I’ll start with the bad news: The Supreme Court granted insurers nearly $12 billion in Obamacare bailout funds. And now the worse news: It allowed the executive to stick Congress with the bill for unconstitutional actions lawmakers never authorized.
The ruling, issued on Monday after the Court heard oral arguments in December, made the case sound simple: Obamacare created an obligation on the federal government to pay insurers’ risk corridor claims. Congress refused to appropriate the money. Therefore insurers can go to court and obtain the $12 billion in question from the Judgment Fund, which has a permanent, unlimited appropriation to pay legal claims against the government.
But the reality doesn’t match the ruling’s cut-and-dried approach. Unilateral actions by the executive paved the way for risk corridors’ massive losses, a fact neither insurers nor liberal Obamacare supporters like to admit.
The Bailout’s Origins
In many ways, the Supreme Court case has its roots in guidance released by the Obama administration in November 2013. At that point, millions of people had received plan cancellation notices, but couldn’t buy health insurance plans while healthcare.gov remained in meltdown. President Obama faced withering and justified criticism for his “Lie of the Year”—the promise that “If you like your plan, you can keep it.”
The Department of Health and Human Services (HHS) tried to stanch the political bleeding. Instead of sending cancellation notices, states and insurers could allow individuals to retain plans purchased after Obamacare’s March 2010 enactment, but before the major insurance regulations went into effect on January 1, 2014.
Coming at a very late date, HHS’s unilateral action threatened to create more chaos for insurers. The carriers had priced their policies assuming millions of individuals with pre-Obamacare policies would lose their existing plans and sign up for exchange coverage. Instead, these largely healthy individuals would remain outside of Obamacare, as millions of sicker individuals flooded onto exchanges to obtain the richer Obamacare coverage.
How did HHS propose to offset insurers’ potential losses from this late change to their enrollee profile? The same November 2013 guidance allowing pre-Obamacare policies to remain in place proposed risk corridors as the solution:
Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.
In theory, risk corridors required plans with outsized profits on Obamacare policies to subsidize insurers with outsized losses. But because many insurers kept their pre-Obamacare policies in place, many more insurers suffered losses than gains. The program suffered approximately $12 billion in losses during its three years (2014-16), losses which prompted insurers’ suit, to recover the billions they consider themselves owed.
But as law professor Nicholas Bagley (an Obamacare supporter) and others have pointed out, HHS’s November 2013 guidance came with a big catch: It violated the president’s constitutional duty to “take care that the laws be faithfully executed.” In essence, the Obama administration had stated that it would not enforce the law—the new insurance regulations coming into effect, which had led insurers to send the cancellation notices in the first place—because it found doing so politically inconvenient. (Sadly, the Trump administration has continued the unconstitutional behavior, by similarly allowing the plans to remain in effect.)
Those unconstitutional actions imposed major financial losses on insurers, an assertion that comes not just from the HHS guidance quoted above, but from the insurers themselves. An amicus brief submitted in the Supreme Court case by Americans for Prosperity noted that the insurer plaintiffs themselves admitted the administration’s unilateral actions represented the root cause of much of their financial losses:
As one Petitioner notes, this ‘unexpected policy change had marked and predictable effects.’ It lowered enrollment and since ‘the announcement came after premiums had been set[,]’ Petitioners were stuck with the prices they set, forced to ‘[b]ear greater risk than they accounted for[.]’ Petitioners argue that HHS recognized ‘that its unexpected policy shift could subject insurers on the exchanges to unanticipated higher average claims costs … [b]ut,’ the agency allayed their fears by providing reassurance that the risk corridors program would cover any losses. The Petitioners go through a lengthy history of HHS’s actions, pinning much of the blame on HHS’s ‘rosy scenario’ of how things would work out. [Internal citations omitted.]
Sticking Taxpayers with the Tab
Insurers could have responded in a different manner to the HHS guidance. They could have cancelled all their pre-Obamacare policies anyway, or they could have challenged the guidance in court. Some took the former action, because some states forced carriers to cancel all pre-Obamacare plans—but none took the latter course. In the main, insurers decided to take their chances, roll the dice, and not take a confrontational tack with the Obama administration, largely hoping they would receive the risk corridor bailout HHS alluded to in its guidance.
But Congress can, and should, have a say in the matter. A policy enacted unilaterally, and unconstitutionally, by HHS resulted in a financial impact (in the form of risk corridors) to the tune of billions of dollars.
Yes, Congress could have passed more stringent language blocking any appropriation for a risk corridor bailout. But following that logic to its conclusion would have effectively turned the Constitution on its head: The executive can make a unilateral, and unconstitutional, change, and both Congress and taxpayers have to pay the bill for it—unless and until Congress passes legislation by a veto-proof majority to undo the financial consequences of an action the executive never had authority to take in the first place.
A Costly ‘Bait-and-Switch’
Insurers decried the risk corridor funding shortfall as a “bait-and-switch” by Congress: Lawmakers authorized the payments as part of Obamacare, but never ponied up an appropriation for an obligation Congress created.
Risk corridors did suffer from a “bait-and-switch,” but it came from the Obama administration, not Congress. HHS changed the rules of the game, causing insurers major losses on their Obamacare plans—and sticking taxpayers with much of that tab via risk corridors.
But neither the majority opinion in the Supreme Court ruling, nor Justice Alito’s dissent, addressed the Obama administration’s “bait-and-switch.” As a result, the court created a bad precedent that empowers the executive, further diminishes the role of Congress, and places taxpayers at risk for more unilateral bailouts in the future.