Tag Archives: House Judiciary Committee

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.

Bill Summary: Gillibrand Substitute to H.R. 847, 9/11 Bill

As you may be aware, Sens. Gillibrand and Schumer have released an updated substitute of the 9/11 bill (H.R. 847).  A CBO cost estimate is available here.

The health title remains unchanged from the House-passed bill; the changes in the most recent draft are a reduction in the amount of new money placed into the 9/11 Victim Compensation Fund (to reflect recent class action settlements) and changes to the pay-fors.  The changes are summarized below, and the full bill summary follows.

Changes Made in the Gillibrand Substitute

9/11 Victim Compensation Fund:  The substitute reduces the total value of the Victims’ Compensation fund by $1.2 billion dollars to slightly under $3 billion dollars for the first ten years.  This reduces the total amount of federal funds paid for compensation under Title II to $7.18 billion (down from $8.4 billion).  The New York Senators represent that this change was made possible as a result of the settlement reached last month with Ground Zero workers.

Government Procurement Excise Tax:  The substitute imposes a 2% “excise tax” on federal procurement payments (by definition, made pursuant to a contract with the U.S. Government) for the provision of goods or services, if provided by a country not party to the WTO Government Procurement Agreement (GPA) (or, presumably, a US-FTA partner).

This may be problematic under U.S.-WTO obligations. The GPA is a pluri-lateral WTO agreement to which the US is party with more than 40 other WTO Members.  With respect to procurement obligations, the U.S. is free to differentiate its treatment between non-GPA WTO members and U.S. producers.  However, with respect to an excise tax, such differentiation may conflict with the U.S.’s WTO obligations covering internal taxation with respect to the importation of goods.  For example, if the excise tax is not considered to be a law governing procurement, then it may violate the national treatment obligation which requires the U.S. to treat imports in a manner equal to domestic products.  There may be additional arguments raising trade concerns, but this example is illustrative.

The substitute also specifies it “shall be applied in a manner consistent with United States obligations under international agreements.” It is therefore possible that it would not be applied with respect to the procurement of goods from any other WTO member.  Under this scenario, the vast majority of government procurements likely to be affected would be with respect to Iraq and Afghanistan, which are not full members of the WTO.

It is unclear how JCT/CBO is calculating its score.  The score may include revenues which may reflect contracts with suppliers in WTO Member countries that are not signatories to the GPA, which may be WTO inconsistent (and technically not covered since the bill requires consistency with US international obligations) and also apparently uses, for the bulk of the numbers, contracts with suppliers in Afghanistan and Iraq.  Moreover, the scoring assumes that current spending levels in Iraq and Afghanistan will continue for 10 years at current levels.

Extension of Travel Promotion Act Fees:  The substitute extends and re-directs travel promotion fees created earlier this year to fund the 9/11 health programs.   In March 2010, the President signed into law the Travel Promotion Act (Sec. 9 of PL 111-145, the United States Capitol Police Administrative Technical Corrections Act of 2009), which created a nonprofit corporation to market the United States as an international travel destination.  The corporation is partially funded by a $14 assessment on international visitors from nations that have US-visa waiver programs (i.e., visitors from nations that are not required to obtain a visa for temporary travel to the United States), as well as matching funds from the travel and tourism industry.   Of the $14 fee, $10 is funneled into the Travel Promotion Fund created by the Act to cover operating expenses of the nonprofit corporation.  The remaining $4 is redirected to the general fund to cover the costs of administering the Electronic System for Travel Authorization (ESTA) — authorization that all nationals of visa waiver countries must obtain prior to travelling to the United States.  The Travel Promotion Act authorizes the imposition of this tax on foreign travelers through the end of FY 2014.  The 9/11 bill would extend the collection of the $14 fee past the FY 2014 sunset through FY 2021 and, beginning in FY 2015, redirect all the revenue from the fee into general fund where it can be used to offset health care costs in the 9/11 bill.

H1-B Visa Fees:  The bill extends until September 30, 2021 (from September 30, 2014) the Emergency Border Security Appropriations Act of 2010, passed in August, which raised fees on H1-B and L-1 visas for those companies that have more than half their U.S.-based employees on such visas.

FULL SUMMARY

H.R. 847 would amend the Public Health Service Act to establish new federal programs for 9/11 workers related to health monitoring and treatments, and expand eligibility for the 9/11 victim compensation fund.  Specific details of the legislation include the following:

World Trade Center Health Program:  The bill would establish within the Department of Health and Human Services a new program to provide medical monitoring, screening, and treatment to workers (including federal employees) who responded to the 9/11 attacks on the World Trade Center (WTC), and residents of New York City “who were directly impacted and adversely affected by such attacks.”  The program is intended to provide:

  • Medical monitoring for those exposed to airborne toxins or other hazards;
  • Screening for community members;
  • Treatment for “all medically necessary health and mental health care expenses (including necessary prescription drugs)” for both responders and community members;
  • Outreach to potentially eligible individuals to inform them of benefits available;
  • Uniform data collection and monitoring; and
  • Research on health conditions arising from the World Trade Center attacks.

Specific details of the program include:

Payments:  H.R. 847 provides that all health benefits provided under the program will be provided “without any deductibles, co-payments, or other cost-sharing” by the individual.  (Reimbursement to the program by the City of New York is addressed below.)  The bill provides for the creation of quality control and anti-fraud elements within the new program, and incorporates existing anti-fraud penalties to the WTC program.

Advisory and Steering Committees:  The bill creates a scientific and technical advisory committee to provide expertise on eligibility criteria and WTC-related health conditions, and two steering committees—one for WTC responders, the other for survivors—to co-ordinate the screening and treatment of eligible members.

