Argument preview: Justices to consider Affordable Care Act, risk corridors and implied repeals

In July, the U.S. Court of Appeals for the 5th Circuit heard oral argument in a challenge to the validity of the Affordable Care Act. Although there is no way to know when that court will issue its opinion, the loser is expected to ask the Supreme Court to weigh in, in what could be a major ruling. Next week, the justices will hear oral argument in another case involving the ACA – specifically, a provision that was intended to help mitigate the risks insurers faced in offering health plans under the act. In 2014 and the following years, Congress passed appropriations measures that limited the funding that would be available to compensate insurers for their losses. The insurers say that these measures resulted in a “bait-and-switch of staggering dimensions in which the government has paid insurers $12 billion less than what was promised.” The government paints a very different picture, rejecting any suggestion that Congress decided to “expose the federal fisc” to “massive liability.”

When it was enacted in 2010, the ACA established (among other things) “health benefit exchanges,” online marketplaces where individuals and small groups could buy health insurance. Because many of the people buying health insurance on the exchanges had been uninsured or underinsured, health-insurance companies had no way to know what kinds of medical costs these new customers might incur. The ACA also prohibited them from charging higher premiums based on an individual’s health. One way the ACA tried to mitigate the risks that insurers faced, while at the same time encouraging them to offer reasonably affordable plans, was by creating “risk corridors.” Under Section 1342 of the ACA, for the first three years in which the exchanges operated, insurers whose costs exceeded the premiums they collected would receive “payments out” from the government to help compensate for their losses, while insurers collecting premiums that exceeded their costs would have to make “payments in” to the government to share the benefits.

Under the ACA, people who had cheaper health plans that did not comply with the ACA were originally required to buy compliant policies by January 1, 2014. However, in November 2013, the Department of Health and Human Services announced a transition period, during which people with noncompliant policies could stay on their existing plans. Many of those people – who were generally healthy – opted to do so, leading to fewer healthy individuals buying health insurance on the exchanges. Because insurers had already set their premium rates for 2014, this produced greater losses for the insurers than they had expected.

In December 2014, after the insurers had already set their premiums for 2015, Congress passed an appropriations bill. That bill included a provision barring the appropriated funds from being used for payments to insurers for the risk-corridor program. A few months later, an HHS rule indicated that the ACA requires the department “to make full payments” to insurers, but – based on that year’s appropriations bill and similar riders that followed in subsequent years – HHS declined to reimburse insurers to offset the losses at the level that, according to the insurers, Section 1342 contemplated.

The gap between the payments that HHS received from insurers and the payments that it owed to insurers under Section 1342 proved to be enormous – over $2.5 billion for 2014. That number grew to over $5 billion for 2015 and nearly $4 billion for 2016. The amounts owed to individual insurers were equally significant, and the shortfalls sometimes had serious consequences. The federal government owed one of the insurers involved in this case, Moda Health Plan, over $200 million for 2014 and 2015. When it didn’t receive payments from the government, Moda withdrew its participation in the exchanges in Washington and Alaska. Blue Cross and Blue Shield of North Carolina was owed $130 million for 2014, with that number rising to more than $215 million for 2015. Maine Community Health Options, which offered coverage on the Maine and New Hampshire exchanges, was owed more than $22 million for 2015 and more than $35 million for 2016. Another insurer involved in the proceedings before the Supreme Court, Land of Lincoln Mutual Health Insurance Company, went out of business in 2016 after the government failed to pay it; “nearly 50,000 policyholders in Illinois lost their health insurance as a result.” Land of Lincoln was owed nearly $4 million for 2014, $70 million for 2015 and $53 million for 2016.

The insurers filed lawsuits in the Court of Federal Claims, a federal court established (as the name suggests) to hear claims for money from the federal government. The cases then went to the U.S. Court of Appeals for the Federal Circuit, which ruled for the government. The court of appeals agreed with the insurers that Section 1342 requires the government to make the risk-corridor payments. However, the court of appeals concluded, the appropriations measures that Congress enacted “repealed or suspended” that requirement. The insurers asked the Supreme Court to weigh in, which the justices agreed to do earlier this year.

In their briefs in the Supreme Court, the insurers tell the justices – as Moda puts it – that the government “cannot be allowed to promise boldly, inducing massive reliance by private parties that directly benefits the government, and then renege obscurely via implications drawn from legislative history and GAO correspondence.”

In this case, the insurers emphasize, the government made a clear promise in the ACA: “If the costs of claims under these new health insurance policies exceeded the premiums charged in the first three years, the government would reimburse insurers a specified percentage of the difference.” Relying on that promise, they say, the insurers “joined the exchanges, set their premiums, and incurred significant losses in providing health coverage.” An important factor in their decision to do so was the government’s assurance that its payments to them would not depend on how much was paid into the program “or whether the program was ‘budget-neutral.’”

