Supreme Court & Obamacare: Congress’s Power of Purse Loses



A woman reads a leaflet at a health insurance enrollment event in Cudahy, Calif., in 2014. (Lucy Nicholson/Reuters)

This is not a recipe for government by the people.

One of the big asymmetries in today’s Washington is that our system’s rules and procedures make it much easier to increase spending than to cut it. There is an enormous structural inertia around spending, once initiated. One need no longer have the continuing consent of the American people, through a majority of both houses of Congress — or even one of them — to spend new taxpayer money every year. This is the opposite of how our constitutional system of government was designed. The struggle over Obamacare’s “risk corridor” payments to insurers, resolved with a Supreme Court victory for the insurers over the taxpayers, illustrates the challenge.

Obamacare was designed around a series of lies, one of which was the notion that it was economically viable to force insurance companies to cover an older, sicker population at the same premiums as younger, healthier people simply by coercing lots of younger, healthier people to sign up along with them. One of the mechanisms to bail out any insurer who collided with economic reality was the risk-corridor program. For the first three years of the exchanges, risk-corridor payments were supposed to compensate the “losing” insurers at the expense of “winning” insurers. (A similar program, the risk-adjustments program, did the same thing, except that risk corridors made payments based on actual insurer costs, whereas the risk adjustments made payments based on an actuarial assessment of the mix of each company’s insureds.)

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Because the drafters of the Affordable Care Act pretended that the two would even out, they never asked the Congressional Budget Office to score the cost of the risk-corridor program as if it would involve government spending. Indeed, the Senate Health, Education, Labor, and Pensions Committee version of the bill in 2009 contained an appropriation, but it was stripped out when the Senate adopted contrary language proposed by the Senate Finance Committee. Instead, the ACA was written with a statutory requirement that the government “shall pay” the insurers without reference to whether money would be appropriated for that purpose.

In its very first year, in 2014, the risk-corridor program ran a $2.5 billion deficit, abetted by the fact that the Obama administration, in the spring of 2014, tinkered with the formula to make more payouts by changing the regulations written by HHS. The insurers lobbied Valerie Jarrett to have the administration commit that “risk corridors should be operated without the constraint of budget neutrality.” None of these actions reflected what Congress had before it when it originally passed the ACA in 2010. The executive branch was rewriting the rules, and the taxpayer would just have to foot the bill whether or not Congress ever appropriated a penny.

Marco Rubio ran a November 2013 op-ed in the Wall Street Journal calling for killing the risk-corridor program as a taxpayer-funded bailout of insurers. He set in motion a formal congressional rejection of consent to covering the risk-corridors deficit. By 2014, the Republican-controlled House was no longer willing to put up the money. Recognizing that Congress was not going to fund the program, the Obama administration got creative. In April 2014, the Centers for Medicare & Medicaid Services (part of Health and Human Services), issued a Q&A that disclaimed any intent to ask for appropriated funds, continuing to pretend that the program would eventually break even:

We anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments. However, if risk corridors collections are insufficient to make risk corridors payments for a year, all risk corridors payments for that year will be reduced pro rata to the extent of any shortfall. Risk corridors collections received for the next year will first be used to pay off the payment reductions issuers experienced in the previous year. . . . We anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments over the life of the three-year program.

Shortly before the issuance of that memo, the CEO of CareFirst Blue Cross Blue Shield bluntly warned Jarrett that failing to cover cost overruns in the risk-corridor program would prove embarrassing to the Obama administration by resulting in a need to announce premium hikes: “Uncertainty or confusion will equate to higher rates. This could confront the Administration with a sea of far larger premiums increases than expected.” As a result, when HHS released the final rule in May 2014, it began promising “full payments to issuers.”

In December 2014, then-speaker John Boehner succeeded in getting a rider passed to the budget for the CMS (Centers for Medicare & Medicaid Services) that incorporated Rubio’s proposal:

None of the funds made available by this Act . . . or transferred from other accounts funded by this Act to the “Centers for Medicare and Medicaid Services—Program Management” account, may be used for payments under [the Risk Corridors statute].

Republicans had taken over the Senate in the November 2014 elections, putting an end to any possibility of passing an appropriation through Congress to make up the shortfall. The same rider passed the unified Republican Congress again in 2015. The risk-corridor deficit ultimately passed $12 billion.