Outreach:  The bill includes language requiring the Program Administrator to establish a website, create partnerships with local agencies, and take other measures necessary to inform potentially eligible beneficiaries of the existence of the WTC program.

Centers of Excellence:  The bill directs the Administrator to enter into contracts with Centers of Excellence with respect to monitoring, treating, and counseling individuals related to WTC-related health conditions.  Centers of Excellence include those facilities designated by the Administrator that have experience in treating WTC responders and survivors and meet other specified requirements.  The bill would reimburse Centers of Excellence “at a fair and appropriate” negotiated rate for their fixed infrastructure costs; payments for patients’ treatments would be made as outlined below.

Eligibility for Responders Program:  H.R. 847 includes several categories of 9/11-related responders eligible for the new federal health care program, provided they meet eligibility requirements and have a WTC-related health condition.  The bill would expand eligibility for the new program to persons who “performed rescue, recovery, demolition, debris cleanup, or other related services in the New York City disaster area” and meet certain criteria with respect to airborne toxins (persons categorized as meeting “modified criteria”).  H.R. 847 also specifies categories of currently eligible individuals in line to receive treatment covered by the program, including:

  • New York City Fire Department employees, and retirees, who “participated at least one day in the rescue and recovery effort at any of the former World Trade sites (including Ground Zero, Staten Island landfill, and the New York City Chief Medical Examiner’s office)” at any point between September 11, 2001 and July 31, 2002;
  • Surviving immediate family members of New York City firefighters, and retired firefighters, killed on September 11 at the World Trade Center who received mental health treatment related to their loss before September 1, 2008—but such individuals are only subject to reimbursement for mental health treatments;
  • Participants in the WTC cleanup efforts in Lower Manhattan (defined as areas south of Canal Street), the Staten Island landfill, or the barge loading piers who worked:
    • At least 4 hours between September 11 and September 14, 2001;
    • At least 24 hours between September 11 and September 30, 2001; or
    • At least 80 hours between September 11, 2001, and July 31, 2002;
  • New York City and Port Authority police, and retirees, who worked:
    • At least 4 hours between September 11 and September 14, 2001 in Lower Manhattan, the Staten Island landfill, or the barge loading piers;
    • At least 24 hours between September 11 and September 30, 2001 in Lower Manhattan;
    • At least 80 hours between September 11, 2001, and July 31, 2002 in Lower Manhattan; or
    • One day at Ground Zero, the Staten Island landfill, or the barge loading piers (but not Lower Manhattan as a whole) between September 11, 2001, and July 31, 2002;
  • Workers in the New York City Medical Examiner’s office between September 11, 2001 and July 31, 2002;
  • Workers in the Port Authority Trans-Hudson Corporation tunnel who worked at least 24 hours between February 1, 2002, and July 1, 2002; and
  • Vehicle maintenance workers exposed to debris for one day between September 11, 2001 and July 31, 2002.

The bill also extends eligibility to those fire and police workers and other volunteers who participated in cleanup efforts at the Pentagon or in Shanksville, PA in the days following the September 11 attacks.  The bill includes provisions for an application process lasting no more than 60 days, and an appeal in cases where applications are initially denied.

The bill limits the number of beneficiaries to a maximum of 25,000 who at any time qualify for the program, with no more than 2,500 meeting “modified criteria,” but exempts from the numerical cap those beneficiaries already receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.

Expected Eligibility and Participation:  According to a Congressional Budget Office score of an earlier version of H.R. 847 released in June:

CBO estimates that roughly 650,000 individuals from the NYC disaster area—approximately 75,000 responders and 575,000 survivors—would meet the exposure requirements specified in the legislation, along with potentially another 10,000 responders from the Pentagon and Shanksville, Pennsylvania, sites.  Although many of those individuals may have or develop health conditions related to the terrorist attacks, CBO estimates that only a portion would participate in the WTC Health Program and apply for an award under the VCF [Victim Compensation Fund].  Overall, CBO expects that of the total population that meets the exposure requirements, slightly less than 15 percent [about 99,000 individuals] would enroll in the WTC Health Program by 2020 and slightly more than 5 percent [about 33,000 individuals] would receive awards from the VCF.

Conditions Eligible for Treatment:  The bill defines a WTC-related health condition as “an illness or health condition for which exposure to airborne toxins, any other hazard, or any other adverse condition resulting from the September 11, 2001 attacks on the World Trade Center…is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition,” or a mental health condition for which the attacks are “substantially likely to be a significant factor in aggravating, contributing to, or causing the condition.”  The bill includes a list of aerodigestive (i.e., asthma and other pulmonary conditions), musculoskeletal, and mental health diseases (including post-traumatic stress disorder) that qualify for treatment.

H.R. 847 also includes an application process to add additional illnesses subject to review by the Administrator and the Advisory Committees, and permits physicians at Centers of Excellence to receive federal payments for treatments for WTC-related diseases not yet identified as such under the provisions above, subject to a subsequent determination by the Administrator as to whether or not the condition will be added to the eligible list of diseases.

Standards for Treatment:  The bill limits treatments paid for by the federal government to medically necessary standards, subject to protocols developed by the Administrator.  The bill includes provisions for an appeals process with respect to medical necessity determinations.

Payment Levels:  H.R. 847 provides that payments to physicians and other medical providers would generally be based upon reimbursement levels under the Federal Employees Compensation Act (FECA), which governs federal workers compensation claims.  The bill also includes language establishing a competitive bidding process among vendors to govern pharmaceutical purchases by eligible beneficiaries, and permits the Administrator to designate reimbursement rates for other services not referenced in the bill language.

