Category Archives: Separation of powers

How The Obama Administration Raided The Treasury To Pay Off Insurers

As discussed earlier, I have moved most of my blogging on the Affordable Care Act over to Forbes blog site: The Apothecary.  Here’s where you can find my latest entry.  It’s about Obama administration lawlessness in running the Transitional Reinsurance program.

Here are a few paragraphs to whet your interest.  To see more, go here.

This is about a raid conducted in the murky twilight of the Federal Register. It’s a scheme in which the Obama administration collected less in taxes from health insurers (mostly off the Exchanges) than they were required to do under the Affordable Care Act, created a plan to pay insurers selling policies on the Exchange considerably more than originally projected, and stiffed the United States Treasury on the money it was supposed to receive from the taxes. It’s a different bailout than the Risk Corridors program. That, at least, was originally authorized by statute.  This is about a diversion that took place in spite of a statute that explicitly prohibited it.  And the consequence of the diversion of funds was to enrich insurers and, probably, to keep more insurers selling policies on the Exchanges than would otherwise be the case.

The transitional reinsurance program as implemented, however, has become entirely unmoored from the statute that created it. It has instead embarked on a progressively stranger course in which two of the most recent diversions were  underassessing health insurers to pay for the program and then using the first $2 billion collected not to pay the United States Treasury as called for by the statute but instead to pay off insurers selling individual health insurance policies on the Exchange and, some times, off the Exchange.  Indeed, not only has $2 billion from the 2014 money been diverted from the Treasury to insurers but it looks as if at least an additional $800 million from the 2015 money is heading in the same direction.

By combining the two revisions of the original reinsurance parameters, the Obama administration made the program about 40% juicier for insurers . To the cynical eye, this could be seen as one of several administrative cures for the Obama administration’s politically understandable yet completely illegal decision to starve exchange insurers of potential customers who would now, by administrative fiat, often be permitted to keep those dreadful policies that the Affordable Care Act was supposed to eliminate. With foolish campaign promises as the motivation, one illegality begat another.

And now let’s take a closer look at the Obama administration’s legal justification for shoveling money to insurance companies on whose graces the success of Obamacare rests . You can read it above.  CMS contended that, because the statute was silent or ambiguous; it gave CMS discretion.  According to CMS, the statute used “shall” when it came to the $10 million to be collected for reinsurers in 2014 and used only “reflects” when it came to the $2 million for the Treasury, implying that the collection of money for reinsurers was more mandatory than collection of money for Treasury. Besides, argued CMS, the premium “stabilization” purpose of the ACA would be enhanced by funneling more money to insurance companies.

This reading of the statute makes no sense, however. The ambiguity exists only by virtue of ignoring a provision of the statute never even mentioned by CMS its legal analysis. By sending out a specific bill to health insurers and third party administrators to cover the Treasury payments, CMS had clearly collected money under the program in part pursuant to section 1341(b)(3)(B)(iv), the part that requires $5 billion for Treasury.  Look at paragraph (b)(4): “Notwithstanding the preceding sentence, any contribution amounts described in paragraph (3)(B)(iv) shall be deposited into the general fund of the Treasury of the United States and may not be used for the program established under this section.” But this diversion of funds collected for the Treasury into the hands of the insurers was precisely what CMS now purported to find justification for in the language of the statute.  CMS’s argument is particularly strange given the“miscellaneous receipts statute” which says that agencies generally can’t just keep money they collect; rather they must “deposit the money in the Treasury as soon as practicable without deduction for any charge or claim.”

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Why the House Lawsuit Over Cost Sharing Reductions Might Win But Won’t Kill Obamacare

As discussed in my previous blog post, I have moved most of my blogging activity on the Affordable Care Act to Forbes Apothecary site.  Here’s a summary of what is discusses.  To see the rest, go here.

The most glaring problem with the argument in House v. Burwell brought by House Democrats is that it rests on a false premise: Obamacare could not function unless it provided an appropriation for cost sharing reductions.  This is just not true.  As I now show, for better or worse, the ACA could function in a very similar way even if no appropriation was made for cost sharing reductions.

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Backstop argument shouldn’t rescue Obama administration in House lawsuit

A recap of where we are in House v. Burwell

The hottest issue in the law of Affordable Care Act at the moment is whether the Obama administration had constitutional authority to pay insurers billions of dollars for the “Cost Sharing Reduction” provisions when Congress did not appropriate any money for that program.  Those who believe the Obama administration has acted illegally got a boost  recently from United States District Court Judge Rosemary Collyer, who ruled that the House of Representatives had standing to sue Obama administration officials for these sorts of payments.

