February 25, 2020

Mathena v. Malvo | Moda Health Plan, Inc. v. United States | Land of Lincoln Mutual Health Insurance Co. v. United States

HEALTH CARE

May Congress Rely on Appropriations Riders to Eliminate Financial Obligations to Private Parties?

CASE AT A GLANCE

When Congress passed the Patient Protection and Affordable Care Act in 2010, it incentivized health insurance providers to offer coverage to individuals who had preexisting conditions or were previously uninsured by promising to reimburse a portion of their losses. Congress later used appropriations riders to limit the availability of funds to pay the providers but never amended the underlying statutory provision. Was this an unfunded subsidy program or a $12 billion bait and switch?

Maine Community Health Options v. United States
Docket No. 18-1023

Moda Health Plan, Inc. v. United States
Docket No. 18-1028

Land of Lincoln Mutual Health Insurance Co. v. United States
Docket No. 18-1038

Argument Date: December 10, 2019
From: The Federal Circuit
by Elizabeth Slattery
Heritage Foundation, Washington, D.C.

ISSUE

Can Congress evade an unambiguous statutory promise to pay a private party for losses already incurred simply by enacting appropriations riders restricting the source of funds available to satisfy the government’s obligation?

FACTS

One of the goals of the Patient Protection and Affordable Care Act (ACA) in 2010 was making health insurance available to people who had previously been uninsured or underinsured. To that end, Congress mandated that qualified health insurance providers offer coverage without charging higher premiums for individuals with preexisting conditions or those who previously had been uninsured. In order to incentivize these insurance providers to assume the risk of offering coverage to these individuals, Section 1342 of the ACA set up a “risk corridors” program to reimburse insurance providers for a portion of their losses for three years starting in 2014. Section 1342 indicated that if insurance providers had costs that were higher than expected, the government would reimburse a portion of those expenses; likewise, insurance providers were obligated to pay a portion of any savings into the program if they had costs lower than expected.

In 2013, insurance providers began offering coverage that would be effective in 2014 consistent with the risk corridors program. Then in the spring of 2014, the Department of Health and Human Services (HHS) issued guidance instructing that, in order to make the program “budget neutral,” payments would be made annually out of any available funds that insurance providers had paid into the program. Insurance providers paid $362 million into the risk corridors program in 2014, $95.3 million in 2015, and $25 million in 2016. Following the formula set out in Section 1342, the government owed insurance providers $2.87 billion for 2014, $5.9 billion for 2015, and $3.98 billion for 2016. For Fiscal Years 2015, 2016, and 2017, Congress passed appropriations riders instructing HHS to only use funds paid in to reimburse the insurance providers.

Four insurance providers then brought damages actions in the U.S. Court of Federal Claims under the Tucker Act, requesting reimbursement consistent with the statutory formula in Section 1342. The government prevailed in three of the four cases. The court ruled for Moda Health Plan in the fourth case, agreeing with the insurance provider that the government breached an implied contract and violated the statute. On appeal, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit reversed the trial court’s ruling. The panel determined that the appropriations riders demonstrated Congress’s clear intent to abrogate its financial obligation, noting that though “[r]epeals by implication are generally disfavored…when Congress desires to suspend or repeal a statute in force…it could accomplish its purpose by an amendment to an appropriation bill, or otherwise.” Dismissing the breach-of-contract claim, the panel held that Section 1342 did not contain the “promissory language” necessary to establish “the government’s intent to bind itself in a contract.”

The appeals court affirmed the trial court rulings against the other insurance providers based on its opinion in Moda Health Plan’s case and later denied the insurance providers’ request for rehearing en banc. Judges Pauline Newman and Evan Wallach dissented. Judge Newman wrote, “This is a question of the integrity of our government.…Our system of public-private partnership depends on trust in the government as a fair partner…[and] assurance of fair dealing is a judicial responsibility.” Judge Wallach asserted that the court reached the “unsound” conclusion that Congress “clearly manifested its intent to repeal the Government’s statutory obligation” while failing to apply relevant precedent “disfavoring repeals by implication.”