Eligibility for Survivors:  H.R. 847 creates a separate program for various segments of the community affected by the World Trade Center attacks.  Eligible groups of individuals include:

  • “A person who was present in the New York City disaster area [defined as any area in Manhattan south of Houston Street and any block in Brooklyn within a 1.5 mile radius of the WTC site] in the dust or dust cloud on September 11, 2001;”
  • Individuals who “worked, resided, or attended school, child care, or adult day care in the New York City disaster area” for at least four days between September 11, 2001 and January 10, 2002—or at least 30 days between September 11, 2001 and July 31, 2002;
  • “Any person who worked as a clean-up worker or performed maintenance work in the New York City disaster area” between September 11, 2001 and January 10, 2002 “and had extensive exposure to WTC dust as a result of such work;”
  • Individuals residing or having a place of employment in the New York City disaster area between September 11, 2001 and May 31, 2003, and deemed eligible to receive grants from the Lower Manhattan Development Corporation;
  • Any individuals receiving treatment at the World Trade Center Environmental Health Center as of the date of the bill’s enactment; or
  • Additional individuals who claim a WTC-related health condition, as determined by the Administrator in consultation with the WTC committees.

The bill includes an application and certification process for community beneficiaries similar to that for responder beneficiaries discussed above.  The bill limits the number of beneficiaries to a maximum of 25,000 who at any time qualify for the program, of which no more than 2,500 may be individuals enrolled based on modified eligibility criteria, but exempts from the numerical cap those beneficiaries already receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.

Beneficiaries under the community-based program would generally receive the same benefits and treatments as the WTC responders, except that the community-based program does not include musculoskeletal disorders in the list of identified health conditions (although some or all of these could be added under the process described above).

Treatment for Other Individuals:  H.R. 847 establishes an additional capped fund to finance care for those living in the New York disaster area at the time of the September 11 attacks, but not meeting the criteria listed above, who have been diagnosed with an identified WTC-related health condition.  The bill caps such spending at $20 million in Fiscal Year 2012, rising annually according to medical inflation rates.

Care Outside New York:  The bill would require the Administrator to “establish a nationwide network of health care providers” to treat eligible recipients outside the New York City metropolitan area, subject to certain reporting and quality requirements.

Research:  The bill would require the WTC Administrator to establish an epidemiological research program on health conditions arising from the World Trade Center attacks.  The program would cover diagnosis and treatment of WTC-related health conditions among responders and in sample populations from Lower Manhattan and Brooklyn, “to identify potential for long-term adverse health effects in less exposed populations.”

Payers:  In cases where an individual is eligible for workman’s compensation, or holds other private or public health insurance coverage, the bill provides that the federal government’s WTC program shall serve as a secondary payer for such claims, similar to the Medicare Secondary Payer program, except that the WTC program would serve as the primary payer for those eligible for Medicare.  Beginning in July 2014, the bill requires individuals to maintain health insurance, as required by the Patient Protection and Affordable Care Act’s individual mandate, in order to qualify for participation in the program.

The bill stipulates that “no funds may be disbursed” unless New York City has entered into a contract to pay for 10 percent of the expenditures necessary to carry out the title in Fiscal Years 2012 through 2018, and a specified similar amount for Fiscal Years 2019 and 2020, amounts that cannot be derived from any federal sources.

Funding:  The bill creates a fund to finance the programs established above, and provides a total of $3.35 billion in direct appropriations for Fiscal Years 2011-2019.  The bill provides up to an additional $1.1 billion in direct spending for Fiscal Years 2019 and 2020, provided that prior years’ spending did not reach the $3.35 billion cap, and that the cap is not exceeded through Fiscal Year 2020.  However, in its score of H.R. 847, the Congressional Budget Office said it “expects that the cap will be reached in 2019 and estimates that no additional health program spending would occur in 2020.”

Changes to September 11 Compensation Fund:  In addition to establishing the new programs established above, H.R. 847 would also make several changes to the September 11 victim compensation fund established in 2001 (Title IV of P.L. 107-42), as listed below.

Extension for Applications:  H.R. 847 would reopen applications to the September 11 compensation fund in cases where the Special Master for the compensation fund determines that the individual became aware of physical injuries suffered as a result of the September 11 attacks after applications to the compensation fund were closed.  The bill would generally reopen applications for the reasons stated above (and for individuals subject to the expanded eligibility provisions noted below) for two years after the individual knew, or should have known, of such injuries, provided the individual seeks treatment in a prompt manner and the claim can be verified.  Additional claims applications under this extension would be accepted through December 22, 2031.

Expansion of Eligibility Definitions:  The bill would modify the definition of eligibility for compensation to define the “immediate aftermath” of the September 11 attacks as including time through August 30, 2002.  The bill would also expand eligibility to include workers handling debris from the World Trade Center, including “any area contiguous to a site of [the 9/11] crashes that the Special Master determines was sufficiently close to the site that there was a demonstrable risk of physical harm” and “any area related to, or along, routes of debris removal,” including (but not limited to) the Fresh Kills landfill in Staten Island.

Applicability to Pending Lawsuits:  H.R. 847 would require debris workers or other individuals with pending legal claims relating to 9/11-related injuries, and wishing to seek compensation from the victim compensation fund, to withdraw those legal actions within 90 days after updated regulations regarding the fund application extension are promulgated.  The bill would permit individuals whose applications are denied by the Special Master subsequently to reinstitute their legal claims without prejudice within 90 days of the ineligibility determination—a right not granted to fund applications under the original 9/11 victims compensation program.

Limited Liability:  H.R. 847 limits the liability for construction and related contractors regarding workers’ claims to the sum of the funds available in the WTC Captive Insurance Company, an amount not exceeding $350 million from New York City, and the amount of all available insurance held by the Port Authority of New York and New Jersey and the relevant contractors and sub-contractors.

