Did Section 1342 of the Affordable Care Act statutorily oblige the government to fulfill all outstanding payments owed to insurance companies under Section 1342’s risk-corridors program, and if so, did Congress’s appropriations riders impliedly repeal that obligation?
This case consolidates four lawsuits, together asking the Court to determine if Section 1342 of the Affordable Care Act statutorily obliges Congress to fulfill outstanding payments to insurance companies after Congress failed to appropriate funds for these payments. Section 1342 established a “risk-corridors program,” whereby health insurers and the United States government would share unforeseen costs associated with providing universal healthcare on “health benefit exchanges.” Petitioners argue that Section 1342 statutorily requires the government to make full “payments out” to insurance companies who have suffered a loss—regardless of whether Congress appropriated enough money to cover these losses. Respondent, the United States, counters that Section 1342 merely created a program to oversee “payments out” to health insurers, and even if it does oblige the government to make payments, Congress’s appropriations riders repealed that obligation. The outcome of this case has implications for the separation of powers principles and the future of public-private partnerships.
Questions as Framed for the Court by the Parties
(1) Whether—given the “cardinal rule” disfavoring implied repeals, which applies with “especial force” to appropriations acts and requires that repeal not to be found unless the later enactment is “irreconcilable” with the former—an appropriations rider whose text bars the agency’s use of certain funds to pay a statutory obligation, but does not repeal or amend the statutory obligation, and is thus not inconsistent with it, can nonetheless be held to impliedly repeal the obligation by elevating the perceived “intent” of the rider (drawn from unilluminating legislative history) above its text, and the text of the underlying statute; and (2) whether—when the federal government has an unambiguous statutory payment obligation, under a program involving reciprocal commitments by the government and a private company participating in the program—the presumption against retroactivity applies to the interpretation of an appropriations rider that is claimed to have impliedly repealed the government’s obligation.
In 2010, Congress passed the Patient Protection and Affordable Care Act (“ACA”), which, among other healthcare reforms, created virtual marketplaces, called health benefit exchanges (“Exchanges”), that allowed individuals and groups to purchase healthcare coverage from one centralized forum. Moda Health Plan, Inc. v. United States (I) at 3. The ACA also required insurers to provide insurance to all individuals regardless of their health status and without raising insurance premiums. Brief for Petitioner, Maine Community Health Options (“MCH”) at 4. This created unknown risks for insurers opting to participate in the Exchanges. Id. at 3.
The ACA included strategies to mitigate this risk and to discourage insurers from charging higher premiums to offset the risk. Id. at 4. Section 1342 of the ACA established a three-year “risk-corridors program” to apply in 2014, 2015, and 2016. Id. Under Section 1342, the Secretary of the Department of Health and Human Services (“HHS”) would redistribute high profits and high losses among participating insurers. Id. at 6. Specifically, based on a statutory formula, the HHS Secretary would make “payments out” to insurers whose costs exceeded their premiums and would receive “payments in” from insurers whose premiums exceeded their costs. Id. at 6.
Through an informal rulemaking proceeding in March 2013, HHS explained that the “risk-corridors program is not required to be budget neutral,” meaning, “payments out” to insurers would not be limited only to the funds received through “payments in.” Id. at 8. In November 2013, after many insurers had already set their insurance premium rates for 2014, HHS announced a one-year transitional policy for all insurance plans that were non-compliant with the ACA’s minimum coverage requirements. Id. at 8–9. Because the interim policy allowed many healthy individuals to maintain their insurance instead of purchasing a new insurance plan through the Exchanges, the transitional policy required insurers to bear greater risk than they initially had planned for when setting their premiums for 2014. Id. at 9. However, HHS stated that the risk-corridors program would alleviate the unanticipated changes. Id. at 9. HHS then extended the transitional insurance period to 2016. Id.
The Centers for Medicaid and Medicare Services (“CMS”), the division of HHS responsible for administering the risk-corridors program, explained that if an insurer entitled to “payments out” was not paid in full during the previous year, that insurer would recoup unpaid losses in the following year pro rata using payments in from high-profit insurers. Id. at 10. CMS left open how it would fund these obligations in the event of payment shortfall in the program’s final year. Id. After Congress asked the Government Accountability Office (“GAO”) to identify other sources of funding for the risk-corridors program, GAO concluded that the CMS Program Management appropriation funds were available. Id. at 11. However, in 2015, 2016, and 2017, Congress included a rider—an amendment attached to a piece of legislation—in the appropriations bills stating that Congress could not use any of the CMS Program Management funds for the risk-corridors program, thereby foreclosing this funding option. Id. at 11–13. A CMS report calculated that, in total, the payments out fell short of the payments in by over $12 billion. Id. at 13.
