Three Obstacles to Senate Democrats’ Health Care Vision

If Democrats win a “clean sweep” in the 2020 elections—win back the White House and the Senate, while retaining control of the House—what will their health care vision look like? Surprisingly for those watching Democratic presidential debates, single payer does not feature prominently for some members of Congress—at least not explicitly, or immediately. But that doesn’t make the proposals any more plausible.

Ezra Klein at Vox spent some time talking with prominent Senate Democrats, to take their temperature on what they would do should the political trifecta provide them an opportunity to legislate in 2021. Apart from the typical “Voxplanations” in the article—really, did Klein have to make not one but two factual errors in his article’s first sentence?—the philosophy and policies the Senate Democrats laid out don’t stand up to serious scrutiny, on multiple levels.

Problem 1: Politics

The first problem comes in the form of a dilemma articulated by none other than Ezra Klein, just a few weeks ago. Just before the last Democratic debate in July, Klein wrote that liberals should not dismiss with a patronizing shrug Americans’ reluctance to give up their current health coverage:

If the private insurance market is such a nightmare, why is the public so loath to abandon it? Why have past reformers so often been punished for trying to take away what people have and replace it with something better?…

Risk aversion [in health policy] is real, and it’s dangerous. Health reformers don’t tiptoe around it because they wouldn’t prefer to imagine bigger, more ambitious plans. They tiptoe around it because they have seen its power to destroy even modest plans. There may be a better strategy than that. I hope there is. But it starts with taking the public’s fear of dramatic change seriously, not trying to deny its power.

Democrats’ “go big or go home” theory lies in direct contrast to the inherent unease Klein identified in the zeitgeist not four weeks ago.

Problem 2: Policy

Klein and the Senate Democrats attempt to square the circle by talking about choice and keeping a role for private insurance. The problem comes because at bottom, many if not most Democrats don’t truly believe in that principle. Their own statements belie their claims, and the policy Democrats end up crafting would doubtless follow suit.

Does this sound like someone who 1) would maintain private insurance, if she could get away with abolishing it, and 2) will write legislation that puts the private system on a truly level playing field with the government-run plan? If you believe either of those premises, I’ve got some land to sell you.

In my forthcoming book and elsewhere, I have outlined some of the inherent biases that Democratic proposals would give to government-run coverage over private insurance: Billions in taxpayer funding; a network of physicians and hospitals coerced into participating in government insurance, and paid far less than private insurance can pay medical providers; automatic enrollment into the government-run plan; and many more. Why else would the founder of the “public option” say that “it’s not a Trojan horse” for single payer—“it’s just right there!”

Problem 3: Process

Because Democrats will not have a 60-vote margin to overcome a Republican filibuster even if they retake the majority in 2020, Klein argues they can enact the bulk of their agenda through the budget reconciliation process. He claims that “if Democrats confine themselves to lowering the Medicare age, adding a [government-run plan], and negotiating drug prices, there’s reason to believe it might pass parliamentary muster.”

Of course Klein would say that—because he never worked in the Senate. It also appears he never read my primer on the Senate’s “Byrd rule,” which governs reconciliation procedures in the Senate. Had he done either, he probably wouldn’t have made that overly simplistic, and likely incorrect, statement.

Take negotiating drug prices. The Congressional Budget Office first stated in 2007—and reaffirmed this May—its opinion that on its own, allowing Medicare to negotiate drug prices would not lead to any additional savings.

That said, Democrats this year have introduced legislation with a “stick” designed to force drug companies to the “negotiating” table. Rep. Lloyd Doggett (D-Texas) introduced a bill (H.R. 1046) requiring federal officials to license the patents of companies that refuse to “negotiate” with Medicare.

While threatening to confiscate their patents might allow federal bureaucrats to coerce additional price concessions from drug companies, and thus scorable budgetary savings, the provisions of the Doggett bill bring their own procedural problems. Patents lie within the scope of the House and Senate Judiciary Committees, not the committees with jurisdiction over health care issues (Senate Finance, House Ways and Means, and House Energy and Commerce).

While Doggett tried to draft his bill to avoid touching those committees’ jurisdiction, he did not, and likely could not, avoid it entirely. For instance, language on lines 4-7 of page six of the Doggett bill allows drug companies whose patents get licensed to “seek recovery against the United States in the…Court of Federal Claims”—a clear reference to matter within the jurisdiction of the Judiciary Committees. If Democrats include this provision in a reconciliation bill, the parliamentarian almost certainly advise that this provision exceeds the scope of the health care committees, which could kill the reconciliation bill entirely.

But if Democrats don’t include a provision allowing drug manufacturers whose patents get licensed the opportunity to receive fair compensation, the drug companies would likely challenge the bill’s constitutionality. They would claim the drug “negotiation” language violates the Fifth Amendment’s prohibition on “takings,” and omitting the language to let them apply for just compensation in court would give them a much more compelling case. Therein lies the “darned if you do, darned if you don’t” dilemma reconciliation often presents: including provisions could kill the entire legislation, but excluding them could make portions of the legislation unworkable.

Remember: Republicans had to take stricter verification provisions out of their “repeal-and-replace” legislation in March 2017—as I had predicted—due to the “Byrd rule.” (The provisions went outside the scope of the committees of jurisdiction, and touched on Title II of the Social Security Act—both verboten under budget reconciliation.)

If Republicans had to give up on provisions designed to ensure illegal immigrants couldn’t receive taxpayer-funded insurance subsidies due to Senate procedure, Democrats similarly will have to give up provisions they care about should they use budget reconciliation for health care. While it’s premature to speculate, I wouldn’t count myself surprised if they have to give up on drug “negotiation” entirely.

1994 Redux?

Klein’s claims of a “consensus” aside, Democrats could face a reprise of their debacle in 1993-94—or, frankly, of Republicans’ efforts in 2017. During both health care debates, a lack of agreement among the majority party in Congress—single payer versus “managed competition” in 1993-94, and “repeal versus replace” in 2017—meant that each majority party ended up spinning its wheels.

To achieve “consensus” on health care, the left hand of the Democratic Party must banish the far-left hand. But even Democrats have admitted that the rhetoric in the presidential debates is having the opposite effect—which makes Klein’s talk of success in 2021 wishful thinking more than a realistic prediction.

This post was originally published at The Federalist.

What Jon Stewart’s Rant Ignored about Congress

Congress ended up in some hot water recently—and for once, lawmakers did little to cause the trouble. At a House Judiciary Subcommittee on the Constitution hearing on legislation to reauthorize the 9/11 Victim Compensation Fund, television personality and hearing witness Jon Stewart went on a rant.

Noting many empty spaces on the committee dais, Stewart said, “You should be ashamed of yourselves for those that aren’t here, but you won’t be, because accountability doesn’t appear to be something that occurs in this chamber.” Noting that lawmakers tweeted about never forgetting the heroes of 9/11 on that sad anniversary, he accused them of “callous indifference and rank hypocrisy.”

1. The Hearing Wasn’t Really Empty

As a reporter pointed out on Twitter, most subcommittee members did attend the hearing. But because the hearing took place in the full committee hearing room—that has a dais where all the members of the full committee can sit—the space looked empty.

Holding a hearing in a bigger room than was actually required doesn’t represent “callous indifference and rank hypocrisy” so much as Congress not prioritizing the “production values” Stewart might find on a typical television or film set.

2. The Bill Ended Up Passing Anyway

3. Members of Congress Juggle Lots of Priorities

Because I’ve worked in both the House and Senate, I would use many words to describe the average member of Congress, but “lazy” and “indifferent” don’t often come to mind. Members sit on multiple committees, and multiple subcommittees within those committees. They often have to hop back and forth between hearings, and between the various congressional office buildings, to monitor witness testimony and ask questions.

On top of as many as half a dozen committee hearings and markups in a typical legislative workweek, members of Congress also have to juggle votes and speeches on the House and Senate floor, meetings with constituents, time with their staff to manage the office and discuss priorities, and—yes—raise funds for their re-election.

It might seem callous for a member to take the “drive-by” approach to a hearing—show up, ask questions, then leave—but frankly, most members of Congress don’t have time in their schedules to spend hours listening to witnesses speak at a hearing.

4. Most Congressional Hearings Are Boring

Take, for instance, Wednesday’s hearing on single-payer health care. The Hill called the hearing “mostly partisan and light on substance, with Members using their allotted time to rail for or against the proposal instead of questioning the panel of health care experts and advocates at the witness table.”