But it was not just that Judge Collyer ruled in favor of standing that creates the tempest; it was what she said in her opinion. As I noted in a recent blog entry, in resolving the standing issue, Judge Collyer appeared to reject the Obama administration’s main defense. Instead, she wrote:

An appropriation must be expressly stated; it cannot be inferred or implied. 31 U.S.C. § 1301(d). It is well understood that the “a direction to pay without a designation of the source of funds is not an appropriation.”

And that would seem to be precisely what we have here. It is very clear that there is no clear direction from Congress to pay insurers for the cost sharing reductions.  Indeed, as Judge Collyer notes:

On July 13, 2013, the Senate Appropriations Committee adopted S. 1284, a bill appropriating monies to HHS and other agencies. An accompanying report stated that “[t]he Committee recommendation does not include a mandatory appropriation, requested by the administration, for reduced cost sharing assistance . . . as provided for in sections 1402 and 1412 of the ACA.

To be sure, Committee reports are not the same thing as the law. Nonetheless, to the extent they are relevant, here they are highly unsupportive of the notion that Congress intended to spend money on this program.

Moreover, Judge Collyer rejected the argument that the Obama administration could spend money on cost sharing reductions because, unlike in other areas of the ACA, Congress had not explicitly forbad it. Wrote Judge Collyer,  “The absence of a restriction, however, is not an appropriation. ”

Looking at a fallback argument

And, so, what’s left?  And here is where we get to an argument that is just too perfect ” It was articulated recently by Professor Nicholas Bagley of the University of Michigan on his Incidental Economist blog and has been attributed as well by a big proponent of the ACA to Professor David Super of Georgetown University.  I’m going to quote it here, leaving Professor Bagley’s hyperlinks intact so that you can get a sense of at least some of the authorities on which he relies. (Obviously, his blog post (like mine) is not a brief or a law review article, and I am by no means contending that his links were insufficient).

Even without an appropriation, health plans still have a statutory entitlement to cost-sharing payments. What that means in non-legalese is that Congress has promised to pay them money—whether or not there’s an appropriation. And health plans can sue the government in the Court of Federal Claims to make good on that promise. (Congress has undeniably appropriated the money to pay court judgments.)

Now, before we go further, note that this may not exactly be a legal argument.  That is, Professor Bagley could well be right that the lawsuit is kind of pointless if the insurers get paid in the end, but  the House could still be right that the Obama administration acted unconstitutionally by paying insurers without compelling them to go through those extra hoops. But this ignores, of course, the expressive value of the lawsuit which is that the Obama administration is acting lawlessly in implementing the ACA. (It is consistent, though, with some people’s view that, whatever its merit and whatever the importance of the principles at stake, the lawsuit is, in today’s political environment, misguided because cutting off cost sharing reductions is going to anger a lot of people and Republican fingerprints are all over the lawsuit).

Whether Professor Bagley is making a legal or pragmatic argument,  (or both), however, I think it is just a little too perfect.  It assumes its own conclusion.  If it were true that a beneficiary of a federal program — here, poor little insurance companies — could recover in the Court of Federal Claims when Congress failed to appropriate any money for their welfare program, then there would be far less point, really, in Congress ever making appropriations. It would change the Constitution to say something like, “The Executive may draw money from the Treasury except where prohibited by Congress.”  The presumption would have changed from giving Congress the power of the purse,  which is what I thought the Constitution meant, to giving those powers to the President, which I thought was kind of more like a monarchy.

Moreover, there is a decent reason that  we separate passage of a bill from funding of its programs.  And it is well illustrated by the ACA.  Consider the cost sharing reductions.  They were enacted in March, 2010 when the ACA passed.  But they were not to take effect until January 1, 2014. It could well be that, between passage and effect, budgetary priorities shift.  Perhaps we need more money for relocating refugees than we did at the time the original legislation was enacted, or perhaps we became more concerned about an ever growing multi-trillion dollar national debt. But Congress thought, if we ever do have the money, this cost sharing reduction program is a pretty good idea.  And so, the solution is to say, as we have, and as Judge Collyer did, that passage of a bill, generally speaking, is different than appropriation of funds. Congress can enact laws and then not fund the “promises made therein” at least for some period of time.  I do not think Congress had to formally repeal cost sharing reductions in order to put the program on hold and then reenact the program when money became available.