Various insurers filed actions in the Court of Federal Claims under the Tucker Act to recover their outstanding payments under the risk-corridors program. Id. They allege (1) that Section 1342 obligated the government to pay insurers the amount statutorily required regardless of the amount HHS collected through payments in, and (2) that HHS breached a contract with insurers to pay the full statutorily listed amount. Id. at 14–15. After varying decisions in the Court of Federal Claims, the Court of Appeals for the Federal Circuit held that although Section 1342 obliges the government to pay insurers, the riders in the appropriation bills “repealed or suspended its obligation.” Id. at 20–21. The Federal Circuit also rejected the insurers’ contract claims, and thus, held that the government did not owe the insurance companies outstanding risk-corridors payments. Id. at 35. On June 24, 2019, the Supreme Court of the United States granted certiorari, and consolidated four cases denying insurers’ claims and holding for the government. Moda Health Plan (I) at 14.
INTERPRETING THE PLAIN MEANING OF SECTION 1342
One of the Petitioners, Maine Community Health Options (“MCH”), argues that Section 1342’s plain language requires the government to fully compensate insurers. Brief for MCH at 24–25. Specifically, MCH explains that Section 1342 uses the word “shall,” indicating that the statute is money-mandatory—in other words the payments are obligatory not discretionary. Id. Additionally, MCH argues that Section 1342’s plain language never implies that the statute was initially supposed to be budget neutral, with “payments out” limited to “payments in.” Id. at 26. MCH also contends that Section 1342 does not expressly condition “payments out” on the availability of appropriations and that Congress typically includes this language when it intends to make a particular program subject to the availability of appropriations. Id. at 28–29.
The United States counters that even without the express “subject to appropriations” language, the Appropriations Clause still governs Section 1342. Brief for Respondent, United States of America at 20. It explains that this statute forbids the Treasury to make payments out unless a congressional appropriations act authorizes it to do so. Id. at 20. And, the United States contends that Congress had only appropriated funds for Section 1342’s “payments out” from “payments in” schema. Id. at 24. The United States also contends that Congress must specifically appropriate funds and that the Anti-Deficiency Act (“ADA”) forbids federal agencies from independently making financial payments. Id. at 21. Therefore, the United States argues that when reading Section 1342, or any statute, under the directive of the ADA, HHS could make payments out only if Congress appropriated the necessary funds. Id. at 22.
DO CONGRESS’S RIDERS ABROGATE ITS OBLIGATION TO PAY?
Petitioner Land of Lincoln Mutual Health Insurance Company (“Lincoln”) maintains that the riders’ plain language does not negate Section 1342’s obligation to pay insurers. Brief for Petitioner, Land of Lincoln Mutual Health Insurance Company et al. (“Lincoln”) at 23.
Lincoln explains that the riders merely prevent HHS from using certain funds—they do not eliminate the obligation to pay altogether. Id. at 23. Furthermore, Lincoln contends that the riders do not alter Section 1342’s payment formula, repeal its “shall pay” language, nor cap the amount of “payments in” to the risk-corridors program. Id. at 23–24. Therefore, Lincoln emphasizes that the riders do not contain the type of clear language that the Court requires before effectively repealing the government’s financial obligation to pay. Id. at 22. Petitioner MCH agrees, adding that Congress frequently declines—whether purposely or inadvertently—to appropriate funds to meet its statutory obligations. Brief of MCH at 37. This failure, MCH notes, does not extinguish the government’s obligation to pay. Id. MCH also contends that there is no irreconcilable conflict between Section 1342’s obligation to pay and the riders. Id. at 38. It explains that the riders only limit the government’s ability to use certain funds but do not eliminate Section 1342’s obligation to pay. Id. Thus, MCH asserts, absent an irreconcilable conflict, both the riders and Section 1342’s obligation to pay can be enforced. Id.
Petitioner Moda Health Plan (“Moda”) also argues that the Court’s precedent supports its position that the riders do abrogate the government’s obligation to pay. Brief for Petitioner, Moda Health Plan, Inc. et al. (“Moda”) at 39. Moda explains that the lower court’s decision is incompatible with United States v. Langston, where the Court determined that merely reducing appropriations did not affect the government’s overall financial obligation to pay. Id. To repeal a government’s obligation to pay, Moda emphasizes that the Court in Langston required Congress to use “express words of repeal, or…such provision as would compel the courts to say that harmony between the old and new statute was impossible.” Id. Petitioners together agree that the riders do not contain this express language nor are the riders incompatible with Section 1342, thus they contend that the riders do not limit the government’s obligation to pay. Id.
