The U.S. Justice Department today faced a skeptical U.S. Supreme Court over arguments that the government has no obligation to pay $12 billion in losses incurred by the health insurers that participated in the Affordable Care Act (ACA) public exchange plan program.
The ACA established three risk management programs for health insurers. One was a “risk corridors” program. Program managers at the U.S. Department of Health and Human Services (HHS) were supposed to collect cash from the thriving exchange plan issuers in 2014, 2015 and 2016 and use the cash to help the struggling issuers. The statute says the government “shall pay” an exchange plan issuer eligible for program payments.
After insurers had already started providing ACA exchange plan coverage, and paying into the ACA risk corridors program, Congress passed appropriation riders requiring HHS to use only the thriving exchange plan issuers’ payments to fund the risk corridors program. Thriving issuers have made only enough payments to fund a small portion of the payments struggling issuers were expecting to get for 2014.
Insurers were obligated to pay into the program, and the government committed to paying out “if we feel like it,” Justice Elena Kagan said in one exchange with Deputy Solicitor General Edwin Kneedler, who represented the federal government. “What kind of a statute is that?”
In oral arguments on three cases consolidated under the name Maine Community Health Options v. United States, Kneedler argued repeatedly that the risk corridors program was about subsidies for insurers working in the market, and not a contract with the government. The insurers were not working for the government, he said.
Congress can create incentives to induce companies to enter a program, and there were a number of other incentives offered, Kneedler told the court.
But Kirkland & Ellis partner Paul Clement, representing four insurance companies, argued that the appropriation riders did not repeal the ACA risk corridors program. He said the riders left intact a “clear and enforceable promise required to make the Affordable Care Act work.”
Not paying according to the formula in the program, Clement said, was “a massive government bait and switch.”
Four insurers filed damages actions in the U.S. Court of Federal Claims under the Tucker Act. The insurers sought reimbursement under the ACA statutory formula. Three lost, and one prevailed. The U.S. Court of Appeals for the Federal Circuit subsequently reversed the one victory and affirmed the other losses.
The appellate court said the appropriation riders demonstrated the intent of Congress to abrogate its financial obligation. The court said the statute did not contain the language necessary to show the government intended to create a contract.
Besides Maine Community Health, the other insurers involved in the Supreme Court case are Moda Health Plan, Blue Cross and Blue Shield of North Carolina, and Land of Lincoln Mutual Health Insurance.
Clement and Kneedler
Chief Justice John Roberts Jr. questioned Clement about his clients’ reliance on the government’s alleged obligation to pay. “But they have good lawyers and I would have thought at some point they would have sat down and said, ‘Well, why don’t we insist upon an appropriations provision before we put ourselves on the hook for $12 billion?’” he asked.
Clement said insurers in 2010 relied on a “money-mandated promise.” He told Roberts: “It is not the law that the government can make an obligation go away.” The remedy for the insurers, he said, was to file suit in the Federal Claims court, “get a judgment, and get damages from the government’s Judgment Fund.”
Kneedler faced many more skeptical questions than Clement. Justice Stephen Breyer repeatedly and with hypotheticals pressed the veteran Justice Department lawyer on why the “shall pay” language did not create an enforceable contract.
“Why doesn’t the government have to pay its contracts like everyone else?” Breyer asked. “They didn’t say they wouldn’t pay, just don’t pay out of that fund.”
Kneedler replied, “This isn’t a contract.” Breyer pressed again, “Why not? Why isn’t it close enough?”
Kneedler argued that absent a clear statement that a contract was being formed, the statute does not state a contract. “It states a policy,” he said.
Justice Brett Kavanaugh asked Kneedler about the possible implications of a ruling against the government.
“f we were to rule for you, everyone will be on notice going forward, private parties and Congress itself, that ‘shall pay’ doesn’t obligate actual payments,” Kavanaugh said. “If we rule against you, Congress also will be on notice going forward that it needs to include ‘subject to appropriations’ kind of language in any mandatory statute. My question is, if we rule against you, are there other existing statutory problems lurking out there in the interim?”
When Kneedler said insurers had participated in the ACA program because it was a good business opportunity, not because of ACA subsidy promises, Roberts said, “No, it’s a good business opportunity for them because the government promised to pay.”
The ACA and the Supreme Court
The risk corridors case is the fifth ACA case to be heard by the justices since the Obama-era law’s enactment in 2010. The justices may soon take up a sixth dispute: a ruling is expected shortly by the Fifth Circuit on a group of Republican-led states’ challenge to the entire law. The appeals court is weighing a Texas trial judge’s declaration that the entire law must fall.
—Read PPACA Risk Programs: Will Those Kidneys Work?, on ThinkAdvisor.