Duly warned that Congress was not going to pay the difference, the insurers tried to make up the difference in premiums, as they had threatened would happen if they were not paid. A 2017 study published by the National Bureau of Economic Research found that insurers making risk-corridor claims in 2015 had 7 percent higher premium increases over the next two years than did non-claiming insurers. Nonetheless, the insurers remained in the risk-corridors program, and sued the government on the theory that they had been promised payment.

This could have entered what has long been a gray area in federal spending law: While Congress can always repeal its own laws, there are situations where the Supreme Court has ruled that promises can be enforced on a breach-of-contract or taking-of-property theory. The leading case, dating from the Depression, involved highly sympathetic facts. The Court in Lynch v. United States ruled that Congress in the 1930s could not stiff combat-disabled World War I veterans out of payment on “war risk” insurance policies they bought over a decade earlier before shipping off to France.

But the insurers wanted to be paid for 2015 and 2016, too, not just the first year before Congress blocked any appropriations. These were years they went into with their eyes open, and in which they had raised premiums. They claimed that Obama’s HHS and CMS were continuing to promise them payment — a claim that Justice Sonia Sotomayor’s opinion accepted with a straight face — when it was clear that those agencies were trying to get around the clearly expressed will of Congress. In fact, far from protecting the public purse, the Obama administration tried to settle the case in favor of the insurers in its last months.

Lynch, however, involved a purely retroactive claim: Congress didn’t change its tune until after the soldiers had bought the policies. Courts applying Lynch and later cases of its type have been much more skeptical of efforts to prevent Congress from changing the prospective terms of ongoing programs. The insurers’ claim to have relied on previous promises was tenuous.

Monday, in Maine Community Health Options v. United States, the Supreme Court ruled that the appropriations rider had not repealed Congress’s original promise that it “shall pay” recipients of the risk-corridor program, notwithstanding the fact that the lack of a CBO score meant that Obamacare was passed on the explicit assumption that the program would do no more than pay out what it took in. This is yet another example of the courts mopping up the incoherence and dishonesty of Obamacare’s legislative process. Only Justice Samuel Alito dissented, and only on narrow, technical grounds regarding whether the insurers could sue in court — not whether they were legally owed the money.

Notably, the Court’s opinion avoided the question of a Lynch-like claim, and took the narrower tack of arguing that Congress could have made the risk-corridors program expressly subject to future appropriations and didn’t, so just refusing to appropriate money did not end the legal obligation to pay the money. While this is arguably a defensible reading of past precedents on the appropriations process, it ignores the crucial context: Congress didn’t bother with such language because it was told the program was going to break even, and it deliberately chose not to appropriate any money for it at the time.

The case also illustrates how much the current system is rigged to prevent eliminating categories of spending. Boehner had a majority of the House opposed to appropriating funds to cover risk-corridor deficits, and he had the leverage to get the Senate and the White House to agree. But he got that done under the regular budget process. Filibuster rules do not apply to budget bills, and they are hard to obstruct because without appropriations, the government is not supposed to be able to spend any money. To repeal the “shall pay” provision of the Obamacare statute, by contrast, Boehner would have needed 60 votes in the Senate just to send the bill to President Obama’s desk, and even more than that in both houses to override a veto. So he passed the clearest possible statement of a majority of Congress’s collective refusal to appropriate any more funds, and the Supreme Court treated it as nothing. No Congress ever appropriated the money, but it gets spent anyway.

The Founding Fathers would have assumed, when they drafted the Constitution, that giving taxpayer money to insurance companies would be the sort of thing that required annual appropriations — and that it would stop if Congress stopped voting for more money every year. This is why Article I, Section 9 of the Constitution provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law,” which was assumed at the time to require annual appropriations. As Madison argued in Federalist No. 58, this was the centerpiece of the House’s power over the other, indirectly elected branches: “The House of Representatives cannot only refuse, but they alone can propose, the supplies requisite for the support of government.”

We have wandered far from that plan, born as it was from the hard-won wisdom of how parliaments used the power of the purse to tame kings. Today, it requires only passive acquiescence, or partisan gridlock, for the money to keep spending itself. But it requires a broad and sustained national movement to trim even a penny of spending. This is not a recipe for government by the people.


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