Funding:  The bill caps federal funding for new claims on the 9/11 compensation fund at $7.18 billion—just under $3 billion for the first ten year period following enactment, and $4.2 billion for the second ten year period.  The bill allows the Special Master to “ratably reduce” compensation payments over each ten year period such that all eligible individuals would receive payments during the first ten years, with the remaining balance provided during the second ten year period.

Attorneys Fees:  The bill caps attorneys fees at 10 percent of the award amount, subject to several exceptions.  The bill provides that “with respect to a claim made on behalf of an individual for whom a lawsuit was filed in the Southern District of New York prior to January 1, 2009, in the event that the representative believes in good faith that the limit [on fees]…will not provide adequate compensation for services rendered,” that representative may appeal to the Special Master for a higher fee award.

Additional Background on 9/11 Compensation Fund:  As noted above, Title IV of Public Law 107-42 authorized payments by the federal government to individuals injured or killed as a result of the September 11 attacks; eligible individuals (victims injured and families of individuals killed in the attacks) received $7 billion in payments before the fund closed in 2004.  Justice Department statistics note that during its operation, the fund issued award letters to 5,562 families whose relatives were killed in the September 11 attacks, and to 2,682 claimants suffering personal injuries as a result of the attacks.

While the process created under the law, and administered by Special Master Kenneth Feinberg, was praised by many victims’ families, Members of Congress, and outside experts as fair and judicious, proponents of H.R. 847 assert that first responders who worked at the World Trade Center site have incurred respiratory and other injuries as a result of the toxins inhaled at Ground Zero—but that these conditions only became manifest after the application period provided for in P.L. 107-42 expired.  Title II of H.R. 847 would therefore seek to reopen the compensation fund to allow these workers, and other individuals, to make claims for compensation.

However, asked by House Judiciary Committee Republican staff in 2008 to comment on a proposed draft of Title II in an earlier version of the legislation considered during the 110th Congress, former Special Master Feinberg responded with an e-mail noting several concerns with the approach taken by the bill sponsors and the majority.  These concerns included:

  • An extension of the eligibility definition of “immediate aftermath” from the first four days following September 11 (as prescribed in regulations creating the compensation fund) to August 30, 2002— which could result in “a huge influx of additional claims” and could cause some individuals to re-apply for compensation;
  • Language that “vastly extends [the fund’s] geographic scope,” potentially leading to “thousands and thousands of additional claimants” and causing additional individuals to re-apply for compensation;
  • An extension of the filing period until 2031—“no latent claims need such an extended date;”
  • Provisions requiring the Special Master to determine when an individual first knew or should have known about their injuries—“how can the Special Master possibly make that determination?” and
  • Language permitting individuals denied eligibility for compensation to return to the tort system and re-file their claims—a right which was specifically denied as a pre-condition for initial applicants of the 9/11 fund, but which some who were denied compensation by the Special Master may now attempt to exercise.

House Judiciary Committee Republican staff notes that, to the extent the 9/11 compensation fund is re-opened, Mr. Feinberg recommends that it be done solely to allow first responders with diseases not manifest at the time of the initial application period to receive compensation—language narrower in scope than the provisions discussed above.

Government Procurement Excise Tax:  The bill imposes a 2% “excise tax” on federal procurement payments (by definition, made pursuant to a contract with the U.S. Government) for the provision of goods or services, if provided by a country not party to the WTO Government Procurement Agreement (GPA) (or, presumably, a US-FTA partner).

This provision may be problematic under U.S.-WTO obligations.  The GPA is a pluri-lateral WTO agreement to which the US is party with more than 40 other WTO Members.  With respect to procurement obligations, the U.S. is free to differentiate its treatment between GPA and non-GPA WTO members.  However, with respect to an excise tax, such differentiation may conflict with the U.S.’s WTO obligations covering internal taxation with respect to the importation of goods.  For example, the most-favored nation (MFN) obligation requires the U.S. to treat all other WTO members equally.  So, if the excise tax is not applied to GPA members it could be found WTO inconsistent in the event non-GPA signatory WTO members (for example, China) are made subject to the excise tax.  There may be additional arguments raising trade concerns, but this example is illustrative.

The bill also specifies it “shall be applied in a manner consistent with United States obligations under international agreements.”  It is therefore possible that it would not be applied with respect to the procurement of goods from any other WTO member.  Under this scenario, the vast majority of government procurements likely to be affected would be with respect to Iraq and Afghanistan, which are not full members of the WTO.

Extension of Travel Promotion Act Fees:  The bill extends and re-directs travel promotion fees created earlier this year.   In March 2010, the President signed into law the Travel Promotion Act (Sec. 9 of PL 111-145, the United States Capitol Police Administrative Technical Corrections Act of 2009), which created a nonprofit corporation to market the United States as an international travel destination.  The corporation is partially funded by a $14 assessment on international visitors from nations that have US-visa waiver programs (i.e., visitors from nations that are not required to obtain a visa for temporary travel to the United States), as well as matching funds from the travel and tourism industry.   Of the $14 fee, $10 is funneled into the Travel Promotion Fund created by the Act to cover operating expenses of the nonprofit corporation.  The remaining $4 is redirected to the general fund to cover the costs of administering the Electronic System for Travel Authorization (ESTA) — authorization that all nationals of visa waiver countries must obtain prior to travelling to the United States.  The Travel Promotion Act authorizes the imposition of this tax on foreign travelers through the end of FY 2014.  The 9/11 bill would extend the collection of the $14 fee past the FY 2014 sunset through FY 2021 and, beginning in FY 2015, redirect all the revenue from the fee into general fund where it can be used to offset health care costs in the 9/11 bill.