I watched much of the four-hour affair, and the publication delivered a spot-on description. Most members used their five minutes for “questions” to give a four-minute speech, followed by a softball inquiry or two to a friendly witness: “Don’t you agree with my point?” I spent the last two hours wondering how many more lawmakers had yet to ask their “questions,” so the hearing could mercifully conclude.

As I noted recently, most members of Congress don’t ask particularly sharp or hard-hitting questions—and in many cases, don’t ask questions at all. I could do with far fewer hearings myself, or at least proceedings that replace the oral element with written testimony. But congressional committees hold hearings to signal their priorities, and establish a written record for future legislative action. I wouldn’t call congressional hearings entirely theatrical in nature, but they do have a strong theatrical element.

5. The Alternatives Are Far Worse

The first would disappoint many issues, causes, and organizations, who want congressional committees to take time to spotlight “their” issue. It would make Congress a less diverse institution, with a smaller bandwidth to examine the many national and international issues worthy of attention from policy-makers.

It would also subject Congress to the equivalent of a “heckler’s veto,” whereby the few hearings committees did hold would focus on issues with celebrity supporters—to prevent rants like Stewart’s from putting Congress in a bad light—rather than unheralded topics that might warrant greater attention.

As to the second, some numbers might put the issue in perspective. The Constitution originally suggested that every member of Congress would represent 30,000 constituents. At that rate, and given a population of around 330 million, the House of Representatives would currently have 11,000 members—more than 25 times its current size.

Such an enormous legislative body would not just become unwieldy, it would raise federal spending. According to the Republican Study Committee, the House of Representatives has proposed $3.97 billion in spending on its operations over the next fiscal year. If an increase in the size of the House led to a proportional increase in spending, expansion to the size originally contemplated by the Constitution would result in roughly $100 billion in spending on members of Congress and their staffs—a figure the public would likely find unacceptable.

Congress has many faults worth addressing and reforming. But Stewart’s comments notwithstanding, compelling greater lawmaker attendance at hearings does not rank high on that list.

This post was originally published at The Federalist.

Who Really Proposed the Obamacare Bailout in the Trump Budget?

Maybe it was Colonel Mustard in the conservatory with the revolver. Or Professor Plum in the library with the candlestick.

The story behind the Obamacare bailout proposed in last week’s budget has taken on a mysterious tone, akin to a game of Clue. My Thursday story focusing on the role played by White House Domestic Policy Council Chair Andrew Bremberg prompted pushback from some quarters about the actual perpetrator of the proposal. As a result, I spent a good chunk of Friday afternoon trying to gather more facts—and found definitive ones hard to come by.

As to the accuracy of my initial theory, people I trust and respect arrived at strikingly different views. However, I found surprising unanimity on one count: No one—but no one—wants to take credit for inserting the proposal to pay $11.5 billion in risk corridor claims. As someone told me: “You raise a valid question. If Andrew Bremberg didn’t insert the proposal into the budget”—and this person didn’t think he did—“then how did it get in there?”

Therein lies a huge problem. To call the inclusion of a $11.5 billion proposal in the president’s budget that no one in the administration seemed to know about, or wants to take credit for, a prime example of managerial incompetence would put it mildly. Either career staff inserted it in the budget, and the political staff did not have the antennae or bandwidth to understand its consequences and take it out, or a few political appointees and career staff hijacked the budget process, with most other individuals unaware of the situation until the budget’s public release.

To borrow a politically loaded phrase, someone—or a group of someones—colluded to get this language included in the budget. Its inclusion could cost federal taxpayers literally billions of dollars.

Why It Matters

By submitting a budget proposal to “request mandatory appropriations for the risk corridors program,” the White House completely undermined and undercut the arguments its own Justice Department had made in court a few short weeks ago, that the federal government owes insurers nothing.

In other words, whomever inserted this policy U-turn into the budget, just as the judges ponder a ruling in the insurer lawsuits, may have effectively “tanked” the government’s case. Either by leading to an adverse ruling, or by prompting the Justice Department to settle the case at a much higher cost, this move could cost taxpayers billions.

A Pro-Life Administration, Or Not?

Unfortunately, it gets worse. While the budget did include new funds for insurers, including the controversial risk corridors bailout described above, it did not include a single word proposing that such funds prevent taxpayer dollars from going to plans that cover abortion.

There’s a reason for the deafening silence: Republicans know that any legislation that funds insurers and provides robust pro-life protections will not pass. Democrats will object to its inclusion. Given the choice between passing up on an Obamacare bailout or abandoning their pro-life principles, Republicans have given every expectation that they will choose the latter course. (They shouldn’t bail out Obamacare regardless, but that’s a separate story.)

Regardless of who proposed these, it doesn’t take a detective to understand how a policy reversal that could cost taxpayers billions and a pending U-turn by Republicans to fund abortion coverage represent a major one-two punch against conservatives. But the mysterious origins and mangled management of the risk corridor proposal adds a further layer of insult to injury, a triple whammy of a tough week for the administration.

This post was originally published at The Federalist.

The Implications of Trump and Schumer’s Argument over Cost-Sharing Reduction Payments

Leaders in both parties engaged in rhetorical bluster over the weekend regarding Obamacare’s cost-sharing reductions. Those payments to insurers for lowering deductibles and co-payments—ruled unconstitutional by a federal district court judge last May—remain in political limbo, and a subject of no small controversy.

But the rhetorical exchanges yielded inconvenient truths, both for Democratic leaders demanding the Trump administration continue the payments, and for the president himself, who has threatened to stop them.

Schumer: If the Payments Are Constitutional, Trump Can’t Withhold Them

Schumer therefore implicitly admitted—as elsewhere—that the payments are not only illegal, but unconstitutional. Obamacare lacks an explicit appropriation for the cost-sharing reduction payments. That’s the reason Judge Rosemary Collyer ruled the Obama administration’s actions in making said payments unconstitutional last year. (The ruling is currently stayed pending appeals.)

As one summary of the case noted, Train v. City of New York established the principle that “the President cannot frustrate the will of Congress by killing a program through impoundment.” Yet Schumer, in asking the Trump administration to continue making payments to a program that Congress never funded in the first place, wants the executive unilaterally—and unconstitutionally—to frustrate the expressed will of the legislative branch, thereby diminishing Schumer’s own authority as a lawmaker.

It’s highly likely Schumer, a lawyer who spent several years serving on both the House and Senate judiciary committees, knows full well the nature of unconstitutional actions, begun by the last administration, that he wants the current one to continue. But if he wants to have any credibility on the rule of law—whether criticizing the Trump administration’s other “abuses,” or standing up for the independence of the Russia investigation—he would be wise to 1) admit that the Obama administration violated the Constitution in making the payments to begin with and 2) hold the last administration just as accountable as he wants to hold the current president.

Trump: Upholding the Constitution Is a Choice

But for the president, as for Schumer, the question of the cost-sharing reduction payments should come down to a binary choice: Does a lawful appropriation for CSRs exist, or not? If a lawful appropriation exists, then the president must make the payments, consistent with Train v. City of New York outlined above. If a lawful appropriation does not exist, then the president must not make the payments, consistent with both Article 1, Section 9, Clause 7 of the Constitution—“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law”—his duty to “take Care that the laws be faithfully executed,” and his oath of office.

This conservative believes President Trump should have cancelled the CSR payments within days of taking office, not because it would have been popular—it likely would not have been—but because the rule of law demands it. Likewise, President Trump should have long since undone billions of dollars in reinsurance payments to insurers that the Government Accountability Office found illegal, and cancelled the “grandmothered” plans President Obama allowed some individuals to keep in 2014—violating his constitutional duty to “take Care that the laws be fully executed” in the process.

Making a clean break with the numerous legal and constitutional violations the Obama administration perpetrated to keep Obamacare afloat early in his administration would have demonstrated President Trump’s desire to escape the executive unilateralism of his predecessor.

Government of Laws, Or of Men?

That Barack Obama, a constitutional law professor, bequeathed such legal gamesmanship and a culture of inherently arbitrary actions to both parties stands as one element of his legacy. As the debate this weekend demonstrated, that legacy has affected—and infected—our constitutional discourse, and not for the better.

This post was originally published in The Federalist.

