Because the bill explicitly ties waivers to federal funding, as noted above, the “cliff” whereby block grant funding ends in 2027 effectively ends waiver programs then as well. Such a scenario would put conservative policy-makers in the perverse position of asking Washington to increase federal spending, because any regulatory relief under Obamacare would otherwise cease.

Meaning of Federalism

The potential concerns above demonstrate how Graham-Cassidy may not provide full flexibility to states. Whether through cumbersome administrative requirements, a future Democratic administration, court rulings, or key omissions, states could find that as written, the bill’s promise of flexibility might turn into a mirage.

Given that, it’s worth remembering the true definition of federalism in the first place. Federalism should not represent states getting permission from Washington to take certain actions (and only certain actions). It should represent the people delegating some authority to the federal government, and some to the states. A bill that looked to do that—to remove the Obamacare regulatory apparatus entirely, and allow states to decide whether and what portions of the law they wish to reimpose—would help to restore the principles of federalism, and a true balance between Washington and the states.

This post was originally published at The Federalist.

September 30 “Deadline” for Obamacare Repeal Is Fake News

Over the past several days, congressional leaders in both the House and Senate have claimed that a bill by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA) is “our best, last chance to get repeal and replace done.” They have made such claims because the press keeps “reporting” that Republicans’ “power to pass health care legislation through a party-line vote in the Senate expires on September 30.”

Don’t you believe it. The Senate’s 52 Republicans have multiple options open to keep the Obamacare repeal process alive after September 30. The only question is whether they have the political will to do so.

Option 1: Set a Senate Precedent

Democrats started the misinformation campaign regarding a supposed September 30 “deadline.” Politico reported at the start of the month that “the Senate parliamentarian has ruled that Republicans face a September 30 deadline to kill or overhaul the law with only 50 votes, Democrats on the Senate Budget Committee said.”

That assertion carries one big flaw: The Senate parliamentarian does not “rule.” The Senate as a body does—and that distinction makes a big difference. The procedural question centers around when, and whether, budget reconciliation instructions expire.

Budget reconciliation provides an expedited process for the Senate to consider matters of a fiscal nature. Reconciliation’s limits on debate and amendments preclude filibusters, allowing the bill to pass with a simple (i.e., 51-vote) majority rather than the usual 60 votes needed to break a filibuster and halt debate. (For additional background, see my May primer on budget reconciliation here.)

In one of its first acts upon convening in January, Congress passed a budget resolution for Fiscal Year 2017, which included instructions for health-related committees in the House and Senate to produce reconciliation legislation—legislation intended to “repeal-and-replace” Obamacare. But Fiscal Year 2017 ends on September 30, and Congress (thus far at least) hasn’t completed work on the reconciliation bill yet. So what happens on September 30? Does a reconciliation measure fail? Or can Congress continue work on the legislation, because the budget resolution set fiscal parameters for ten fiscal years (through 2026), not just the one ending on September 30?

Earlier this month, the parliamentarian advised Senate staff of her viewpoint that the reconciliation instructions would terminate on September 30—meaning the bill and process would lose their privileged status and access to the expedited Senate procedures. But her opinion remains advisory and not binding on either the chair or the body as a whole.

There is literally no precedent on this particular Senate procedural question of whether and when reconciliation instructions expire. If the chair—either Vice President Mike Pence, Senate President Pro Tempore Orrin Hatch (R-UT), or another Senate Republican presiding—wishes to disregard the parliamentarian’s opinion, he or she is free to do so.

Alternatively, if the chair decides to agree with the parliamentarian’s opinion, a 51-vote majority of Republicans could decide to overturn that ruling by appealing the chair’s decision. In either event, the action by the Senate—either the chair or the body itself—would set the precedent, not the opinion of a Senate official who currently has no precedent to guide her.

Option 2: Pass a New Budget

Because there is no precedent to the question of when reconciliation instructions expire, Republican senators can set a precedent on this question themselves—keeping in mind it will apply equally when Republicans are in the minority. But if senators believe that disregarding the parliamentarian’s opinion—even on a question where she has no precedent to guide her—might jeopardize the legislative filibuster, they can simply pass a new budget for Fiscal Year 2018, one that includes reconciliation instructions to allow for Obamacare “repeal-and-replace.”