The insurance providers petitioned the Supreme Court for review, and it granted certiorari and scheduled the cases for a consolidated oral argument on Tuesday, December 10, 2019.

CASE ANALYSIS

Though the Supreme Court consolidated the cases into one oral argument, the petitioners filed three separate briefs. Petitioners Moda Health Plan and Blue Cross and Blue Shield of North Carolina argue that Section 1342 created a clear obligation and the subsequent appropriations riders did not repeal it. They assert that the appropriations riders came “nowhere near satisfying the clear-statement rule.” The appropriations riders “say nothing whatsoever about repealing, revising, or suspending the underlying substantive obligation.” The insurance providers say that letting the government shirk its financial obligation will endanger future partnerships between the government and private actors; and, further, the government’s actions have already had “devastating effects” on the insurance market. They write, “The government cannot be allowed to promise boldly, inducing massive reliance by private parties that directly benefits the government, and then renege obscurely.” Such a ruling would “fatally undermine…political accountability and the government’s integrity as a contracting partner.”

Petitioner Maine Community Health Options explains that while Congress’s failure to appropriate funds “necessarily limits the agency’s ability to make payments…it does not eliminate the government’s obligations to third parties.” Maine Community Health Options argues that the Supreme Court’s precedents for the past 150 years strongly disfavor implied repeal of a statute. The Supreme Court previously has held that Congress impliedly repealed a statute where there is “irreconcilable conflict” between two statutes and the intent to repeal is “clear and manifest.” In order to repeal a law, Maine Community Health Options points out, Congress must go through the same process as enacting a law—a “high bar to implied repeal thus protects the legislative process itself.” Maine Community Health Options also notes that the insurance providers began offering coverage and suffered losses “which the government promised to share” before Congress passed the first appropriations rider, and the presumption against retroactivity should guard against this kind of “bait and switch.”

Petitioner Land of Lincoln argues that the lower court based its ruling on legislative history instead of the clear statutory text. The insurance provider asserts that the fact that Congress “considered and rejected bills to repeal the risk-corridor program or to make it budget-neutral” even after passing the appropriations riders “made little sense…if Congress had…already eliminated the Government’s obligation.” Moreover, even if the appropriations riders are construed as suspending the government’s financial obligation, they did not extinguish it. Land of Lincoln also maintains that the government induced the insurance providers to offer affordable health insurance by promising, in “unambiguously mandatory” language, to make payments in the risk corridors program. This “provided the necessary clear indication that the legislature intended to bind itself contractually.”

The government argues that Section 1342 did not create an entitlement that the insurance providers are owed. Rather, Congress instructed HHS to set up the risk corridors program to collect payments from profitable insurance providers while making payments to unprofitable insurance providers consistent with the statutory formula. The government maintains that HHS was “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.” When Congress passed the ACA, it did not appropriate funds for the risk corridors program and later directed that payments made into the program would be the sole source for any payments out. The government points out that the Appropriations Clause of the U.S Constitution, Art. I, § 9, Cl. 7, bars spending federal dollars without an appropriation, and the Anti-Deficiency Act bars spending in excess of appropriations—backed by criminal penalties.

Of the contract claims, the government asserts that the insurance providers “elide[ ] the deeply rooted distinction between statutory promises and contractual obligations.” Congress has the authority to “regulate actors in a marketplace,” which is not “a unilateral contract offer inviting acceptance by performance.” There is a strong presumption against construing statutes as contracts because, unlike contracts, statutes are “inherently subject to revision and repeal.” To do so in the absence of clear, unequivocal language would “limit drastically the essential powers of a legislative body.” The government submits that instead of bringing an action for damages in federal court, the insurance providers “proper recourse” was to request appropriations from Congress.