Testimony on Risk Corridors and the Judgment Fund

A PDF of this testimony is available at the House Judiciary Committee website.

Testimony before the House Judiciary

Subcommittee on the Constitution and Civil Justice

 

Hearing on “Oversight of the Judgment Fund”

March 2, 2017

 

Chairman King, Ranking Member Cohen, and Members of the Subcommittee:

Good morning, and thank you for inviting me to testify. My name is Chris Jacobs, and I am the Founder of Juniper Research Group, a policy and research consulting firm based in Washington. Much of my firm’s work focuses on health care policy, a field in which I have worked for over a decade—including more than six years on Capitol Hill. Given my background and work in health care, I have been asked to testify on the use of the Judgment Fund as it pertains to one particular area: Namely, the ongoing litigation regarding risk corridor payments to insurers under Section 1342 of the Patient Protection and Affordable Care Act (PPACA).

The risk corridor lawsuits provide a good example of a problematic use of the Judgment Fund, and not just due to the sums involved—literally billions of dollars in taxpayer funds are at issue. Any judgments paid out to insurers via the Judgment Fund would undermine the appropriations authority of Congress, in two respects. First, Congress never explicitly appropriated funds to the risk corridor program—either in PPACA or any other statute. Second, once the Obama Administration sent signals indicating a potential desire to use taxpayer dollars to fund risk corridors, notwithstanding the lack of an explicit appropriation, Congress went further, and enacted an express prohibition on such taxpayer funding. Utilizing the Judgment Fund to appropriate through the back door what Congress prohibited through the front door would represent an encroachment by the judiciary and executive on Congress’ foremost legislative power—the “power of the purse.”

Though past precedents and opinions by the Congressional Research Service, Government Accountability Office, and Justice Department Office of Legal Counsel should provide ample justification for the Court of Appeals for the Federal Circuit to deny the risk corridor claims made by insurers when it considers pending appeals of their cases, Congress can take additional action to clarify its prerogatives in this sphere. Specifically, Congress could act to clarify in the risk corridor case, and in any other similar case, that it has “otherwise provided for” funding within the meaning of the Judgment Fund when it has limited or restricted expenditures of funds.

 

Background on Risk Corridors

PPACA created risk corridors as one of three programs (the others being reinsurance and risk adjustment) designed to stabilize insurance markets in conjunction with the law’s major changes to the individual marketplace.  Section 1342 of the law established risk corridors for three years—calendar years 2014, 2015, and 2016. It further prescribed that insurers suffering losses during those years would have a portion of those losses reimbursed, while insurers achieving financial gains during those years would cede a portion of those profits.[1]

Notably, however, the statute did not provide an explicit appropriation for the risk corridor program—either in Section 1342 or elsewhere. While the law directs the Secretary of Health and Human Services (HHS) to establish a risk corridor program,[2] and make payments to insurers,[3] it does not provide a source for those payments.

 

History of Risk Corridor Appropriations

The lack of an explicit appropriation for risk corridors was not an unintentional oversight by Congress. The Senate Health, Education, Labor, and Pensions (HELP) Committee included an explicit appropriation for risk corridors in its health care legislation marked up in 2009.[4] Conversely, the Senate Finance Committee’s version of the legislation—the precursor to PPACA—included no appropriation for risk corridors.[5] When merging the HELP and Finance Committee bills, Senators relied upon the Finance Committee’s version of the risk corridor language—the version with no explicit appropriation.

Likewise, the Medicare Modernization Act’s risk corridor program for the Part D prescription drug benefit included an explicit appropriation from the Medicare Prescription Drug Account, an account created by the law as an offshoot of the Medicare Supplementary Medical Insurance Trust Fund.[6] While PPACA specifically states that its risk corridor program “shall be based on the program for regional participating provider organizations under” Medicare Part D, unlike that program, it does not include an appropriation for its operations.[7]

As the Exchanges began operations in 2014, Congress, noting the lack of an express appropriation for risk corridors in PPACA, questioned the source of the statutory authority for HHS to spend money on the program. On February 7, 2014, then-House Energy and Commerce Committee Chairman Fred Upton (R-MI) and then-Senate Budget Committee Ranking Member Jeff Sessions (R-AL) wrote to Comptroller General Gene Dodaro requesting a legal opinion from the Government Accountability Office (GAO) about the availability of an appropriation for the risk corridors program.[8]

In response to inquiries from GAO, HHS replied with a letter stating the Department’s opinion that, while risk corridors did not receive an explicit appropriation in PPACA, the statute requires the Department to establish, manage, and make payments to insurers as part of the risk corridor program. Because risk corridors provide special benefits to insurers by stabilizing the marketplace, HHS argued, risk corridor payments amount to user fees, and the Department could utilize an existing appropriation—the Centers for Medicare and Medicaid Services’ (CMS) Program Management account—to make payments.[9] GAO ultimately accepted the Department’s reasoning, stating the Department had appropriation authority under the existing appropriation for the CMS Program Management account to spend user fees.[10]

The GAO ruling came after Health and Human Services had sent a series of mixed messages regarding the implementation of the risk corridor program. In March 2013, the Department released a final rule noting that “the risk corridors program is not statutorily required to be budget neutral. Regardless of the balance of payments and receipts, HHS will remit payments as required under Section 1342 of” PPACA.[11] However, one year later, on March 11, 2014, HHS reversed its position, announcing the Department’s intent to implement the risk corridor program in a three-year, budget-neutral manner.[12]

Subsequent to the GAO ruling, and possibly in response to the varying statements from HHS, Congress enacted in December 2014 appropriations language prohibiting any transfers to the CMS Program Management account to fund shortfalls in the risk corridor program.[13] The explanatory statement of managers accompanying the legislation, noting the March 2014 statement by HHS pledging to implement risk corridors in a budget neutral manner, stated that Congress added the new statutory language “to prevent the CMS Program Management account from being used to support risk corridor payments.”[14] This language was again included in appropriations legislation in December 2015, and remains in effect today.[15]

 

Losses Lead to Lawsuits

The risk corridor program has incurred significant losses for 2014 and 2015. On October 1, 2015, CMS revealed that insurers paid $387 million into the program, but requested $2.87 billion. As a result of both these losses and the statutory prohibition on the use of additional taxpayer funds, insurers making claims for 2014 received only 12.6 cents on the dollar for their claims that year.[16]

Risk corridor losses continued into 2015. Last September, without disclosing specific dollar amounts, CMS revealed that “all 2015 benefit year collections [i.e., payments into the risk corridor program] will be used towards remaining 2014 benefit year risk corridors payments, and no funds will be available at this time for 2015 benefit year risk corridors payments.”[17]

In November, CMS revealed that risk corridor losses for 2015 increased when compared to 2014. Insurers requested a total of $5.9 billion from the program, while paying only $95 million into risk corridors—all of which went to pay some of the remaining 2014 claims.[18] To date risk corridors face a combined $8.3 billion shortfall for 2014 and 2015—approximately $2.4 billion in unpaid 2014 claims, plus the full $5.9 billion in unpaid 2015 claims. Once losses for 2016 are added in, total losses for the program’s three-year duration will very likely exceed $10 billion, and could exceed $15 billion.