While the Congressional Budget Act limits the use of reconciliation to one reconciliation measure (one tax bill and one spending bill, or one with both tax and spending provisions) per budget, it does not limit the number of budgets a Congress can pass in a given fiscal year. Indeed, as the Congressional Research Service notes, the Budget Act as originally written required adopting two budget resolutions per year.

While that requirement has since been changed, Congress could still pass multiple budget resolutions in a given year, along with a reconciliation measure for each. Congress could pass a Fiscal Year 2018 budget resolution with reconciliation instructions for Obamacare repeal this month, complete work on the Obamacare bill, then pass another budget resolution with reconciliation instructions for tax reform.

Political Will

Congressional leaders apparently want to portray the Graham-Cassidy bill as a binary choice—either support it, or support keeping Obamacare in place. The facts turn that binary choice into a false one. Republicans have every opportunity to work to enact the repeal of Obamacare they promised the American people, regardless of the opinion of an unelected Senate official. No legislator should use an arbitrary—and false—deadline of next week to rationalize voting for a bad bill, or abandoning his or her promises altogether.

This post was originally published at The Federalist.

John Kasich’s Obamacare Bailout Plan

On Thursday morning, governors John Kasich (R-OH) and John Hickenlooper (D-CO) released a plan to “stabilize” Obamacare insurance markets. Here’s what you need to know about the details of the proposal.

John Kasich Doesn’t Want to Repeal Obamacare

It’s worth repeating that, as recently as three years ago, Kasich said the following regarding the health care law: “From Day One, and up until today and into tomorrow, I do not support Obamacare. I never have, and I believe it should be repealed.”

Oh, how times have changed. The governors’ plan would not only not repeal Obamacare, it would further entrench the law, by giving tens of billions, and more likely hundreds of billions, of new taxpayer funds to wealthy insurance companies.

Governors Want Trump to Violate the Constitution

The plan calls on the Trump administration to “commit to making cost-sharing reduction payments.” But as this space has previously described, the United States has an interesting document—you may have heard of it—called the Constitution. That Constitution places the “power of the purse” with Congress, not the executive.

If Congress does appropriate funds—for cost-sharing reductions or anything else—the executive cannot refuse to spend that money, per a prior Supreme Court ruling. But if Congress does not appropriate funds, the executive cannot spend money. To do otherwise would violate a criminal statute.

Asking the Trump administration to violate the Constitution may seem like a natural request to someone like Kasich, a big-government liberal who ran into legal trouble for expanding his state’s Medicaid program unilaterally. But our nation is a government of laws, not men, which makes obeying the law an obligation of all citizens, let alone the chief executive.

A Selective History on Reinsurance

The blueprint cites Republicans’ proposed “stability funds” during the “repeal-and-replace” debate to suggest a “temporary” stability fund providing corporate welfare to insurers—demonstrating the lack of wisdom of the original congressional proposal. In addition to this “temporary” stability fund, the governors’ plan also claims that “the federal government has gone back on its commitment to these programs, in some cases refusing to fully fund [sic] risk sharing programs.” It goes on to propose that “Congress should modify and strengthen federal risk sharing mechanisms, including risk adjustments and reinsurance.”

The claims by the governors defy facts, particularly on reinsurance. The Government Accountability Office concluded last year that the Obama administration violated the law to give insurance companies billions more dollars in reinsurance funds than they deserved—prioritizing corporate welfare to insurers over statutorily required payments back to the U.S. Treasury.

But even after the Obama administration violated the law to give insurers billions more than they were due, the governors still feel the need to propose two separate “stability” (read: bailout) funds to prop up Obamacare. It demonstrates the massive “cash suck” that Obamacare has placed on the federal fisc.

An Impractical Proposal on Federal Employee Coverage

The plan also suggests that Congress should “allow residents in underserved counties”—defined as those with only one insurer on the exchange—“to buy into the federal employee benefit program, giving residents in rural counties access to the same health care as federal workers.”

