In a little-watched case during this otherwise blockbuster Supreme Court term, the Court is considering whether to award billions of dollars in bailouts to insurance companies that lost big on the Affordable Care Act exchanges. This case has implications beyond the sheer amount of money at stake; it also gives the Court an opportunity to further define Congress’s exclusive spending power under the Appropriations Clause.
The Affordable Care Act’s drafters grappled with how to induce insurance companies to sell policies to high-risk individuals—people so likely to need services that insurance companies would lose money selling at exchange rates. In response, Congress created the “risk corridors” program. Insurance companies that sold policies to low-risk individuals would likely reap windfall profits, so Congress obligated those companies to pay those profits into a profit-sharing mechanism. Companies that sold policies to high-risk individuals could then recover their near-certain losses by receiving money out of the same fund.
But as we remember all too well, President Obama made the infamous promise: “If you like your health care plan, you can keep it.” The only way to accomplish this was to grant low-risk individuals waivers and not force them to buy plans on the exchanges. This inevitably led to the risk corridor fund being depleted. Yet with the premium rates already set, the insurance companies voluntarily decided to press on and offer their plans anyways. Why did they do this, despite facing near-certain losses? Because, as the companies cited in their briefs before the Supreme Court, the Obama-era Department of Health and Human Services (“HHS”) repeatedly “assured” them that the government would bail them out. Shortly after, the Government Accountability Office (“GAO”) determined that HHS could draw on only one source of appropriations, a Center for Medicare and Medicaid Services Program Fund, to bailout insurers who took the losses. But the now-Republican Congress quickly passed an appropriations rider (signed by the President) stating that money from that fund was not available for risk-corridor payments.
Undeterred, various insurance companies sued, seeking billions of dollars from the government. The Federal Circuit ultimately denied their claims, and the companies sought review from the Supreme Court. The companies argued that: 1) implied repeals of a statute—the “shall pay” of risk corridors—through appropriations rider are disfavored; and 2) there is a presumption against retroactive repeals.
The Appropriations Clause
Amy Howe has an excellent summary of the whole argument on her blog. I want to focus on our arguments and the Justices’ questions about the Appropriations Clause. Our take was simple: none of this jurisprudential finery about implied repeals or presumptions against retroactive action matters. The sole guide here is the plain text of the Appropriations Clause.
No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law[.] — U.S. Const. art. 1, § 9, cl. 7.
We argued—in the only amicus filed in support of the government—that this should be the end of the conversation. When Congress has appropriated no money, no money may be spent. The Framers understood this well. As Madison wrote, “The House of Representatives cannot only refuse, but they alone can propose the supplies requisite for the support of the government.” The Federalist No. 58. And Hamilton added that the Judiciary “has no influence over either the sword or the purse; no direction either of the strength or the wealth of the society, and can take no active resolution whatever.” The Federalist No. 78.
Reflecting on the Framer’s grant of the appropriations power, Judge Abner Mikva observed that this “reflected their belief that a proper governmental system would have the legislature at its core. The Framers understood the significance of the fiscal power.” Hon. Abner J. Mikva, Congress: The Purse, The Purpose, and The Power, 21 Ga. L. Rev. 1, 3 (1986). This power of the purse is, after all, “the most far-reaching and effectual of all governmental powers.” Id. at 1. But lodging this power with Congress was not without downsides, and “[d]oubtless [the Framers] knew that granting the power of the purse would have costs.” Id. Yet they chose, “for good reason, to suffer this cost and bear this risk.” Id. at 2. As Abner concludes, “[t]he appropriate response to these difficulties . . . is not to concede budgetary power to the executive branch, but to improve Congress’[s] own budgetary procedures.” Id. at 6.
Paul Clement, arguing for the insurance companies, framed their viewpoint in the first sentence: “This case involves a massive government bait-and-switch and the fundamental question of whether the government has to keep its word after its money-mandating promises have induced reliance.” Justice Breyer hammered this point home, repeatedly asking why the government should not have to pay after putting “shall pay” in the statute. He also wanted to know why this isn’t a contract or if it at least functions like one. Others, such as Justice Kagan, asked whether “this case is about a certain kind of compensation for services rendered, isn’t it?” Chief Justice Roberts also seemed suspicious of the Government’s stance that “shall pay” isn’t money-mandating, stating “I don’t know why legislation can’t be regarded as just as specific as the contracts[,]” and later asking if “no money-mandating language can be considered to create an obligation on the part of the government because you would call that, without an appropriations provision, simply a subsidy?”