Due to the risk corridor program losses, several insurers have filed suit in the Court of Federal Claims, seeking payment via the Judgment Fund of outstanding risk corridor claims they allege are owed. Thus far, two cases have proceeded to judgment. On November 10, 2016, Judge Charles Lettow dismissed all claims filed by Land of Lincoln Mutual Health Insurance Company, an insurance co-operative created by PPACA that shut down operations in July 2016.[19] Notably, Judge Lettow did not dismiss the case for lack of ripeness, but on the merits of the case themselves. He considered HHS’ decision to implement the program in a budget-neutral manner reasonable, using the tests in Chevron v. Natural Resources Defense Council, and concluded that neither an explicit nor implicit contract existed between HHS and Land of Lincoln.[20]

Conversely, on February 9, 2017, Judge Thomas Wheeler granted summary judgment in favor of Moda Health Plan, an Oregon health insurer, on its risk corridor claims.[21] Judge Wheeler held that PPACA “requires annual payments to insurers, and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments” under the law.[22] And, contra Judge Lettow, Judge Wheeler concluded that an implied contract existed between HHS and Moda, which also granted the insurer right to payment.[23]

 

Congress “Otherwise Provided For” Risk Corridor Claims

The question of whether or not insurers have a lawful claim on the United States government is separate and distinct from the question of whether or not the Judgment Fund can be utilized to pay those claims. CMS, on behalf of the Department of Health and Human Services, has made clear its views regarding the former question. In announcing its results for risk corridors for 2015, the agency stated that the unpaid balances for each year represented “an obligation of the United States Government for which full payment is required,” and that “HHS will explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments.”[24]

But because insurers seek risk corridor payments from the Judgment Fund, that fund’s permanent appropriation is available only in cases where payment is “not otherwise provided for” by Congress.[25] GAO, in its Principles of Federal Appropriations Law, describes such circumstances in detail:

Payment is otherwise provided for when another appropriation or fund is legally available to satisfy the judgment….Whether payment is otherwise provided for is a question of legal availability rather than actual funding status. In other words, if 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. The agency’s only recourse in this situation is to seek additional appropriations from Congress, as it would have to do in any other deficiency situation.[26]

In this circumstance, GAO ruled in September 2014 that payments from insurers for risk corridors represented “user fees” that could be retained in the CMS Program Management account, and spent from same using existing appropriation authority. However, the prohibition on transferring taxpayer dollars to supplement those user fees prevents CMS from spending any additional funds on risk corridor claims other than those paid into the program by insurers themselves.

Given the fact pattern in this case, the non-partisan Congressional Research Service concluded that the Judgment Fund may not be available to insurers:

Based on the existence of an appropriation for the risk corridor payments, it appears that Congress would have “otherwise provided for” any judgments awarding payments under that program to a plaintiff. As a result, the Judgment Fund would not appear to be available to pay for such judgments under current law. This would appear to be the case even if the amounts available in the “Program Management” account had been exhausted. In such a circumstance, it appears that any payment to satisfy a judgment secured by plaintiffs seeking recovery of damages owed under the risk corridors program would need to wait until such funds were made available by Congress.[27]

Because the appropriations power rightly lies with Congress, the Judgment Fund cannot supersede the legislature’s decision regarding a program’s funding, or lack of funding. Congress chose not to provide the risk corridor program with an explicit appropriation; it further chose explicitly to prohibit transfers of taxpayer funds into the program. To allow the Judgment Fund to pay insurers’ risk corridor claims would be to utilize an appropriation after Congress has explicitly declined to do so.

The Justice Department’s Office of Legal Counsel (OLC) has previously upheld the same principle that an agency’s inability to fund judgments does not automatically open the Judgment Fund up to claims:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.[28]

The OLC memo reinforces the opinions of both CRS and the GAO: The Judgment Fund is a payer of last resort, rather than a payer of first instance. Where Congress has provided another source of funding, the Judgment Fund should not be utilized to pay judgments or settlements. Congress’ directives in setting limits on appropriations to the risk corridor program make clear that it has “otherwise provided for” risk corridor claims—therefore, the Judgment Fund should not apply.

 

Judgment Fund Settlements

Even though past precedent suggests the Judgment Fund should not apply to the risk corridor cases, a position echoed by at least one judge’s ruling on the matter, the Obama Administration prior to leaving office showed a strong desire to settle insurer lawsuits seeking payment for risk corridor claims using Judgment Fund dollars. In its September 9, 2016 memo declaring risk corridor claims an obligation of the United States government, CMS also acknowledged the pending cases regarding risk corridors, and stated that “we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”[29] That language not only solicited insurers suing over risk corridors to seek settlements from the Administration, it also served as an open invitation for other insurers not currently suing the United States to do so—in the hope of achieving a settlement from the executive.

Contemporaneous press reports last fall indicated that the Obama Administration sought to use the Judgment Fund as the source of funding to pay out risk corridor claims. Specifically, the Washington Post reported advanced stages of negotiations regarding a settlement of over $2.5 billion—many times more than the $18 million in successful Judgment Fund claims made against HHS in the past decade—with over 175 insurers, paid using the Judgment Fund “to get around a recent congressional ban on the use of Health and Human Services money to pay the insurers.”[30]

When testifying before a House Energy and Commerce subcommittee hearing on September 14, 2016, then-CMS Acting Administrator Andy Slavitt declined to state the potential source of funds for the settlements his agency had referenced in the memo released the preceding week.[31] Subsequent to that hearing, Energy and Commerce requested additional documents and details from CMS regarding the matter; that request is still pending.[32]

Even prior to this past fall, the Obama Administration showed a strong inclination to accommodate insurer requests for additional taxpayer funds. A 2014 House Oversight and Government Reform Committee investigative report revealed significant lobbying by insurers regarding both PPACA’s risk corridors and reinsurance programs.[33] Specifically, contacts by insurance industry executives to White House Senior Advisor Valerie Jarrett during the spring of 2014 asking for more generous terms for the risk corridor program yielded changes to the program formula—raising the profit floor from three percent to five percent—in ways that increased payments to insurers, and obligations to the federal government.[34]

Regardless of the Administration’s desire to accommodate insurers, as evidenced by its prior behavior regarding risk corridors, past precedent indicates that the Judgment Fund should not be accessible to pay either claims or settlements regarding risk corridors. A prior OLC memo indicates that “the appropriate source of funds for a settled case is identical to the appropriate source of funds should a judgment in that case be entered against the government.”[35] If a judgment cannot come from the Judgment Fund—and CRS, in noting that Congress has “otherwise provided for” risk corridor claims, believes it cannot—then neither can a settlement come from the Fund.

Given these developments, in October 2016 the Office of the House Counsel, using authority previously granted by the House, moved to file an amicus curiae brief in one of the risk corridor cases, that filed by Health Republic.[36] The House filing, which made arguments on the merits of the case that the Justice Department had not raised, did so precisely to protect Congress’ institutional prerogative and appropriations power—a power Congress expressed first when failing to fund risk corridors in the first place, and a second, more emphatic time when imposing additional restrictions on taxpayer funding to risk corridors.[37] The House filing made clear its stake in the risk corridor dispute:

Allegedly in light of a non-existent ‘litigation risk,’ HHS recently took the extraordinary step of urging insurers to enter into settlement agreements with the United States in order to receive payment on their meritless claims. In other words, HHS is trying to force the U.S. Treasury to disburse billions of dollars of taxpayer funds to insurance companies, even though DOJ [Department of Justice] has convincingly demonstrated that HHS has no legal obligation (and no legal right) to pay these sums. The House strongly disagrees with this scheme to subvert Congressional intent by engineering a massive giveaway of taxpayer money.[38]

The amicus filing illustrates the way in which the executive can through settlements—or, for that matter, failing vigorously to defend a suit against the United States—undermine the intent of Congress by utilizing the Judgment Fund appropriation to finance payments the legislature has otherwise denied.

 

Conclusion

Both the statute and existing past precedent warrant the dismissal of the risk corridor claims by the Court of Appeals for the Federal Circuit. Congress spoke clearly on the issue of risk corridor funding twice: First when failing to provide an explicit appropriation in PPACA itself; and second when enacting an explicit prohibition on taxpayer funding. Opinions from Congressional Research Service, Government Accountability Office, and Office of Legal Counsel all support the belief that, in taking these actions, Congress has “otherwise provided for” risk corridor funding, therefore prohibiting the use of the Judgment Fund. It defies belief that, having explicitly prohibited the use of taxpayer dollars through one avenue (the CMS Program Management account), the federal government should pay billions of dollars in claims to insurers via the back door route of the Judgment Fund.

However, in the interests of good government, Congress may wish to clarify that, in both the risk corridor cases and any similar case, lawmakers enacting a limitation or restriction on the use of funds should constitute “otherwise provid[ing] for” that program as it relates to the Judgment Fund. Such legislation would codify current practice and precedent, and preserve Congress’ appropriations power by preventing the executive and/or the courts from awarding judgments or settlements using the Judgment Fund where Congress has clearly spoken.

Thank you for the opportunity to testify this morning. I look forward to your questions.

 

 

[1] Under the formulae established in Section 1342(b) of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), plans with profit margins between 3 percent and 8 percent pay half their profit margins between those two points into the risk corridor program, while plans with profit margins exceeding 8 percent pay in 2.5 percent of profits (half of their profits between 3 percent and 8 percent), plus 80 percent of any profit above 8 percent. Payments out to insurers work in the inverse manner—insurers with losses below 3 percent absorb the entire loss; those with losses of between 3 and 8 percent will have half their losses over 3 percent repaid; and those with losses exceeding 8 percent will receive 2.5 percent (half of their losses between 3 and 8 percent), plus 80 percent of all losses exceeding 8 percent. 42 U.S.C. 18062(b).