SIGNIFICANCE

The insurance providers paint a stark picture of the consequences the government’s actions have had on the health insurance market. After HHS declined to make risk corridors payments, 18 of 24 providers that had participated in the insurance exchanges went out of business and several others stopped offering coverage through the exchanges. By 2017, only six insurance providers remained on the exchanges, and without the risk corridors payments, those that remained had to charge higher premiums. Citing a 2019 study in the National Bureau of Economic Research, Moda Health Plan says the government’s actions led to an 86 percent rise in insurance premiums from 2015 to 2017. Because of the government’s actions, a law that was intended to make health insurance affordable and accessible for more Americans backfired and led to insurance providers going out of business, skyrocketing costs, less competition, and fewer coverage options.

More broadly, this case calls into question whether private actors can trust the government to be a fair partner when it induces them to assume certain risks. The insurance providers believe that the government’s failure to hold up its end of the bargain could endanger public-private partnerships in the future. At the very least, for the sake of political accountability, when Congress intends to reverse a policy that private actors have relied upon to their detriment, it must do so unequivocally. In an amicus brief supporting the government, Americans for Prosperity casts doubt on the claim that a ruling for the government would lead to fewer public-private partnerships, pointing out that the government does “over $500 billion dollars’ worth of contract business with private industry annually.”

From the government’s perspective, Congress did not expose the government to a $12 billion liability. The insurance providers each claim they are owed hundreds of millions of dollars in damages, so a ruling for them would have serious financial consequences for the public fisc.

This is the fifth ACA challenge the Supreme Court has entertained. The justices previously decided National Federation of Independent Business v. Sebelius (2012), Burwell v. Hobby Lobby Stores, Inc. (2014), King v. Burwell (2015), and Zubik v. Burwell (2016), and a sixth challenge involving the interplay between the ACA and the Tax Cuts and Jobs Act of 2017 may arrive at the Supreme Court in short order. If for no other reason, the insurance providers’ case is significant because it demonstrates how the ACA created about as many problems as it attempted to fix.

Elizabeth Slattery is a legal fellow at the Heritage Foundation in Washington, D.C. and host of SCOTUS 101, a podcast about the Supreme Court. She can be reached at elizabeth.slattery@heritage.org and 202.608.6202.

PREVIEW of United States Supreme Court Cases 47, no. 3 (December 2, 2019): 36–38. © 2019 American Bar Association

ATTORNEYS FOR THE PARTIES

  • For Petitioner Moda Health Plan, Inc. (Paul D. Clement, 202.389.5000)
  • For Petitioner Land of Lincoln Mutual Health Insurance Company (Jonathan S. Massey, 202.652.4511)
  • For Petitioner Maine Community Health Options (Stephen John McBrady, 202.624.2500)
  • For Respondent United States (Noel J. Francisco, Solicitor General, 202.514.2217)

AMICUS BRIEFS

In Support of Petitioners

  • 24 States and the District of Columbia (Benjamin Noah Gutman, 503.378.4402)
  • America’s Health Insurance Plans (Pratik Arvind Shah, 202.887.4210)
  • Association for Community Affiliated Plans (William Lewis Roberts, 612.766.7508)
  • Blue Cross Blue Shield Association (K. Lee Blalack II, 202.383.5374)
  • Chamber of Commerce of the United States of America (Paul J. Zidlicky, 202.736.8000)
  • Economists and Professors M. Kate Bundorf, et al. (Stephen Andrew Swedlow, 312.705.7400)
  • Highmark Inc.; Blue Cross and Blue Shield of Kansas City; Blue Cross and Blue Shield of Vermont; Blue Cross of Idaho Health Service, Inc.; Molina Healthcare of California, Inc.; L.A. Care Health Plan (Lawrence S. Sher, 202.414.9209)
  • National Association of Insurance Commissioners (Derek T. Teeter, 816.983.8000)
  • Wisconsin Physicians Service Insurance Corporation; WPS Health Plan, Inc. (Frank A. Gumina, 608.977.7526)

In Support of Respondent United States

  • Americans for Prosperity (Eric Ryan Bolinder, 202.470.2396)