The Courts

Supreme Court Puts Government On the Hook for $12 Billion in Obamacare Payments

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The Supreme Court on Monday ruled that the federal government is on the hook for billions in payments to health insurers who sold coverage on the Affordable Care Act exchanges.

The eight to one decision clears the way for insurers to collect upwards of $12 billion via an Obamacare program designed to help insurers manage risks they took by participating in ACA exchanges. Congress has refused to appropriate federal money for the program since 2014, leaving insurers in the lurch.

The decision is a blow to congressional Republicans and the Trump administration, who say the program is little more than a bailout for insurance companies who made hazardous business decisions. Unable to repeal the law in full, Republicans have attacked the ACA in piecemeal fashion, withholding the risk payments in Monday’s case and canceling payments to health insurers that subsidize care for low-income clients. Monday’s decision marks another failed Republican attempt to undermine the health care law.

At issue in the case is the so-called risk corridor program. The insurers who joined the ACA exchanges faced uncertainty immediately after the health care law passed and extended coverage to millions of previously uninsured and people with preexisting conditions. The risk corridors set up a system for sharing profits and losses: Companies who finished ahead would pay a portion of their profits to the government while insurers who finished behind could collect payments from the government to offset losses.

The trouble for the program was that costs greatly exceeded payments. In its first year, for example, the government collected $362 million from insurers who finished ahead, but owed those who finished behind $2.87 billion. That gap grew in the remaining two years of the program.

Congress refused to make up the difference. In turn, the insurance companies sued the government in the U.S. Court of Federal Claims, accusing the government of "a massive bait and switch."

Justice Sonia Sotomayor delivered the High Court’s opinion, saying the Obamacare law required the government to make risk corridor payments.

"These holdings reflect a principle as old as the nation itself: the government should honor its obligations," Sotomayor wrote. She warned that governments that dodge their financial engagements will not be trusted or respected.

The Trump administration argued against the insurance companies in court. In legal briefs, the government said it was "unreasonable" of the insurers to expect that Congress would fully fund the risk corridor program. Any payments were subject to year-by-year appropriations, the administration said, and Congress could allot as much or as little as it pleased.

"HHS was required and 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," the government’s brief read.

Sotomayor said that was incorrect: The Obamacare law created a duty to fund risk corridor payments that the government can’t shirk.

"The plain terms of the risk corridors provision created an obligation neither contingent on nor limited by the availability of appropriations or other funds," Sotomayor wrote.

Even if the statute created an obligation, the administration countered that the obligation was effectively repealed when Congress refused to allocate money for the risk corridors. Sotomayor likewise rejected that view, saying repeals should be clear and manifest.

Justice Samuel Alito was the lone dissenter from Monday’s decision. Alito argued the insurers had no legal basis for bringing their lawsuit.

"The Court infers a private right of action that has the effect of providing a massive bailout for insurance companies that took a calculated risk and lost," Alito wrote.

Other ACA cases loom large over the Supreme Court’s docket. In May, the justices will review the Trump administration’s conscience exemption from Obamacare’s contraception mandate. And in the fall, the Court will consider the ACA’s individual mandate for a second time. That dispute arose after congressional Republicans zeroed out the financial penalty for failing to purchase health insurance. Red states and the Trump administration argue the mandate cannot be justified as a tax if it is no longer raising revenue. The Supreme Court sustained the mandate on tax grounds in 2012.

Monday’s case is No. 18-1023 Maine Community Health Options v. United States.

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