[2] Section 1342(a) of PPACA, 42 U.S.C. 18062(a).

[3] Section 1342(b) of PPACA, 42 U.S.C. 18062(b).

[4] Section 3106 of the Affordable Health Choices Act (S. 1679, 111th Congress), as reported by the Senate HELP Committee, established the Community Health Insurance Option. Section 3106(c)(1)(A) created a Health Benefit Plan Start-Up Fund “to provide loans for the initial operations of a Community Health Insurance Option.” Section 3106(c)(1)(B) appropriated “out of any moneys in the Treasury not otherwise appropriated an amount necessary as requested by the Secretary of Health and Human Services to,” among other things, “make payments under” the risk corridor program created in Section 3106(c)(3).

[5] Section 2214 of America’s Healthy Future Act (S. 1796, 111th Congress), as reported by the Senate Finance Committee, created a risk corridor program substantially similar to (except for date changes) that created in PPACA. Section 2214 did not include an appropriation for risk corridors.

[6] Section 101(a) of the Medicare Modernization Act (P.L. 108-173) created a program of risk corridors at Section 1860D—15(e) of the Social Security Act, 42 U.S.C. 1395w—115(e). Section 101(a) of the MMA also created a Medicare Prescription Drug Account within the Medicare Supplementary Medical Insurance Trust Fund at Section 1860D—16 of the Social Security Act, 42 U.S.C. 1395w—116. Section 1860D—16(c)(3) of the Social Security Act, 42 U.S.C. 1395w—116(c)(3), “authorized to be appropriated, out of any moneys of the Treasury not otherwise appropriated,” amounts necessary to fund the Account. Section 1860D—16(b)(1)(B), 42 U.S.C. 1395w—116(b)(1)(B), authorized the use of Account funds to make payments under Section 1860D—15, the section which established the Part D risk corridor program.

[7] Section 1342(a) of PPACA, 42 U.S.C. 18062(a).

[8] Letter from House Energy and Commerce Committee Chairman Fred Upton and Senate Budget Committee Ranking Member Jeff Sessions to Comptroller General Gene Dodaro, February 7, 2014.

[9] Letter from Department of Health and Human Services General Counsel William Schultz to Government Accountability Office Assistant General Counsel Julie Matta, May 20, 2014.

[10] Government Accountability Office legal decision B-325630, Department of Health and Human Services—Risk Corridor Program, September 30, 2014, http://www.gao.gov/assets/670/666299.pdf.

[11] Department of Health and Human Services, final rule on “Notice of Benefit and Payment Parameters for 2014,” Federal Register March 11, 2013, https://www.gpo.gov/fdsys/pkg/FR-2013-03-11/pdf/2013-04902.pdf, p. 15473.

[12] Department of Health and Human Services, final rule on “Notice of Benefit and Payment Parameters for 2015,” Federal Register March 11, 2014, https://www.gpo.gov/fdsys/pkg/FR-2014-03-11/pdf/2014-05052.pdf, p. 13829.

[13] Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235, Division G, Title II, Section 227.

[14] Explanatory Statement of Managers regarding Consolidated and Further Continuing Appropriations Act, 2015, Congressional Record December 11, 2014, p. H9838.

[15] Consolidated Appropriations Act, 2016, P.L. 114-113, Division H, Title II, Section 225.

[16] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Proration Rate for 2014,” October 1, 2015, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/RiskCorridorsPaymentProrationRatefor2014.pdf.

[17] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Payments for 2015,” September 9, 2016, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Risk-Corridors-for-2015-FINAL.PDF.

[18] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Payment and Charge Amounts for the 2015 Benefit Year,” https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-RC-Issuer-level-Report-11-18-16-FINAL-v2.pdf.

[19] Land of Lincoln Mutual Health Insurance Company v. United States, Court of Federal Claims No. 16-744C, ruling of Judge Charles Lettow, November 10, 2016, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0744-47-0.

[20] Ibid.

[21] Moda Health Plan v. United States, Court of Federal Claims No. 16-649C, ruling of Judge Thomas Wheeler, February 9, 2017, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0649-23-0.

[22] Ibid., p. 2.

[23] Ibid., pp. 34-39.

[24] CMS, “Risk Corridors Payments for 2015.”

[25] 31 U.S.C. 1304(a)(1).

[26] Government Accountability Office, 3 Principles of Federal Appropriations Law 14-39, http://www.gao.gov/assets/210/203470.pdf.

[27] Congressional Research Service, memo to Sen. Marco Rubio on the risk corridor program, January 5, 2016, http://www.rubio.senate.gov/public/_cache/files/1dc92ef8-c340-4cfd-95c0-67369a557f1e/2AA5EF8F125279800BFABC8B8BA37072.05.24.2016-crs-rubio-memo-risk-corridors-1-5-16-1-redacted.pdf.

[28] Justice Department Office of Legal Counsel, “Appropriate Source for Payment of Judgment and Settlements in United States v. Winstar Corp.,” July 22, 1998, Opinions of the Office of Legal Counsel in Volume 22, https://www.justice.gov/sites/default/files/olc/opinions/1998/07/31/op-olc-v022-p0141.pdf, p. 153.

[29] CMS, “Risk Corridors Payments for 2015.”

[30] Amy Goldstein, “Obama Administration May Use Obscure Fund to Pay Billions to ACA Insurers,” Washington Post September 29, 2016, https://www.washingtonpost.com/national/health-science/obama-administration-may-use-obscure-fund-to-pay-billions-to-aca-insurers/2016/09/29/64a22ea4-81bc-11e6-b002-307601806392_story.html?utm_term=.361888177f81.

[31] Testimony of CMS Acting Administrator Andy Slavitt before House Energy and Commerce Health Subcommittee Hearing on “The Affordable Care Act on Shaky Ground: Outlook and Oversight,” September 14, 2016, http://docs.house.gov/meetings/IF/IF02/20160914/105306/HHRG-114-IF02-Transcript-20160914.pdf, pp. 84-89.

[32] Letter from House Energy and Commerce Committee Chairman Fred Upton et al. to Health and Human Services Secretary Sylvia Burwell regarding risk corridor settlements, September 20, 2016, https://energycommerce.house.gov/news-center/letters/letter-hhs-regarding-risk-corridors-program.

[33] House Oversight and Government Reform Committee, staff report on “Obamacare’s Taxpayer Bailout of Health Insurers and the White House’s Involvement to Increase Bailout Size,” July 28, 2014, http://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf.

[34] Ibid., pp. 22-29.

[35] OLC, “Appropriate Source of Payment,” p. 141.

[36] H.Res. 676 of the 113th Congress gave the Speaker the authority “to initiate or intervene in one or more civil actions on behalf of the House…regarding the failure of the President, the head of any department or agency, or any other officer or employee of the executive branch, to act in a manner consistent with that official’s duties under the Constitution and the laws of the United States with respect to implementation of any provision of” PPACA. Section 2(f)(2)(C) of H.Res. 5, the opening day rules package for the 114th Congress, extended this authority for the duration of the 114th Congress.

[37] Motion for Leave to File Amicus Curiae on behalf of the United States House of Representatives, Health Republic Insurance Company v. United States, October 14, 2016, http://www.speaker.gov/sites/speaker.house.gov/files/documents/2016.10.13%20-%20Motion%20-%20Amicus%20Brief.pdf?Source=GovD.

[38] Ibid., p. 2.

Legislative Bulletin: H.R. 7174, James Zadroga 9/11 Health and Compensation Act

Order of Business:  Reports indicate the bill is expected to be considered on Sunday, September 28, under floor procedures that have yet to be determined.

Summary:  H.R. 7174 would amend the Public Health Service Act to establish new federal entitlement programs for 9/11 workers related to health monitoring and treatments, and expand eligibility for the 9/11 victim compensation fund.  Specific details of the legislation include the following:

World Trade Center Health Program:  The bill would establish within the National Institute for Occupational Safety and Health (NIOSH) a new program to provide medical monitoring, screening, and treatment to workers (including federal employees) who responded to the 9/11 attacks on the World Trade Center (WTC), and residents of New York City “who were directly impacted and adversely affected by such attacks.”  The program is intended to provide:

  • Medical monitoring for those exposed to airborne toxins or other hazards;
  • Screening for community members;
  • Treatment for “all medically necessary health and mental health care expenses (including necessary prescription drugs;)”
  • Outreach to potentially eligible individuals to inform them of benefits available;
  • Uniform data collection and monitoring; and
  • Research on health conditions arising from the World Trade Center attacks.