This talking point—and it sounds like little more than a talking point—appears a solution in search of a problem, for several reasons. First, the Federal Employee Health Benefits Program (FEHBP) has very high premiums for federal workers, masked by massive federal subsidies. To provide some context, the Blue Cross Blue Shield Standard Option—the most popular option in FEHBP—has a monthly premium for 2017 of $709.93 for an individual. That total stands nearly 50 percent higher than the average $476 monthly premium paid by exchange participants this year. And the cost of a family plan for the Blue Cross Blue Shield Standard Option in FEHBP—$1,645.48 per month, or $19,745.76 annually—exceeds the cost of most cars.

FEHBP has such high premiums because it provides far richer benefits than the Obamacare exchanges. A 2009 Congressional Research Service report found that the Blue Cross Blue Shield standard option pays an average percentage of health expenses—in technical terms, the plan’s actuarial value—of 87 percent. By contrast, Obamacare links its insurance subsidies to the second-least-costly silver plan, which has an actuarial value of 70 percent.

Because the federal employee plan provides such generous coverage, opening it up to exchange customers would necessitate massive new increases in subsidies, which the governors’ plan also alludes to (“provide adequate and effective subsidies”). Combined with the reinsurance and cost-sharing reduction payments, it amounts to propping up Obamacare on taxpayers’ dime.

Millions of Americans found out in 2013 that when it comes to Obamacare, if you like your plan, you may not be able to keep it. But with respect to both Obamacare and the governors’ proposal, regardless of whether you like the plan, you’ll definitely be required to pay for it.

This post was originally published at The Federalist.

Trump Administration Continues Obamacare’s Illegal Corporate Welfare

Just over a week ago, on a Friday before the Independence Day holiday, the Trump administration quietly released a report on Obamacare’s reinsurance program. The new administration could have used the opportunity to cut off insurers from billions of dollars in corporate welfare payments, upholding the text of the law and repaying funds to the Treasury in the process.

Except the administration did nothing of the sort, which raises obvious questions: With “friends” like these, do conservatives really need enemies? And did a Republican president who pledged to repeal Obamacare get elected to office in November—or not?

Spreading the Wealth Around

A primer on the issues at work: Section 1341 of Obamacare created a reinsurance pool designed to stabilize the insurance exchanges in their first three years. The law funded the reinsurance program through “assessments”—taxes—on employer-provided health plans. In other words, the federal government raised premiums on employer plans to subsidize health insurers offering exchange plans on the individual market. Or, as President Obama might say, they were “spreading the wealth around.”

In addition to paying insurers up to $20 billion—repeat, $20 billion—between 2014 and 2016, the law also required those assessments on employers to fund $5 billion in payments to the Treasury, offsetting the cost of another Obamacare program. For whatever reason, the employer assessments the past three years have not yielded the $25 billion needed to fund $20 billion in payments to insurers, plus the $5 billion in payments to the Treasury. In the event of such a circumstance, the law states that the Treasury should be paid before health insurers.

So what did the Obama administration do? You guessed it. They paid health insurers first, and gave the Treasury—taxpayers like you and me—the shaft.

For all of President Obama’s talk about Obamacare being the “law of the land,” his administration had quite a habit of forgetting exactly what the law of the land was when that was convenient. Both the non-partisan Congressional Research Service and the Government Accountability Office last year ruled that the Obama administration violated the law in giving insurers preferential treatment over taxpayers. The administration promptly ignored these rulings.

So, it seems, has the new administration. The report on reinsurance included not a word about making payments to the Treasury Department, reimbursing taxpayers the billions they are owed under the law. Nor did the report mention potential actions to sue health insurers to reclaim funds they received that are rightly owed to the U.S. Treasury.

Taxpayers Get the ‘Trump Discount’

During his business days, many of Donald Trump’s contractors complained about a “Trump discount”—the real estate mogul failing to pay the full sums he owed. It appears that the new administration has given taxpayers the “Trump discount”—choosing to continue prioritizing corporate welfare payments to insurers over repaying the U.S. Treasury.

That “Trump discount” insults hard-working taxpayers across the country. Also, by propping up a failing law by throwing more money at health insurers, it just might lead some to discount how much the Trump administration really wants to repeal Obamacare.

This post was originally published at The Federalist.

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.