WASHINGTON—The Trump administration told the Supreme Court that the government is not obligated to pay $12 billion to insurance companies that knowingly took a business risk and lost money by participating in the Affordable Care Act’s “risk corridors” program.
Republican lawmakers and other critics characterize taxpayer funding to cover the shortfall as a “bailout” and a “slush fund” for the insurance industry. That’s because the program gave the insurers participating in the risk corridors program a special deal that limited their financial exposure for the first three years beginning in 2014.
The program was created in hopes of stabilizing health insurance premiums and subsidizing insurers willing to sell a risky new product—in this case, comprehensive, guaranteed issue, individual and small-group insurance covering preexisting conditions.
The understanding was that if premiums collected on Obamacare’s health care marketplaces from 2014 through 2016 exceeded an insurer’s medical expenses, the company would kick back some of its profit to the government.
Conversely, if premiums failed to cover expenses, the insurer would get payments from the government. In the end, the money paid into the pool quickly ran out and the insurers cried foul and sued. The company’s claims were rejected by a three-judge panel of the U.S. Court of Appeals for the Federal Circuit.
Oral arguments came Dec. 10 in three separate cases, Maine Community Health Options v. U.S., Moda Health Plan Inc. v. U.S., and Land of Lincoln Mutual Health v. U.S., that were consolidated and heard together.
Acting for the insurers, lawyer Paul Clement denounced the government, accusing it of deceit.
“This case involves a massive government bait-and-switch, and the fundamental question of whether the government has to keep its word after its money-mandating promises have induced reliance,” he said.
Edwin Kneedler, deputy U.S. solicitor general, responded, telling the justices that what the other side described as a statutory promise to cover losses is meaningless without action by Congress.
“The Appropriations Clause of the Constitution is central to this case,” he said, a reference to the sentence: “No money shall be drawn from the Treasury, but in consequence of appropriations made by law.”
Making the government pay the insurers “would impose unprecedented liability on the United States of billions of dollars,” Kneedler said.
In fact, critics point out that appropriations risk is a well-recognized factor that has to be taken into account when investing. Just because lawmakers voted to appropriate funding for a program last year doesn’t obligate them to do the same this year.
Clement conceded that Congress has often made promises to pay “subject to appropriations,” but said that specific phrasing was absent in the law authorizing the program.
Kneedler said the phrase didn’t mean much. “It’s not entirely clear what the ‘subject to appropriations’ language does,” he said.
Justice Brett Kavanaugh asked Kneedler if “every congressional promise to pay” was “subject to an implicit ‘subject to appropriations’ caveat”?
“I believe by and large that that is correct, yes,” Kneedler said.
Chief Justice John Roberts said Clement’s argument on behalf of the insurers amounted to: “They were basically seduced into this program.”
“They have good lawyers,” Roberts said. “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?’”
Justice Samuel Alito suggested that if the justices were to rule against the government, it would be based on the court’s “special solicitude for insurance companies.”
“Has there ever been a case where this court has, in effect, required Congress to appropriate,” for any stated purpose, “billions of dollars for private businesses?”
“I totally get the point that Congress has the power of the purse, but Congress is not disabled from making an enforceable promise to open the purse in the future on specified terms,” Clement told Alito.
Justice Stephen Breyer seemed to think the case was clear-cut.
“I say to you: ‘My hat’s on the flagpole. If you bring it down, I’ll pay you $10,’” Breyer told Kneedler. “You bring it down. I owe you $10. Now, how does this differ?”
Kneedler said, “A contract is very different from a statute.” An agreement between two parties spelling out mutual obligations is not the same as a governmental commitment to provide subsidies, he said.