Specific details of the program include:

Payments:  H.R. 7174 provides that all health benefits provided under the program will be provided “without any deductibles, co-payments, or other cost-sharing.”  In cases where a worker is eligible for workman’s compensation, or holds other public or private health insurance coverage, the bill provides that the federal government’s WTC program shall serve as a secondary payer for such claims, similar to the Medicare Secondary Payer program for Medicare beneficiaries with end-stage renal disease.  The bill provides for the creation of quality control and anti-fraud elements within the new program, and incorporates existing anti-fraud penalties to the WTC program.

Advisory and Steering Committees:  The bill creates a scientific and technical advisory committee to provide expertise on eligibility criteria and WTC-related health conditions, and two steering committees—one for WTC responders, the other for community members—to co-ordinate the screening and treatment of eligible members.

Outreach:  The bill includes language requiring the Program Administrator—either the NIOSH Director or his designee—to establish a website, create partnerships with local agencies, and take other measures necessary to inform potentially eligible beneficiaries of the existence of the WTC program.

Centers of Excellence:  The bill directs the Administrator to enter into contracts with “Clinical Centers of Excellence” with respect to monitoring, treating, and counseling individuals related to WTC-related health conditions, and separate contracts with “Co-Ordinating Centers of Excellence” with respect to analyzing and reporting on relevant data and medical protocols.  The bill names the Clinical Centers of Excellence:

  • New York City Fire Department;
  • Mount Sinai co-ordinated consortium;
  • Queens College;
  • State University of New York at Stony Brook;
  • University of Medicine and Dentistry of New Jersey;
  • Bellevue Hospital; and
  • Other hospitals identified by the Administrator.

The bill designates the New York Fire Department, the Mount Sinai co-ordinated consortium, and Bellevue Hospital as Co-ordinating Centers of Excellence.

H.R. 7174 would reimburse Clinical Centers of Excellence $600 annually per eligible participant in the treatment program, and an additional $300 annually per eligible participant in the monitoring program—amounts subject to an inflation index reflecting increases in medical costs in future years.  The bill provides that the payments will be made “regardless of the volume or cost of services required.”  The bill permits the Administrator to authorize payment levels for Co-ordinating Centers of Excellence, and requires a review and GAO study on payment levels within five years.

Eligibility for Responders Entitlement:  H.R. 7174 includes several categories of 9/11-related responders eligible for the new federal health care entitlement.  The bill would expand eligibility for the new entitlement to persons who “performed rescue, recovery, demolition, debris cleanup, or other related services in the New York City disaster area” and meet certain criteria with respect to airborne toxins.  H.R. 7174 also specifies categories of currently eligible individuals in line to receive the new health care entitlement, including:

  • New York City Fire Department employees who “participated at least one day in the rescue and recovery effort at any of the former World Trade sites (including Ground Zero, Staten Island landfill, and the New York City Chief Medical Examiner’s office” at any point between September 11, 2001 and July 31, 2002;
  • Surviving immediate family members of New York City firefighters killed on September 11 at the World Trade Center who received mental health treatment related to their loss—but such individuals are only subject to the new entitlement with respect to mental health treatments;
  • Participants in the WTC cleanup efforts in Lower Manhattan, the Staten Island landfill, or the barge loading piers who worked:
    • At least 4 hours between September 11 and September 14, 2001;
    • At least 24 hours between September 11 and September 30, 2001; or
    • At least 80 hours between September 11, 2001, and July 31, 2002;
  • Workers in the New York City Medical Examiner’s office;
  • Workers in the Port Authority Trans-Hudson Corporation tunnel who worked at least 24 hours between February 1, 2002, and July 1, 2002; and
  • Vehicle maintenance workers exposed to debris “while maintaining vehicles contaminated by airborne toxins” related to the WTC attacks during the time periods outlined above.

The bill includes provisions for an application process lasting no more than 60 days, and an appeal to an administrative law judge in cases where applications are initially denied.

The bill limits the number of beneficiaries to a maximum of 15,000 who at any time qualify for the program, but exempts from the numerical cap those beneficiaries receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.

H.R. 7174 also includes language providing that, in the event that the program’s expenditures are less than 90% of Congressional Budget Office projections as of December 1, 2011, and January 1, 2015, the Administrator may increase the number of eligible participants to meet the CBO expenditure estimates.

Conditions Eligible for Treatment:  The bill defines a WTC-related health condition as “an illness or health condition for which exposure to airborne toxins, any other hazard, or any other adverse condition resulting from the September 11, 2001 attacks on the World Trade Center…is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition,” or a mental health condition “substantially likely to be a significant factor in aggravating, contributing to, or causing the condition.”  The bill includes a list of aerodigestive (i.e. asthma and other pulmonary conditions), musculoskeletal, and mental health diseases (including post-traumatic stress disorder) that qualify for treatment.

H.R. 7174 also includes an application process to add additional illnesses subject to review by the Administrator and the Advisory Committees, and permits physicians at Clinical Centers of Excellence to receive federal payments for treatments for WTC-related diseases not yet identified as such under the provisions above, subject to a subsequent determination by the Administrator as to whether or not the condition will be added to the eligible list of diseases.

Standards for Treatment:  The bill limits treatments paid for by the federal government to medically necessary standards, including those that are “not primarily for the convenience of the patient or physician…and not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results.”

The bill provides for review by “a federal employee designated by the WTC Program Administrator” with respect to determinations of WTC-related health conditions, and includes provisions requiring an appeals process before an administrative law judge with respect to the Administrator’s certification of individuals’ claims for treatment, and a separate appeals process before a physician panel with respect to medical necessity determinations.

Payment Levels:  H.R. 7174 provides that payments to physicians and other medical providers shall generally be based upon reimbursement levels under the Federal Employees Compensation Act (FECA), which governs federal workman’s compensation claims.  The bill also includes language establishing a competitive bidding process among vendors to govern pharmaceutical purchases by eligible beneficiaries, and permits the Administrator to designate reimbursement rates for other services not referenced in the bill language.  The bill requires New York City and its public hospitals to contribute a 10% match in order to be eligible to receive payment for treatment services rendered.

Eligibility for Community Entitlement:  H.R. 7174 creates a separate entitlement for various segments of the community affected by the World Trade Center attacks.  Eligible groups of individuals include:

  • “A person who was present in the New York City disaster area in the dust or dust cloud on September 11, 2001;”
  • Individuals who “worked, resided, or attended school, child care, or adult day care in the New York City disaster area” for at least four days between September 11, 2001 and January 10, 2002—or at least 30 days between September 11, 2001 and July 31, 2002;
  • “Any person who worked as a clean-up worker or performed maintenance work in the New York City disaster area” between September 11, 2001 and January 10, 2002 “and had extensive exposure to WTC dust as a result of such work;”
  • Individuals residing or having a place of employment in the New York City disaster area between September 11, 2001 and May 31, 2003, and deemed eligible to receive grants from the Lower Manhattan Development Corporation; and
  • Any individuals receiving treatment at the World Trade Center Environmental Health Center as of the date of the bill’s enactment.

The bill includes an application and certification process for community beneficiaries similar to that for responder beneficiaries discussed above.  The bill limits the number of beneficiaries to a maximum of 15,000 who at any time qualify for the program, but exempts from the numerical cap those beneficiaries receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.  As a result, CBO estimates that, between the community entitlement and the responder entitlement discussed above, about 80,000 people would receive these new WTC-related entitlements to obtain benefits for respiratory and mental health treatments, increasing mandatory spending by $4.6 billion over ten years.

Beneficiaries under the community-based entitlement would generally receive the same benefits and treatments as the WTC responders, except that the community-based entitlement does not include musculoskeletal disorders in the list of identified health conditions (although some or all of these could be added under the process described above).