As Deputy Solicitor General Edwin Kneedler responded, the risk corridors program is not a contract, nor does it function like one. A contract is bilateral agreement between two parties for the exchange of goods or services. This program is much different and best described as an incentive subsidy. The real contract was between the insurance provider and citizen insurees. The federal government never received any services at all. That’s what differentiates this from several cases the petitioners relied on and thus Congress has full authority to pull the plug.
And what about the Appropriations Clause? Chief Justice Roberts cast doubt on Clement’s reliance argument, arguing that “the Constitution says no money shall come out of the Treasury except pursuant to an appropriations clause.” He reasoned that “I would have though at some point [the insurance company lawyers] would have sat down and said, well, why don’t we insist upon an appropriations provision before we put ourselves on the hook for $12 billion?” After a bit of colloquy, he concluded “it strikes me that you do have the appropriations clause sitting out there and it’s a pretty clear yellow light.”
Justice Alito asked Clement if there was any other fund outside the one Congress explicitly restricted that HHS could use to pay off the insurers. He said no, they hadn’t found one—all that exists now is the Judgement Fund. Justice Alito then wondered if it’s reasonable of the insurance companies to just plunge forward, absent an appropriation, and say “don’t worry, we’ll sue later and we’ll get the money, billions of dollars from the Judgment Fund.”
And that’s the key. The Judgment Fund can’t possibly be this mother-of-all-appropriations that serves to backup any unfunded mandate, especially one where Congress specifically acted to cutoff available funds. As Justice Alito sums up, “Has there ever been a case where this Court has . . . required Congress to appropriate, through the Judgment Fund or in any other way, billions of dollars for private businesses?” We also argued in our brief that even if the insurers are due payment, the Judgment Fund is unavailable. At least one Circuit has found that where “payment of a particular judgment is otherwise provided for as a matter of law, the fact that the defendant agency has insufficient funds at that particular time does not operate to make the Judgment Fund available.” Cty. of Suffolk, N.Y. v. Sebelius, 605 F.3d 135, 143 (2d Cir. 2010) (citing Gov’t Accountability Office, 3 Principles of Federal Appropriations Law at 14-39 (3d ed. Sept. 2008)).
But alas the argument, this time led by Justice Kavanaugh, swung back to what Congress already knew how to do. In the past, when Congress turns off the spicket, it generally adds something like “and all other appropriations” to the end of the language. Kavanaugh succinctly sums up the two possible outcomes of the case: “if we were to rule for [the Government], everyone will be on notice going forward, private parties and Congress itself, that ‘shall pay’ doesn’t obligate actual payments. If we rule against [the Government], Congress also will be on notice going forward that it needs to include ‘subject to appropriations’ kind of language in any mandatory statute.”
What Could this Mean for the Future of the Appropriations Clause?
Based on reading the argument tea leaves, it looks like the Court may apply a narrow ruling—such as a presumption against implied repeals or finding a contract-like action—and uphold the award of money for the insurance companies. But the Court has an opportunity here to confirm how the Framers intended Appropriations Clause to operate: when Congress spends money, it must affirmatively appropriate it. It cannot simply say “shall pay” and then expect litigants to bring suit to draw money from the Judgment Fund. That would be an absurd result, and one that allows legislators to shirk responsibility for funding.
A progressive lawyer friend of mine read our brief and asked if I understood the full implications of our Appropriations Clause arguments. Wouldn’t statutes that contain “shall pay” language but with no associated, specific appropriation—or, here, an appropriation Congress later cuts off—therefore be inoperable? Won’t this have a dramatic impact on entitlement programs such as Social Security, Medicare, and Medicaid?
But we shouldn’t see that as a disastrous, undesirable outcome. If the political price for cutting those entitlement programs is high, then legislators could, and likely would, vote to appropriate specific sums of money to pay for them. But at least then voters will know how much of their hard-earned tax dollars representatives have personally voted to appropriate, and spending won’t be able to grow exponentially without a congressional stamp. The “mandatory spending” of entitlement funds creates the same problem we face with administrative regulations: no political accountability.
The Court has an opportunity here to put Congress on notice that it must attach specific appropriations—or at least an enumerated source of funding—to each bill. When legislators in Washington want to funnel billions of taxpayers’ dollars to health insurance companies, it’s not too much to ask that they actually vote for the appropriation. This is what the Framers of the Constitution plainly intended. Even if the Government does not prevail here, future Congresses should keep this problem in mind, lest another industry get a massive, no-risk windfall from the state coffers.
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Eric Bolinder is Counsel at Cause of Action Institute, which filed an amicus brief on behalf of Americans for Prosperity in Maine Community Health Options.
- 1 - As Chris Jacobs argued on Twitter (and we allude to in our brief), perhaps this was the point that the insurance companies should have sued.