Now, I can imagine Professor Bagley at this point rejoining, “but Congress did appropriate the money by creating a permanent appropriation for judgments rendered in the Court of Federal Claims. ” But if that were true, Congress would have to, each time it did not wish to appropriate funds for a program it has enacted, create an exception to the permanent appropriation for judgments rendered in the Court of Claims.  In addition to converting one provision of the US Code into a trash compactor for discarded legislative ideas, such a requirement would seem to violate the whole idea, at least of Judge Collyer, that  “the absence of a restriction … is not an appropriation. ”

Does Slattery v. U.S. mean that Bagley is actually right? (No)

I will confess that my own above arguments were more thoroughly persuasive to me until I looked at Slattery v. U.S., 635 F.3d 1298 (Fed. Cir. 2011), which involves the Tucker Act. There, the Federal Circuit abrogated a prior doctrine announced in Kyer v. U. S., 369 F.2d 714 (Ct. Cl. 1966),  under which, if there was an agency of the United States, such as army post exchanges (PX) that operated without use of appropriated funds but on the basis of other revenues, there was a jurisdictional bar against the Court of Federal Claims hearing the case and thus no ability of the plaintiff to recover absent a seldom-obtained explicit consent to suit from the otherwise sovereignly immune United States.

Slattery itself involved a claim by the shareholders of a bank against the FDIC which, apparently, did not receive federal funding but which is a federal instrumentality.  Supposedly, in the course of coaxing the bank to have another failing bank merged into it, the FDIC had created contractual assurances that the method of accounting and capitalization standards for the assuming bank would be, for lack of a better term, fairly mellow.  Later, in apparent violation of the contract, the FDIC imposed stricter standards and the bank ran into problems as a result. The court held that the fact that the FDIC did not receive an appropriation did not prevent the Court of Federal Claims from hearing the case.

We conclude that the source of a government agency’s funds, including funds to pay judgments incurred by agency actions, does not control whether there is jurisdiction of a claim within the subject matter assigned to the court by the Tucker Act. The jurisdictional criterion is not how the government entity is funded or its obligations met, but whether the government entity was acting on behalf of the government. … Thus we confirm that Tucker Act jurisdiction does not depend on and is not limited by whether the government entity receives or draws upon appropriated funds.

So, one might be tempted to run with this language and say that, indeed, the insurance companies can sue in the Federal Court of Claims for the money the government “should” have paid them  under the cost sharing reductions (except of course that the Obama administration has paid them.) The fact that no money was appropriated doesn’t matter.  But, I don’t think this is quite right.  For one thing, Slattery is about jurisdiction, not about the merits. All it is really saying is that the fact that the federal entity was not funded by Congressional appropriations does not, in and of itself, create an automatic bar to the court hearing the case.  It does not say that, if the federal agency was acting way outside its authority that the federal government must pay the claim out of the permanent appropriation.  Moreover, in the Slattery case itself, the basic idea was that the FDIC had not honored the deal under which it persuaded one bank to take on a problem bank, not that the FDIC had no authority whatsoever to assist with bank mergers.

Moreover, if you look at the language of Slattery very carefully, the issue is “whether the government entity was acting on behalf of the government.”  Here, I say, it sure looks like the Treasury was not acting lawfully in paying insurers for cost sharing reductions out of money that was supposed to go for tax refunds. And so, it may well be that the Treasury was not acting on behalf of the government but on behalf of the extra-legal objectives, however meritorious or well intentioned they may have been, of the President.  Thus, although as a lawyer for HHS I would certainly be citing Slattery a lot, it does not address the issue in the current case.

And one more thing

Could we also think for a bit about how strong the insurers’ claims in the Court of Federal Claims would really be?  My heart bleeds for insurance companies perhaps more than most, but I have trouble working up a great deal of sympathy here. Insurers surely  became aware at some point before the beginning of 2014 that Congress had not appropriated any money for the cost sharing reduction program.  They would certainly be aware of a problem if the court rules in this case that payments to them are illegal!  And, yet, knowing this, they would seek to sue for making contracts with limited cost sharing available to policyholders at discount prices?  Its not quite the same thing as suing to enforce a contract  where you knew the money to pay you had been embezzled, but it is not that far off either.

 

 

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