H1-B Visa Fees:  The bill extends until September 30, 2021 (from September 30, 2014) the Emergency Border Security Appropriations Act of 2010, passed in August, which raised fees on H1-B and L-1 visas for those companies that have more than half their U.S.-based employees on such visas.

Legislative Bulletin — H.R. 7174, James Zadroga 9/11 Health and Compensation Act

Order of Business:  Reports indicate the bill is expected to be considered on Sunday, September 28, under floor procedures that have yet to be determined.

Summary:  H.R. 7174 would amend the Public Health Service Act to establish new federal entitlement programs for 9/11 workers related to health monitoring and treatments, and expand eligibility for the 9/11 victim compensation fund.  Specific details of the legislation include the following:

World Trade Center Health Program:  The bill would establish within the National Institute for Occupational Safety and Health (NIOSH) a new program to provide medical monitoring, screening, and treatment to workers (including federal employees) who responded to the 9/11 attacks on the World Trade Center (WTC), and residents of New York City “who were directly impacted and adversely affected by such attacks.”  The program is intended to provide:

  • Medical monitoring for those exposed to airborne toxins or other hazards;
  • Screening for community members;
  • Treatment for “all medically necessary health and mental health care expenses (including necessary prescription drugs;)”
  • Outreach to potentially eligible individuals to inform them of benefits available;
  • Uniform data collection and monitoring; and
  • Research on health conditions arising from the World Trade Center attacks.

Specific details of the program include:

Payments:  H.R. 7174 provides that all health benefits provided under the program will be provided “without any deductibles, co-payments, or other cost-sharing.”  In cases where a worker is eligible for workman’s compensation, or holds other public or private health insurance coverage, the bill provides that the federal government’s WTC program shall serve as a secondary payer for such claims, similar to the Medicare Secondary Payer program for Medicare beneficiaries with end-stage renal disease.  The bill provides for the creation of quality control and anti-fraud elements within the new program, and incorporates existing anti-fraud penalties to the WTC program.

Advisory and Steering Committees:  The bill creates a scientific and technical advisory committee to provide expertise on eligibility criteria and WTC-related health conditions, and two steering committees—one for WTC responders, the other for community members—to co-ordinate the screening and treatment of eligible members.

Outreach:  The bill includes language requiring the Program Administrator—either the NIOSH Director or his designee—to establish a website, create partnerships with local agencies, and take other measures necessary to inform potentially eligible beneficiaries of the existence of the WTC program.

Centers of Excellence:  The bill directs the Administrator to enter into contracts with “Clinical Centers of Excellence” with respect to monitoring, treating, and counseling individuals related to WTC-related health conditions, and separate contracts with “Co-Ordinating Centers of Excellence” with respect to analyzing and reporting on relevant data and medical protocols.  The bill names the Clinical Centers of Excellence:

  • New York City Fire Department;
  • Mount Sinai co-ordinated consortium;
  • Queens College;
  • State University of New York at Stony Brook;
  • University of Medicine and Dentistry of New Jersey;
  • Bellevue Hospital; and
  • Other hospitals identified by the Administrator.

The bill designates the New York Fire Department, the Mount Sinai co-ordinated consortium, and Bellevue Hospital as Co-ordinating Centers of Excellence.

H.R. 7174 would reimburse Clinical Centers of Excellence $600 annually per eligible participant in the treatment program, and an additional $300 annually per eligible participant in the monitoring program—amounts subject to an inflation index reflecting increases in medical costs in future years.  The bill provides that the payments will be made “regardless of the volume or cost of services required.”  The bill permits the Administrator to authorize payment levels for Co-ordinating Centers of Excellence, and requires a review and GAO study on payment levels within five years.

Eligibility for Responders Entitlement:  H.R. 7174 includes several categories of 9/11-related responders eligible for the new federal health care entitlement.  The bill would expand eligibility for the new entitlement to persons who “performed rescue, recovery, demolition, debris cleanup, or other related services in the New York City disaster area” and meet certain criteria with respect to airborne toxins.  H.R. 7174 also specifies categories of currently eligible individuals in line to receive the new health care entitlement, including:

  • New York City Fire Department employees who “participated at least one day in the rescue and recovery effort at any of the former World Trade sites (including Ground Zero, Staten Island landfill, and the New York City Chief Medical Examiner’s office” at any point between September 11, 2001 and July 31, 2002;
  • Surviving immediate family members of New York City firefighters killed on September 11 at the World Trade Center who received mental health treatment related to their loss—but such individuals are only subject to the new entitlement with respect to mental health treatments;
  • Participants in the WTC cleanup efforts in Lower Manhattan, the Staten Island landfill, or the barge loading piers who worked:
    • At least 4 hours between September 11 and September 14, 2001;
    • At least 24 hours between September 11 and September 30, 2001; or
    • At least 80 hours between September 11, 2001, and July 31, 2002;
  • Workers in the New York City Medical Examiner’s office;
  • Workers in the Port Authority Trans-Hudson Corporation tunnel who worked at least 24 hours between February 1, 2002, and July 1, 2002; and
  • Vehicle maintenance workers exposed to debris “while maintaining vehicles contaminated by airborne toxins” related to the WTC attacks during the time periods outlined above.

The bill includes provisions for an application process lasting no more than 60 days, and an appeal to an administrative law judge in cases where applications are initially denied.

The bill limits the number of beneficiaries to a maximum of 15,000 who at any time qualify for the program, but exempts from the numerical cap those beneficiaries receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.

H.R. 7174 also includes language providing that, in the event that the program’s expenditures are less than 90% of Congressional Budget Office projections as of December 1, 2011, and January 1, 2015, the Administrator may increase the number of eligible participants to meet the CBO expenditure estimates.