The United States counters that, even if Section 1342 obligated the government to make full payments out under its provisions, Congress extinguished that requirement through the appropriations riders. Brief for Respondent at 43. The United States maintains that congressional intent is fundamental in determining whether Congress intended to repeal a statute, and that the Supreme Court routinely applies this principle to determine that appropriation acts repealed prior obligations. Id. at 44. The United States then argues that by expressly barring the use of the only alternative funding source, Congress intended to restrict “payments out” under Section 1342 to sources of funds from “payments in.” Id. at 45. The United States acknowledges that in other contexts, such as the underlying appropriation acts in United States v. Dickerson, appropriation acts prohibited the use of funds “in this Act or any other Act,” and that language is absent in the Section 1342 appropriation riders. Id. at 46. Nevertheless, the United States contends that this distinction is irrelevant because there is no other viable source of funds for HHS to make “payments out” under Section 1342. Id. Finally, the United States argues that Congress did not intend for the riders to temporarily suspend the obligation because the government enacted the restriction after the three-year duration of the program. Id.
The United States also disagrees that Langston is inconsistent with the Federal Circuit’s decision. Id. at 49. It insists that Langston was a narrow holding with facts that are predominantly different from this case. Id. The United States argues that in Langston, before appropriating less money than the statutory entitlement, Congress had appropriated the correct sum for many years. Id. But in this case, the United States argues that Congress had yet to appropriate any funds before appropriating a lower amount, and therefore, Langston is dissimilar to this case. Id. It points out that even the Supreme Court has cautioned that the Langston holding should be limited to the facts of the case. Id.
PRESUMPTION AGAINST RETROACTIVITY
MCH argues that the Federal Circuit ignored the principle that a statute overcomes the strong presumption against retroactivity—the assumption that statutes do not apply to the past—only when Congress expressly reneges their prior promise with a statutory text. Brief of MCH at 45. MCH argues that instead of applying this principle, the lower court determined that the “presumption against retroactivity” did not apply because the government did not renege on their promise since they only incurred an obligation after the insurers performed and calculated their losses in 2014. Id. at 46. However, MCH argues that retroactivity is implicated when “actions are irrevocably taken in reliance on existing conditions,” and in this case, the insurers participated in the Exchanges relying on the promise that they would be reimbursed for any potential losses incurred. Id. at 46–47.
The United States counters that the “presumption against retroactivity” does not apply in this case. Brief for Respondent at 51. The United States argues that the presumption against retroactivity is only implicated in three situations: when the statute would (1) impair a right the party possessed when they acted, (2) increase a party’s liability for past actions, or (3) require new duties for already completed transactions. Id. The United States maintains that in this case, the insurers never had the right to the future subsidies because Congress first addressed funding for Section 1342 in 2015 when it restricted “payments out” to “payments in.” Id. at 52. The United States concludes that even if there was a retroactive effect, Congress acted in accordance with the principle against retroactivity by clearly expressing its intent by restricting “payments out” to “payments in.” Id. at 52–53.
Lincoln argues that legislative intent is not applicable and that the Federal Circuit’s reliance on it is not the law. Brief of Lincoln at 35. Lincoln notes that the Supreme Court has expressly rejected relying on legislative history in the appropriations context. Id. at 36. Lincoln maintains that, even if congressional intent is relevant, the legislative history surrounding the appropriations is weak in this case. Id. at 37. Specifically, Lincoln explains that the Federal Circuit relied on flimsy legislative history involving only three members of Congress while overlooking Congress’s repeated rejection of proposals to either repeal the risk-corridors program or to expressly limit “payments out” to “payments in.” Id. at 37–40.
The United States counters that the Supreme Court frequently analyzes legislative history to discern congressional intent in the appropriation context because it would be unusual to ignore such persuasive evidence. Brief for Respondent at 47. The United States then argues that the legislative history surrounding the appropriations riders dictates that the riders intended to extinguish the government’s outstanding obligation. Id. at 47–48. The United States specifically highlights that the appropriations act prohibited HHS’s only alternative funding sources and that the Chairman of the House Committee on Appropriations stated that HHS would only make “payments out” to the extent it collects “payments in.” Id.
Lincoln argues that even if the appropriations riders effectively extinguished the government’s financial obligation under Section 1342, the lower court incorrectly dismissed its implied-in-fact contract claims. Brief of Lincoln at 51. Lincoln argues that the lower court recognized that Section 1342 imposed an “unambiguously mandatory” obligation on the government to pay out the risk-corridors payments completely. Id. Lincoln further contends that this obligation is precisely how the government enticed health insurers to join the exchanges. Id. Therefore, Lincoln concludes that the obligation was the government’s offer and clear indicated that it intended to enter into a contract. Id. Lincoln adds that although Section 1342 lacked explicit contractual language, the Court has determined that statutes embodying proposals can convert into contracts. Id.
