In a little noticed memo released last Friday afternoon, the Obama administration signaled to insurers that it is eyeing another way to funnel bailout money to the industry that has been racking up billions of losses through Obamacare.
Three years into its implementation, Obamacare still hasn’t attracted enough young and healthy individuals to offset the cost of covering older and sicker enrollees who are now guaranteed an offer of coverage through the law. This has forced insurers to hike premiums, reduce choices of doctors and hospitals, exit Obamacare markets, or employ some combination of all three to manage losses. As Obama prepares to leave office, he faces the prospect of a mass exodus of insurers from Obamacare, which could unravel his signature legislation. So the administration is desperate to keep insurers in the system.
At issue here is the controversial program within Obamacare that was one of several meant to cushion the financial blow to participating insurers during the first three years of the law’s implementation (2014-2016), as the companies were adjusting to the new market. Under the program, known as risk corridors, the Department of Health and Human Services was to collect payments from insurers with lower than expected medical losses under Obamacare and use the money to subsidize insurers with higher than expected losses. The idea was that this would prevent insurers from cherry picking only the healthiest customers. The problem was that due to the industry-wide losses stemming from Obamacare, there wasn’t enough money within the program from insurers doing better than expected to make payments to insurers doing worse.
For the 2014 benefit year, insurers losing more than expected asked for $2.87 billion in government payments through the risk corridors program, but HHS only collected $362 million from insurers performing better than expected. Thus, the funds available to the federal government only amounted to 12.6 percent of what insurers argue that they’re owed, a difference of about $2.5 billion.
Republicans, including Sen. Marco Rubio, pushed through language in congressional funding bills blocking this program from turning into an open-ended taxpayer bailout, preventing HHS from using other sources of funds to give insurers money beyond what was collected by the program. As a result, several insurers sued, claiming that the federal government did not follow through on its obligations.
And that’s where last Friday’s guidance comes in.
Without disclosing specific numbers, the Centers for Medicare and Medicaid Services, the HHS agency overseeing Obamacare, said that all of the money collected for the 2015 benefit year would have to go toward paying off the $2.5 billion deficit from 2014, so insurers shouldn’t expect any money to cover losses from 2015.
After reiterating that, “HHS will record risk corridors payments due as an obligation of the United States Government for which full payment is required,” the guidance ended this way:
“We know that a number of issuers have sued in federal court seeking to obtain the risk corridors amounts that have not been paid to date. As in any lawsuit, the Department of Justice is vigorously defending those claims on behalf of the United States. However, as in all cases where there is litigation risk, we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”
Brian Blase, a former Republican Senate policy staffer now at George Mason University’s Mercatus Center, flagged this, noting that the administration could be signaling to insurers that it would be willing to settle out of court, and then using money out of a fund reserved for legal judgements to funnel money to insurers in hopes of shoring up Obamacare.
This would be a twist on the “sue and settle” strategy for regulation in which a federal agency uses legal settlements with outside groups to impose policies that otherwise would not be able to be passed through Congress or through the typical regulatory process. The practice is typically associated with environmental regulation, but the administration could be looking to broaden its use.
A senior House leadership aide told the Washington Examiner, “We are concerned about the guidance and looking into what options are available.”
A January memo to Rubio by Congressional Research Service suggested that the legal judgment fund did not seem to be available to make payments stemming from the risk corridors litigation.
The CRS cited a 1998 Government Accountability Office report that said, “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.”
The Justice Department under President Clinton made a similar conclusion about the use of the fund in 1998, on a different issue.
CRS, in its letter to Rubio, concluded, “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.”
Nicholas Bagley, a University of Michigan law professor who often writes about legal issues surrounding Obamacare, told the Examiner that he disagrees with the CRS conclusion. He argues that the way the text of Obamacare was written by the Democratic Congress in 2010, it obligated the federal government to make payments to insurers through the risk corridors program, and that this underlying obligation was not negated by the Republican Congress’s subsequent efforts to block those payments.
As a result, Bagley said that insurers “have a very strong argument that they ought to recover from the U.S. government money owed under the risk corridor program.”
To block any payments, Bagley said Congress would likely have to take further action, such as explicitly barring the use of money from the federal judgement fund to pay for risk corridor-related settlements. (For those seeking more detail, Bagley’s past writings on the subject can be found here).
For Republican members of Congress concerned that the Obama administration may try to pursue the judgement fund path anyway, Blase suggests “Congress should ask the administration, including HHS and DOJ, about any discussions — both intergovernmental ones and with insurers — about the risk corridor lawsuits and for all relevant documents and communications.” Blase also cited law professor Seth Chandler, who has written that House Speaker Paul Ryan, R-Wis, “should to make sure that the litigation does not proceed without an opportunity for the Court to consider Congressional power over the purse.”
Note: This article was updated to add comment from a senior House leadership aide and University of Michigan law professor Nicholas Bagley.