Conditions Eligible for Treatment:  The bill defines a WTC-related health condition as “an illness or health condition for which exposure to airborne toxins, any other hazard, or any other adverse condition resulting from the September 11, 2001 attacks on the World Trade Center…is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition,” or a mental health condition “substantially likely to be a significant factor in aggravating, contributing to, or causing the condition.”  The bill includes a list of aerodigestive (i.e. asthma and other pulmonary conditions), musculoskeletal, and mental health diseases (including post-traumatic stress disorder) that qualify for treatment.

H.R. 7174 also includes an application process to add additional illnesses subject to review by the Administrator and the Advisory Committees, and permits physicians at Clinical Centers of Excellence to receive federal payments for treatments for WTC-related diseases not yet identified as such under the provisions above, subject to a subsequent determination by the Administrator as to whether or not the condition will be added to the eligible list of diseases.

Standards for Treatment:  The bill limits treatments paid for by the federal government to medically necessary standards, including those that are “not primarily for the convenience of the patient or physician…and not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results.”

The bill provides for review by “a federal employee designated by the WTC Program Administrator” with respect to determinations of WTC-related health conditions, and includes provisions requiring an appeals process before an administrative law judge with respect to the Administrator’s certification of individuals’ claims for treatment, and a separate appeals process before a physician panel with respect to medical necessity determinations.

Payment Levels:  H.R. 7174 provides that payments to physicians and other medical providers shall generally be based upon reimbursement levels under the Federal Employees Compensation Act (FECA), which governs federal workman’s compensation claims.  The bill also includes language establishing a competitive bidding process among vendors to govern pharmaceutical purchases by eligible beneficiaries, and permits the Administrator to designate reimbursement rates for other services not referenced in the bill language.  The bill requires New York City and its public hospitals to contribute a 10% match in order to be eligible to receive payment for treatment services rendered.

Eligibility for Community Entitlement:  H.R. 7174 creates a separate entitlement for various segments of the community affected by the World Trade Center attacks.  Eligible groups of individuals include:

  • “A person who was present in the New York City disaster area in the dust or dust cloud on September 11, 2001;”
  • Individuals who “worked, resided, or attended school, child care, or adult day care in the New York City disaster area” for at least four days between September 11, 2001 and January 10, 2002—or at least 30 days between September 11, 2001 and July 31, 2002;
  • “Any person who worked as a clean-up worker or performed maintenance work in the New York City disaster area” between September 11, 2001 and January 10, 2002 “and had extensive exposure to WTC dust as a result of such work;”
  • Individuals residing or having a place of employment in the New York City disaster area between September 11, 2001 and May 31, 2003, and deemed eligible to receive grants from the Lower Manhattan Development Corporation; and
  • Any individuals receiving treatment at the World Trade Center Environmental Health Center as of the date of the bill’s enactment.

The bill includes an application and certification process for community beneficiaries similar to that for responder beneficiaries discussed above.  The bill limits the number of beneficiaries to a maximum of 15,000 who at any time qualify for the program, but exempts from the numerical cap those beneficiaries receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.  As a result, CBO estimates that, between the community entitlement and the responder entitlement discussed above, about 80,000 people would receive these new WTC-related entitlements to obtain benefits for respiratory and mental health treatments, increasing mandatory spending by $4.6 billion over ten years.

Beneficiaries under the community-based entitlement would generally receive the same benefits and treatments as the WTC responders, except that the community-based entitlement does not include musculoskeletal disorders in the list of identified health conditions (although some or all of these could be added under the process described above).

Treatment for Other Individuals:  H.R. 7174 establishes an additional capped entitlement fund to finance care for “WTC community members”—i.e. those living in the New York disaster area at the time of the September 11 attacks, but not meeting the criteria listed above—diagnosed with an identified WTC-related health condition.  The bill caps such entitlement spending at $20 million in Fiscal Year 2009, rising annually according to medical inflation rates.

Care Outside New York:  The bill would require the Administrator to “establish a nationwide network of health care providers” to treat eligible recipients outside the New York City metropolitan area, subject to certain reporting and quality requirements.

Research:  The bill would require the WTC Administrator to establish an epidemiological research program on health conditions arising from the World Trade Center attacks.  The program would cover diagnosis and treatment of WTC-related health conditions among responders and in sample populations from Lower Manhattan and Brooklyn, “to identify potential for long-term adverse health effects in less exposed populations.”  H.R. 7174 authorizes $15 million annually for such research.  In addition, the bill authorizes $7 million annually for New York City to maintain a WTC Health Registry, as well as $8.5 million for grants to the New York Department of Mental Health and Mental Hygiene for WTC-related mental health treatment.

Changes to September 11 Compensation Fund:  In addition to establishing the new NIOSH program, H.R. 7174 would also make several changes to the September 11 victim compensation fund established in 2001 (Title IV of P.L. 107-42), as listed below.

Extension for Applications:  H.R. 7174 would reopen applications to the September 11 compensation fund in cases where the Special Master for the compensation fund determines that the individual became aware of physical injuries suffered as a result of the September 11 attacks after applications to the compensation fund were closed.  The bill would generally reopen applications for the reasons stated above (and for individuals subject to the expanded eligibility provisions noted below) for two years after the individual became aware of such injuries, provided the individual seeks treatment in a prompt manner and the claim can be verified.  Additional claims applications under this extension would be accepted through December 22, 2031.