The United States counters that the implied-in-fact contract claims are misplaced. Brief for Respondent at 53. It argues that the Court has determined that a statute only creates a contract when it explicitly discusses contracting with the government, but that language is entirely absent from Section 1342. Id. at 53. The United States also contends that there is a long-standing principle against interpreting statutes as contracts and that nothing in Section 1342 overcomes this principle. Id. at 55. The United States also points out that Section 1342 does not include any promissory language, nor did insurers provide any product to the government, essential elements of a contract. Id. at 55.
SEPARATION OF POWERS PRINCIPLES
In support of Petitioners, Highmark Inc. et al., (“Highmark”) argues that ignoring Congress’s statutory commitments because of subsequent changes it made through appropriations riders will harm political accountability and due process. See Brief of Amici Curiae Highmark et al., in Support of Petitioners at 14, 16. Highmark argues that Congress frustrated transparency and accountability by burying its decisions in appropriations riders. Id. In particular, Highmark maintains that clearly stated policies in Congress’s statutory texts allow voters to hold their representatives accountable if policies contravene their interests. See id. at 16–17. Highmark also argues that holding the government accountable for the risk-corridors payments will advance principles of due process, because doing so is precisely within the judicial role: judges should protect “fair-notice and reliance principles,” which are undermined if Congress can amend its obligations retroactively under the ACA through “barely visible legislative history” and appropriations riders. See id. at 19–20.
Americans for Prosperity (“AFP”), in support of the United States, counters that the power to or not to appropriate funds rests exclusively with Congress. See Brief for Amicus Curie Americans for Prosperity (“AFP”), in Support of Respondent at 4. AFP argues that the Framers intended for Congress to direct taxpayer funds because Congress is comprised of elected officials accountable to voters. See id. at 5. Thus, as unelected officials, it is not the role of the judiciary to interfere with Congress’s policy judgments and power of the purse. See id. at 6. Similarly, AFP argues that Congress cannot be held responsible for executive action contrary to its appropriations decisions. See id. at 8. More specifically, to bind Congress to HHS’s actions would, in essence, transfer the power of the purse to the executive branch. See id. Agreeing with these arguments, the United States adds that recognizing a right of recovery here is contrary to the core of the Appropriations Clause—to restrain executive power. See Brief for Respondent at 41.
THE FUTURE OF PUBLIC-PRIVATE PARTNERSHIPS
America’s Health Insurance Plans (“AHIP”), in support of Petitioners, contends that a ruling for the government will seriously deter future private partnerships with the government in the healthcare industry. See Brief of Amicus Curie AHIP, in Support of Petitioners at 6, 9. For insurance companies, the risk-corridors program represented the government’s assurance to companies that if they offered lower premiums on Exchanges, the government would share some of the risks. Id. at 15. AHIP argues that the government’s failure to pay insurance companies the $12 billion in outstanding payments after the government received the benefit of lower premiums allows the government to keep the benefit while avoiding the risks. Id. at 15. AHIP explains that future unwillingness to partner with the government may have a substantial impact on the healthcare industry because seventy-eight percent of the $982 billion that the government spent on healthcare in 2017 relied on these private partnerships. Id. at 20. Similarly, the Chamber of Commerce of the United States of America (the “Chamber”) argues that the Court’s decision will negatively affect private partnerships across other industries, by destroying the trust needed for them to succeed. Brief of Amicus Curie Chamber of Commerce (“the Chamber”), in Support of Petitioners at 17, 25. It explains that these incentive programs extend loans to small companies to promote development in rural areas, and incentivize private businesses to enter markets into which they would otherwise not venture. See id. at 20–22.
In response, AFP argues that because the risk-corridors program was an incentive program and not a contract with private industries, there is no risk that private businesses will not contract with the government in the future if the government does not settle outstanding payments. See Brief of AFP at 15. AFP explains that the government contracts upward of $500 billion with private businesses each year, so “it is hard to imagine” that defunding the risk-corridors program “could materially harm this booming industry.” Id. AFP also contends that the corridor repayments serve as a virtual bailout, but a ruling in favor of the petitioners would undermine the government’s discretion in providing such a privilege—a benefit of contracting with the government. Id. at 15. Further, AFP maintains that if the plaintiffs were to prevail, the government’s only recourse is to reach out to Congress to seek additional appropriations in a deficiency situation. Id. at 13. Ultimately, AFP contends that funding outstanding payments now to compensate for the business risks insurance companies voluntarily took, misdirects resources, promotes industry favoritism, and hurts the economy. See id. at 15–16.
- Adam Lidgett, Congress Chose to Block $12B in ACA Funds, Justices Told, Law 360 (Oct. 23, 2019).
- Shelby Livingston, Supreme Court to Hear Cases Over ACA Risk-Corridor Funds, Modern Healthcare (June 24, 2019).
- Debra Cassens Weiss, Supreme Court to Consider Cases Accusing US of Shorting Health Insurers $12B in Promised Payments, ABA Journal (June 24, 2019).