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Insurers take Obamacare fight to SCOTUS, demanding $12 billion from the US

The shoe is on the other foot and insurers are uncomfortable.
The shoe is on the other foot and insurers are uncomfortable.
Image: Reuters/Mike Blake
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Next week, on Dec. 10, the US Supreme Court will hear oral arguments in three cases that put health insurers in the awkward position that the insured know all too well—wrangling with a seemingly intractable and massive entity for promised funds.

The dispute stems from the 2010 Affordable Care Act (ACA), also known as “Obamacare.” The national health insurance initiative was created to cover millions of previously uninsured people, and the federal government sought to entice private insurers to participate by offering various risk-management measures to offset potential losses. One of these, the “risk-corridors program,” required the government to partially reimburse insurers if their costs rose unpredictably, while requiring companies to hand over part of any potential savings.

The program was managed in three-year cycles. During one cycle the insurers paid in about $480 million based on their savings. But in a subsequent three-year cycle, when many companies experienced severe losses, lawmakers made no appropriations for the risk-corridors program, leaving it unfunded for certain periods.

The insurers say that based on the formula in the ACA, the US owes them $12 billion. They sued, arguing that the statute implies a contract, which they relied upon, and that the government can’t just renege by failing to make money available to honor the deal.

The government, for its part, contends that the ACA created no contractual obligation. Statutes are subject to change and therefore shouldn’t be viewed as deals. Through the appropriations riders, Congress impliedly repealed the risk mitigation program, and the insurers aren’t entitled to any payments. In his brief to the Supreme Court, solicitor general Noel Francisco writes, “The ACA reserved to future Congresses the determinations whether and to what extent to fund the risk-corridors program.”

Indeed the Federal Circuit Court of Appeals found the appropriations riders “suspended” the program, leaving it unenforceable, and it based the decision on what it perceived to be the intent of lawmakers expressed in the legislative history.

Now, the Supreme Court must decide who is right, the US or the private entities, who have some powerful allies in this fight.

Strange bedfellows?

“For the federal government, as for any other debtor, a failure or refusal to allocate money to pay a debt does not cancel the debt,” writes insurer Maine Community Health Options in its brief (pdf) to the high court.

It’s a fair argument and one that 24 states and Washington, DC support. The localities filed an amicus brief (pdf) saying that they also relied on the government’s risk-mitigation program to offset insurer losses and ensure their marketplaces operated effectively. More importantly, the states are worried that in the big picture, the federal government’s bait-and-switch will make companies wary of entering public-private partnerships in the future.

An amicus brief (pdf) by economists and professors also supports the private entities for this reason. The economists note that “private firms make decisions by assessing the costs and benefits of their actions.” If companies doing business with the government can’t accurately assess risk because they can’t rely on the US’s assertions about the financial enticements it offers, private entities will not work with authorities to advance its policies. “The government undermines its ability to use financial incentives to achieve policy objectives by, after the fact, not paying the amounts it promised,” the brief concludes.

Deceptively simple

These assertions seem sensible enough, but they make the case look deceptively simple to decide. The justices don’t just ask, “Is this right?” They have to answer two very technical questions (pdf).

First, they have to consider whether the appropriations riders impliedly repealed the program, keeping in mind that such repeals are disfavored under the law, especially when it comes to money. The lower court looked at the riders’ legislative history for intent to repeal and relied on that in its decision, “elevating” this information. But that may not have been the correct approach to interpretation.

Second, even if the lower court and government are right and the appropriations riders did impliedly repeal the risk-mitigation program the insurers relied on, another legal principle comes into play. The justices must decide whether the “presumption against retroactivity” in statutory interpretation applies here and requires the US to pay the companies anyway.

In other words, just because the government didn’t fund the program and hinted that it would no longer exist doesn’t mean it’s off the hook. The law views it as bad practice to approve of “calling backsies” with the benefit of hindsight.

A retroactive statute takes away or impairs vested rights acquired under existing laws, creates a new obligation, imposes a new duty, or attaches a new disability “in respect to transactions or considerations already past,” justice Joseph Story explained in the 19th century. That practice was frowned upon in the past and is still disapproved of today.

So, the government is going to have a lot of explaining to do when it goes before the court on Tuesday, and some Americans may find themselves in the unusual position of rooting for the insurers, on principle, although if the US has to ultimately cough up the money, it’s taxpayers who will indirectly foot the bill. Or maybe they’ll feel schadenfreude, gleefully watching insurers struggle to get paid after working so hard to deny their customers’ claims.

Either way, the justices will likely decide by late June.