Treatment for Other Individuals:  H.R. 7174 establishes an additional capped entitlement fund to finance care for “WTC community members”—i.e. those living in the New York disaster area at the time of the September 11 attacks, but not meeting the criteria listed above—diagnosed with an identified WTC-related health condition.  The bill caps such entitlement spending at $20 million in Fiscal Year 2009, rising annually according to medical inflation rates.

Care Outside New York:  The bill would require the Administrator to “establish a nationwide network of health care providers” to treat eligible recipients outside the New York City metropolitan area, subject to certain reporting and quality requirements.

Research:  The bill would require the WTC Administrator to establish an epidemiological research program on health conditions arising from the World Trade Center attacks.  The program would cover diagnosis and treatment of WTC-related health conditions among responders and in sample populations from Lower Manhattan and Brooklyn, “to identify potential for long-term adverse health effects in less exposed populations.”  H.R. 7174 authorizes $15 million annually for such research.  In addition, the bill authorizes $7 million annually for New York City to maintain a WTC Health Registry, as well as $8.5 million for grants to the New York Department of Mental Health and Mental Hygiene for WTC-related mental health treatment.

Changes to September 11 Compensation Fund:  In addition to establishing the new NIOSH program, H.R. 7174 would also make several changes to the September 11 victim compensation fund established in 2001 (Title IV of P.L. 107-42), as listed below.

Extension for Applications:  H.R. 7174 would reopen applications to the September 11 compensation fund in cases where the Special Master for the compensation fund determines that the individual became aware of physical injuries suffered as a result of the September 11 attacks after applications to the compensation fund were closed.  The bill would generally reopen applications for the reasons stated above (and for individuals subject to the expanded eligibility provisions noted below) for two years after the individual became aware of such injuries, provided the individual seeks treatment in a prompt manner and the claim can be verified.  Additional claims applications under this extension would be accepted through December 22, 2031.

Expansion of Eligibility Definitions:  The bill would modify the definition of eligibility for compensation to define the “immediate aftermath” of the September 11 attacks as including time through August 30, 2002.  The bill would also expand eligibility to include workers handling debris from the World Trade Center, including “any area contiguous to a site of [the 9/11] crashes that the Special Master determines was sufficiently close to the site that there was a demonstrable risk of physical harm” and “any area related to, or along, routes of debris removal,” including (but not limited to) the Fresh Kills landfill in Staten Island.  The Congressional Budget Office notes that the provisions in the bill “would significantly increase the number of individuals who could seek compensation from the fund,” resulting in an estimated 18,000 additional individuals receiving federal compensation benefits averaging $350,000 each—increasing mandatory spending by nearly $6.4 billion over ten years.  According to Justice Department statistics, this figure would represent a nearly seven-fold increase from the 2,852 personal injury claims originally filed during the 2001-03 period. (See “Additional Background” below.)

Applicability to Pending Lawsuits:  H.R. 7174 would require debris workers or other individuals with pending legal claims relating to 9/11-related injuries, and wishing to seek compensation from the victim compensation fund, to withdraw those legal actions within 90 days after updated regulations regarding the fund application extension are promulgated.  The bill would permit individuals whose applications are denied by the Special Master subsequently to reinstitute their legal claims without prejudice within 90 days of the ineligibility determination—a right not granted to fund applications during the original 2001-03 application period.

Limited Liability:  H.R. 7174 limits the liability for construction and related contractors regarding workers’ claims to the sum of the funds available in the WTC Captive Insurance Company, an amount not exceeding $350 million from New York City, and the amount of all available insurance held by the Port Authority of New York and New Jersey and the relevant contractors and sub-contractors.  According to the Republican staff of the Judiciary Committee, this amount would total approximately $2 billion in funds available to pay legal claims.

Tax Increases:  H.R. 7174 includes several tax provisions designed to pay for the entitlement created in the bill, including

Economic Substance Doctrine:  The bill codifies the “economic substance doctrine” used in certain court decisions, which prohibits businesses from making certain free-market business decisions (and from taking the related tax benefits) based solely on tax-lowering motives.  The bill would also impose a 20% penalty on understatements attributable to a transaction lacking economic substance (40% in cases where certain facts are not disclosed).  In other words, under this provision, companies could be assessed tax penalties for engaging in business transactions aimed primarily at lowering their tax bills beginning on the date of this bill’s enactment.

Increased Taxes on Domestic Subsidiaries of Multinational Corporations:  H.R. 7174 denies certain U.S. subsidiaries of multinational companies the benefits of tax treaties in certain circumstances.  When a U.S. subsidiary of a foreign-owned company makes certain tax-deductible payments (like interest, rents, and royalties) to a related party located in another country, the U.S. imposes a tax on those payments.  The default rate is 30%, but this rate can be reduced, sometimes down to 0%, by tax treaties.  The U.S. has 58 tax treaties with 66 different countries.  This bill would deny the U.S. subsidiary the benefits of the negotiated treaty rate when those tax-deductible payments are made by the subsidiary to a related foreign company, if the ultimate parent of the multinational company is based in a country that does not have a tax treaty with the U.S.

Corporate Estimated Tax Timing Gimmick.  This provision would increase the estimated tax payments that certain corporations must remit to the federal government.  Under current law, corporations with assets of at least $1 billion must make equally divided estimated tax payments for each quarter.  This legislation would increase the payment due for the third quarter of calendar-year 2013 by 5 percentage points.  (If each regular quarterly payment is 100% of what is owed, this additional payment would be 105% of what would otherwise be owed.)  The payment due for the fourth quarter of calendar-year 2013 (i.e. the 1st quarter of fiscal-year 2014) would be reduced accordingly so that the corporations pay no net increase in estimated payments in calendar-year 2013.  This provision is merely a revenue timing shift, a gimmick used to comply with the House’s PAYGO rules, yet would have real-world implications, as it forces certain companies to pay more of their tax payments earlier.  Given the time value of money, there’s little doubt that requiring bigger, earlier payments would harm the bottom lines of qualified corporations.

Additional Background on 9/11 Compensation Fund:  As noted above, Title IV of Public Law 107-42 authorized payments by the federal government to individuals injured or killed as a result of the September 11 attacks; eligible individuals (victims injured and families of individuals killed in the attacks) received $7 billion in payments before the fund closed in 2004.  Justice Department statistics note that during its operation, the fund issued award letters to 5,562 families whose relatives were killed in the September 11 attacks, and to 2,682 claimants suffering personal injuries as a result of the attacks.

While the process created under the law, and administered by Special Master Kenneth Feinberg, was praised by many victims’ families, Members of Congress, and outside experts as fair and judicious, proponents of H.R. 7174 assert that first responders who worked at the World Trade Center site have incurred respiratory and other injuries as a result of the toxins inhaled at Ground Zero—but that these conditions only became manifest after the application period provided for in P.L. 107-42 expired.  Title II of H.R. 7174 would therefore seek to reopen the compensation fund to allow these workers, and other individuals, to make claims for compensation.

However, asked by Judiciary Committee Republican staff to comment on a proposed draft of Title II, former Special Master Feinberg responded with an e-mail noting several concerns with the approach taken by the bill sponsors and the majority.  These concerns included:

  • An extension of the eligibility definition of “immediate aftermath” from the first four days following September 11 (as prescribed in regulations creating the compensation fund) to August 30, 2002— which could result in “a huge influx of additional claims” and could cause some individuals to re-apply for compensation;
  • Language that “vastly extends [the fund’s] geographic scope,” potentially leading to “thousands and thousands of additional claimants” and causing additional individuals to re-apply for compensation;
  • An extension of the filing period until 2031—“no latent claims need such an extended date;”
  • Provisions requiring the Special Master to determine when an individual first knew or should have known about their injuries—“how can the Special Master possibly make that determination?” and
  • Language permitting individuals denied eligibility for compensation to return to the tort system and re-file their claims—a right which was specifically denied as a pre-condition for initial applicants of the 9/11 fund, but which some who were denied compensation by the Special Master may now attempt to exercise.

Republican Committee staff notes that, to the extent the 9/11 compensation fund is re-opened at all, Mr. Feinberg recommends that it be done solely to allow first responders with diseases not manifest at the time of the initial application period to receive compensation—language that would be much narrower in scope than the provisions discussed above.  Particularly given that payments made pursuant to the 9/11 compensation fund constitute mandatory spending, conservatives may agree with the former Special Master that any potential changes considered by Congress should be narrow in scope and designed to ensure that first responders receive reasonable compensation in a manner that uses federal taxpayer dollars prudently.