Expansion of Eligibility Definitions:  The bill would modify the definition of eligibility for compensation to define the “immediate aftermath” of the September 11 attacks as including time through August 30, 2002.  The bill would also expand eligibility to include workers handling debris from the World Trade Center, including “any area contiguous to a site of [the 9/11] crashes that the Special Master determines was sufficiently close to the site that there was a demonstrable risk of physical harm” and “any area related to, or along, routes of debris removal,” including (but not limited to) the Fresh Kills landfill in Staten Island.  The Congressional Budget Office notes that the provisions in the bill “would significantly increase the number of individuals who could seek compensation from the fund,” resulting in an estimated 18,000 additional individuals receiving federal compensation benefits averaging $350,000 each—increasing mandatory spending by nearly $6.4 billion over ten years.  According to Justice Department statistics, this figure would represent a nearly seven-fold increase from the 2,852 personal injury claims originally filed during the 2001-03 period. (See “Additional Background” below.)

Applicability to Pending Lawsuits:  H.R. 7174 would require debris workers or other individuals with pending legal claims relating to 9/11-related injuries, and wishing to seek compensation from the victim compensation fund, to withdraw those legal actions within 90 days after updated regulations regarding the fund application extension are promulgated.  The bill would permit individuals whose applications are denied by the Special Master subsequently to reinstitute their legal claims without prejudice within 90 days of the ineligibility determination—a right not granted to fund applications during the original 2001-03 application period.

Limited Liability:  H.R. 7174 limits the liability for construction and related contractors regarding workers’ claims to the sum of the funds available in the WTC Captive Insurance Company, an amount not exceeding $350 million from New York City, and the amount of all available insurance held by the Port Authority of New York and New Jersey and the relevant contractors and sub-contractors.  According to the Republican staff of the Judiciary Committee, this amount would total approximately $2 billion in funds available to pay legal claims.

Tax Increases:  H.R. 7174 includes several tax provisions designed to pay for the entitlement created in the bill, including

Economic Substance Doctrine:  The bill codifies the “economic substance doctrine” used in certain court decisions, which prohibits businesses from making certain free-market business decisions (and from taking the related tax benefits) based solely on tax-lowering motives.  The bill would also impose a 20% penalty on understatements attributable to a transaction lacking economic substance (40% in cases where certain facts are not disclosed).  In other words, under this provision, companies could be assessed tax penalties for engaging in business transactions aimed primarily at lowering their tax bills beginning on the date of this bill’s enactment.

Increased Taxes on Domestic Subsidiaries of Multinational Corporations:  H.R. 7174 denies certain U.S. subsidiaries of multinational companies the benefits of tax treaties in certain circumstances.  When a U.S. subsidiary of a foreign-owned company makes certain tax-deductible payments (like interest, rents, and royalties) to a related party located in another country, the U.S. imposes a tax on those payments.  The default rate is 30%, but this rate can be reduced, sometimes down to 0%, by tax treaties.  The U.S. has 58 tax treaties with 66 different countries.  This bill would deny the U.S. subsidiary the benefits of the negotiated treaty rate when those tax-deductible payments are made by the subsidiary to a related foreign company, if the ultimate parent of the multinational company is based in a country that does not have a tax treaty with the U.S.

Corporate Estimated Tax Timing Gimmick.  This provision would increase the estimated tax payments that certain corporations must remit to the federal government.  Under current law, corporations with assets of at least $1 billion must make equally divided estimated tax payments for each quarter.  This legislation would increase the payment due for the third quarter of calendar-year 2013 by 5 percentage points.  (If each regular quarterly payment is 100% of what is owed, this additional payment would be 105% of what would otherwise be owed.)  The payment due for the fourth quarter of calendar-year 2013 (i.e. the 1st quarter of fiscal-year 2014) would be reduced accordingly so that the corporations pay no net increase in estimated payments in calendar-year 2013.  This provision is merely a revenue timing shift, a gimmick used to comply with the House’s PAYGO rules, yet would have real-world implications, as it forces certain companies to pay more of their tax payments earlier.  Given the time value of money, there’s little doubt that requiring bigger, earlier payments would harm the bottom lines of qualified corporations.

Additional Background on 9/11 Compensation Fund:  As noted above, Title IV of Public Law 107-42 authorized payments by the federal government to individuals injured or killed as a result of the September 11 attacks; eligible individuals (victims injured and families of individuals killed in the attacks) received $7 billion in payments before the fund closed in 2004.  Justice Department statistics note that during its operation, the fund issued award letters to 5,562 families whose relatives were killed in the September 11 attacks, and to 2,682 claimants suffering personal injuries as a result of the attacks.

While the process created under the law, and administered by Special Master Kenneth Feinberg, was praised by many victims’ families, Members of Congress, and outside experts as fair and judicious, proponents of H.R. 7174 assert that first responders who worked at the World Trade Center site have incurred respiratory and other injuries as a result of the toxins inhaled at Ground Zero—but that these conditions only became manifest after the application period provided for in P.L. 107-42 expired.  Title II of H.R. 7174 would therefore seek to reopen the compensation fund to allow these workers, and other individuals, to make claims for compensation.

However, asked by Judiciary Committee Republican staff to comment on a proposed draft of Title II, former Special Master Feinberg responded with an e-mail noting several concerns with the approach taken by the bill sponsors and the majority.  These concerns included:

  • An extension of the eligibility definition of “immediate aftermath” from the first four days following September 11 (as prescribed in regulations creating the compensation fund) to August 30, 2002— which could result in “a huge influx of additional claims” and could cause some individuals to re-apply for compensation;
  • Language that “vastly extends [the fund’s] geographic scope,” potentially leading to “thousands and thousands of additional claimants” and causing additional individuals to re-apply for compensation;
  • An extension of the filing period until 2031—“no latent claims need such an extended date;”
  • Provisions requiring the Special Master to determine when an individual first knew or should have known about their injuries—“how can the Special Master possibly make that determination?” and
  • Language permitting individuals denied eligibility for compensation to return to the tort system and re-file their claims—a right which was specifically denied as a pre-condition for initial applicants of the 9/11 fund, but which some who were denied compensation by the Special Master may now attempt to exercise.