Even if Congress later limited the funds that were available to HHS to pay the insurers under Section 1342, that limitation does not cancel the government’s obligation to make the payments, the insurers write. They contend that the Supreme Court’s cases “strongly disfavor implied repeals.” A law passed by Congress, they argue, will be interpreted to repeal an earlier law only if Congress has made its intent to do so very clear. This is particularly true, the insurers say, when the later law that supposedly repeals an earlier one is an appropriations bill, because “the basic purpose of appropriations measures is to fund government obligations, not eviscerate them.” A failure to appropriate money doesn’t repeal the act or discharge the government’s obligations; it simply limits how the government may pay.

Here, the insurers reason, Congress made a clear promise to pay the insurers, but its effort to rescind that promise was far from clear: The appropriations riders don’t specifically state that Section 1342 was repealed, or that the only funds available to pay for the costs that insurers had already incurred in 2014 were the payments paid into the program by other insurers. Instead, the government and Federal Circuit have argued that the history of the appropriations bills and GAO correspondence involving three members of Congress demonstrate that Congress intended to repeal Section 1342. Reliance on this kind of “flimsy evidence” is particularly inappropriate in this context, the insurers say, when the government “is claiming the extreme power to rescind government obligations already incurred simply by refusing to pay them.” Moreover, the insurers add, Congress specifically rejected bills that explicitly proposed either to repeal or limit the government’s obligations to make payments under the risk-corridor program.

Allowing the federal government to shirk its obligation to compensate the insurers for their losses  as required by Section 1342 would also, the insurers say, raise “grave constitutional concerns,” because it might violate the Constitution’s due process or takings clauses for the government to entice private entities to engage in expensive conduct that benefits the government by promising reimbursement, but then to renege on those promises. In any event, the insurers continue, the government should be clear about what it is doing, so that it can be held politically accountable for its decision to withdraw funding. “The government’s attempt here to escape clear textual commitments through inferences from legislative history and GAO correspondence may serve its short-term interests,” Moda concludes, “but only at the cost of sacrificing its long-term integrity and credibility as a reliable business partner.”

For its part, the federal government rejects any suggestion that, by creating the risk-corridor program, Congress decided to leave the government on the hook for sums that could reach into the billions of dollars. Instead, the government argues, the ACA left the funding question open, and Congress decided to limit the funding for the risk corridors to the money HHS collected under the program – that is, the “payments in.”

The federal government argues that the insurers can only prevail in a lawsuit for damages against the government if they can show both that the ACA created a duty that the government did not carry out and that the ACA requires them to be compensated as a result of the government’s shortcomings. But, the government tells the justices, the insurers cannot make either of those showings.

Section 1342 set up a program that requires profitable insurers to make “payments in” and instructs HHS to make “payments out” to unprofitable insurers. But it doesn’t create any other right to funds from the government, the government asserts, particularly because both the Constitution’s appropriations clause and federal law bar the payment of federal funds without an appropriation. This means, the government reasons, that “HHS was required and empowered to make payments only to the extent Congress appropriated funds to do so—and Congress was free to decide whether and to what extent to fund those subsidies.”

Congress did not fund the subsidies in the original ACA, the government stresses, and in the appropriations bills that followed Congress made clear that the only source of funds for “payments out” in the risk-corridors program would be the payments made into the program; no other HHS funds could be used. HHS’s actions in following those instructions, the government continues, did not violate any duty under the ACA. Giving the insurers money damages for Congress’ failure to further fund the payments, the government argues, “would require imputing to Congress the illogical intention to deem its own exercise of its appropriations prerogatives a legal wrong warranting a remedy—and to swap damages suits under the Tucker Act for subsidies Congress itself declined to fund.” If the insurers want to be paid in full, the government suggests, they should go to Congress, not the courts.

Even if Section 1342 did create an obligation for HHS to make full “payments out” to insurers, the government adds, Congress canceled that obligation when it enacted the appropriations bills that limited the funds available to pay insurers to the payments made into the program. “This Court has long recognized that Congress can modify or abrogate a statutory requirement through subsequent appropriations legislation,” the government asserts, and Congress clearly did so here: There is “no other persuasive explanation” for the appropriations riders than that they were intended to limit the source of funding for the “payments out.”

The question of implied repeals is a somewhat esoteric one, but with millions (and potentially billions) of dollars on the line, the case is undoubtedly important. A decision is expected by summer.

This post was originally published at Howe on the Court.