Republican Committee staff notes that, to the extent the 9/11 compensation fund is re-opened at all, Mr. Feinberg recommends that it be done solely to allow first responders with diseases not manifest at the time of the initial application period to receive compensation—language that would be much narrower in scope than the provisions discussed above.  Particularly given that payments made pursuant to the 9/11 compensation fund constitute mandatory spending, conservatives may agree with the former Special Master that any potential changes considered by Congress should be narrow in scope and designed to ensure that first responders receive reasonable compensation in a manner that uses federal taxpayer dollars prudently.

Committee Action:  H.R. 7174 was introduced on July 24, 2008 and referred to the Committees on Energy and Commerce, Judiciary, and the Budget, none of which took official action.

Possible Conservative Concerns:  Several aspects of H.R. 7174 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Tax Increase.  In order to pay for the more than $10 billion cost of this new federal entitlement, H.R. 7174 would codify the economic substance doctrine, under which companies could be assessed tax penalties for engaging in legitimate business transactions aimed primarily at lowering their tax bills.  Some conservatives may therefore be concerned that this provision, and other tax hikes in H.R. 7174, would increase taxes on Americans in order to pay for new federal entitlement spending.
  • Creates Multiple New Federal Entitlements.  H.R. 7174 would establish several new federal entitlement programs to provide health benefits to 80,000 people according to the Congressional Budget Office, and re-open the 9/11 compensation fund to an additional 18,000 personal injury claims.  Some conservatives may be concerned that, with Congress contemplating a $700 billion bailout of the financial sector, now is not an appropriate time to be creating new mandatory spending programs.
  • Mandatory Spending Earmarks to New York Hospitals.  The bill establishes “Centers of Excellence” related to treatment of WTC-related conditions, and provides for payment of up to $900 annually per eligible beneficiary to certain named New York City hospitals and institutions as Clinical Centers of Excellence, “regardless of the volume or cost of services required.”  Some conservatives may be concerned first that this language constitutes a legislative earmark for mandatory spending, and second that the hospitals named could receive federal payments under this earmark without performing a single service for WTC victims.
  • No Restrictions on Trial Lawyers.  While H.R. 7174 does cap liability for legal claims arising from the September 11 cleanup at the sum of all available insurance funds, the bill does not include language placing restraints on attorney contingency fees or other legal expenses.  The bill also permits individuals who file personal injury claims with the 9/11 fund under the new criteria, yet have their applications denied, to reinstate their lawsuits without prejudice.  Some conservatives may be concerned that these provisions may lead to additional lawsuits and funds flowing to trial lawyers as opposed to 9/11 victims awarded compensation.
  • Overly Broad Eligibility Standards.  H.R. 7174 includes expansive definitions of eligibility for the entitlements under the bill, including individuals who worked or volunteered in the New York City Medical Examiner’s Office for as little as one day, or who were present along “routes of debris removal.”  Some conservatives may echo the concerns of former Special Master Kenneth Feinberg, who expressed unease at the implications of re-opening the 9/11 compensation fund to create what CBO estimates would be a nearly seven-fold increase in the number of personal injury awards when compared to the original 2001-03 application period.
  • Overly Generous Health Benefits.  H.R. 7174 explicitly states that all health care provided shall not include any form of cost-sharing for beneficiaries, and reimburses providers at rates established by the Federal Employee Compensation Act—which according to Administration sources pays providers at much higher rates than Medicare.  These provisions, coupled with the additional earmarked per capita payments to hospitals discussed above, may cause some conservatives concern that the bill lacks any meaningful cost-containment mechanisms for this new federal entitlement, which could encourage providers and patients alike to spend taxpayer money extravagantly.
  • Process.  This 120-page bill creating a new federal entitlement includes matter under the jurisdiction of at least four congressional committees—none of which has marked up the legislation.  Some conservatives may be concerned that these new federal entitlement programs deserve proper consideration under regular order—not a rushed proceeding as the House prepares to conclude its work for the year.

Administration Position:  A Statement of Administration Policy (SAP) on H.R. 7174 was not available at press time; however, reports indicate the White House has numerous concerns with the bill.

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 7174 would increase mandatory spending by just under $11 billion over ten years.  Title I provides a new entitlement to health benefits, and CBO estimates that about 80,000 people would receive this new WTC-related entitlement to obtain benefits for respiratory and mental health treatments.  CBO estimates that this entitlement would increase mandatory spending by $1.8 billion over five years, and $4.6 billion over ten years, net of a 10% payment by the City of New York and other recoupment from beneficiaries’ health insurance, workers compensation benefits, or other forms of third party payment.

Title II of H.R. 7174 would re-open and expand eligibility for the September 11 compensation fund, which paid out $7 billion in claims to victims before closing in 2004.  CBO notes that the provisions in the bill “would significantly increase the number of individuals who could seek compensation from the fund,” resulting in an estimated 18,000 additional individuals receiving federal compensation benefits averaging $350,000 each—13,000 emergency workers and 5,000 area residents.  CBO estimates this provision would cost $5.5 billion over five years, and nearly $6.4 billion over ten.

The bill’s new mandatory spending is paid for by tax increases—including the codification of the economic substance doctrine—as well as a timing shift budgetary gimmick with respect to estimated corporate tax payments, as explained above.

The bill also includes authorizations for discretionary spending, totaling $30.5 million annually “for each fiscal year.”

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would create two new health entitlement programs for 9/11 workers and community members, and expand eligibility for—and re-open applications to—the September 11 compensation fund, further increasing mandatory spending.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A committee report citing compliance with clause 9 of rule XXI was unavailable.

Constitutional Authority:  A committee report citing Constitutional authority was unavailable.