Committee Action:  H.R. 7174 was introduced on July 24, 2008 and referred to the Committees on Energy and Commerce, Judiciary, and the Budget, none of which took official action.

Possible Conservative Concerns:  Several aspects of H.R. 7174 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Tax Increase.  In order to pay for the more than $10 billion cost of this new federal entitlement, H.R. 7174 would codify the economic substance doctrine, under which companies could be assessed tax penalties for engaging in legitimate business transactions aimed primarily at lowering their tax bills.  Some conservatives may therefore be concerned that this provision, and other tax hikes in H.R. 7174, would increase taxes on Americans in order to pay for new federal entitlement spending.
  • Creates Multiple New Federal Entitlements.  H.R. 7174 would establish several new federal entitlement programs to provide health benefits to 80,000 people according to the Congressional Budget Office, and re-open the 9/11 compensation fund to an additional 18,000 personal injury claims.  Some conservatives may be concerned that, with Congress contemplating a $700 billion bailout of the financial sector, now is not an appropriate time to be creating new mandatory spending programs.
  • Mandatory Spending Earmarks to New York Hospitals.  The bill establishes “Centers of Excellence” related to treatment of WTC-related conditions, and provides for payment of up to $900 annually per eligible beneficiary to certain named New York City hospitals and institutions as Clinical Centers of Excellence, “regardless of the volume or cost of services required.”  Some conservatives may be concerned first that this language constitutes a legislative earmark for mandatory spending, and second that the hospitals named could receive federal payments under this earmark without performing a single service for WTC victims.
  • No Restrictions on Trial Lawyers.  While H.R. 7174 does cap liability for legal claims arising from the September 11 cleanup at the sum of all available insurance funds, the bill does not include language placing restraints on attorney contingency fees or other legal expenses.  The bill also permits individuals who file personal injury claims with the 9/11 fund under the new criteria, yet have their applications denied, to reinstate their lawsuits without prejudice.  Some conservatives may be concerned that these provisions may lead to additional lawsuits and funds flowing to trial lawyers as opposed to 9/11 victims awarded compensation.
  • Overly Broad Eligibility Standards.  H.R. 7174 includes expansive definitions of eligibility for the entitlements under the bill, including individuals who worked or volunteered in the New York City Medical Examiner’s Office for as little as one day, or who were present along “routes of debris removal.”  Some conservatives may echo the concerns of former Special Master Kenneth Feinberg, who expressed unease at the implications of re-opening the 9/11 compensation fund to create what CBO estimates would be a nearly seven-fold increase in the number of personal injury awards when compared to the original 2001-03 application period.
  • Overly Generous Health Benefits.  H.R. 7174 explicitly states that all health care provided shall not include any form of cost-sharing for beneficiaries, and reimburses providers at rates established by the Federal Employee Compensation Act—which according to Administration sources pays providers at much higher rates than Medicare.  These provisions, coupled with the additional earmarked per capita payments to hospitals discussed above, may cause some conservatives concern that the bill lacks any meaningful cost-containment mechanisms for this new federal entitlement, which could encourage providers and patients alike to spend taxpayer money extravagantly.
  • Process.  This 120-page bill creating a new federal entitlement includes matter under the jurisdiction of at least four congressional committees—none of which has marked up the legislation.  Some conservatives may be concerned that these new federal entitlement programs deserve proper consideration under regular order—not a rushed proceeding as the House prepares to conclude its work for the year.

Administration Position:  A Statement of Administration Policy (SAP) on H.R. 7174 was not available at press time; however, reports indicate the White House has numerous concerns with the bill.

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 7174 would increase mandatory spending by just under $11 billion over ten years.  Title I provides a new entitlement to health benefits, and CBO estimates that about 80,000 people would receive this new WTC-related entitlement to obtain benefits for respiratory and mental health treatments.  CBO estimates that this entitlement would increase mandatory spending by $1.8 billion over five years, and $4.6 billion over ten years, net of a 10% payment by the City of New York and other recoupment from beneficiaries’ health insurance, workers compensation benefits, or other forms of third party payment.

Title II of H.R. 7174 would re-open and expand eligibility for the September 11 compensation fund, which paid out $7 billion in claims to victims before closing in 2004.  CBO notes that the provisions in the bill “would significantly increase the number of individuals who could seek compensation from the fund,” resulting in an estimated 18,000 additional individuals receiving federal compensation benefits averaging $350,000 each—13,000 emergency workers and 5,000 area residents.  CBO estimates this provision would cost $5.5 billion over five years, and nearly $6.4 billion over ten.

The bill’s new mandatory spending is paid for by tax increases—including the codification of the economic substance doctrine—as well as a timing shift budgetary gimmick with respect to estimated corporate tax payments, as explained above.

The bill also includes authorizations for discretionary spending, totaling $30.5 million annually “for each fiscal year.”

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would create two new health entitlement programs for 9/11 workers and community members, and expand eligibility for—and re-open applications to—the September 11 compensation fund, further increasing mandatory spending.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A committee report citing compliance with clause 9 of rule XXI was unavailable.

Constitutional Authority:  A committee report citing Constitutional authority was unavailable.

Legislative Bulletin: Motion to Recommit H.R. 1424, Paul Wellstone Mental Health and Addiction Equity Act

Summary of Motion:  The motion would recommit H.R. 1424, the Paul Wellstone Mental Health and Addiction Equity Act, back to the Energy and Commerce Committee with instructions that the committee report the bill back to the House floor forthwith (i.e. instantaneously) with the following amendment:

  • The amendment would replace the text of H.R. 1424 with the text of S. 558, the Mental Health Parity Act, sponsored by Sen. Pete Domenici (R-NM), which passed the Senate on September 18, 2007.  (See Additional Background below for a summary of the differences between the Senate and House legislation.)
  • The amendment would include language explicitly stating that group health plans will not be required to cover abortion services as a result of implementing mental health parity.  (See Additional Background below for concerns that mental health provisions may be used to justify further abortion-related coverage.)
  • The amended bill would be paid for by extending a web-based demonstration project requiring electronic verification of Medicaid eligibility.  This demonstration project began with respect to Supplemental Security Income (SSI) verification, and was extended to three states’ Medicaid programs by Congress in September 2007 (P.L. 110-90).  The amendment would extend the demonstration project to all 50 states, saving $4.3 billion over ten years, according to the Administration.
  • The amended bill would also be financed through a $600 million transfer from the Physician Assistance and Quality Initiative (PAQI) Fund in 2013, coupled with a $1 billion transfer to the PAQI fund in 2014.

Process:  This MTR moves to recommit the bill (with instructions) “forthwith.”  If passed, the forthwith directive would technically send the bill back to committee along with the MTR instructions, requiring the committee to immediately return the bill to the House along with the amendment.  In effect, the chairman of the committee would take the floor and immediately report the bill back to the House with the amendment instructions in the MTR.  The House would then vote on the amendment (in essence, a second vote on the MTR with instructions). If this passes, a vote on final passage – with the amendment included – would be before the House.

Additional Background on Mental Health and Abortion Coverage:  Some conservatives have raised concerns regarding the Paul Wellstone Mental Health and Addiction Equity Act (H.R. 1424).  The Supreme Court decision Doe v. Bolton lists mental health as a reason that abortion is allowed for health exceptions.  The House bill, as currently written, could be construed to mandate health care coverage for an abortion as a part of treatment for mental health issues such as depression.  As defined by the Court: “Health of the mother includes, ‘all factors—physical, emotional, psychological, familial, and the woman’s age—relevant to the wellbeing of the patient. All these factors may relate to health.’”  Furthermore, abortionist Dr. James McMahon, in testimony before the House Judiciary Committee in June 1995, cited 39 partial-birth abortions that were performed because of the mother’s “depression.”  Because this issue is unclear and H.R. 1424 lacks a conscience clause applied to this legislation, there appears to be no protection for an employer to reject healthcare coverage for such a procedure if they choose to extend mental health coverage to its employees.

Additional Background on Senate Legislation:  On September 18, 2007, the Senate passed its version of the Mental Health Parity Act.  This legislation, S. 558, sponsored by Sen. Pete Domenici (R-NM), contains significant variations when compared to H.R. 1424.  Specifically, the Senate-passed language:

  • Retains ERISA pre-emption for the large employers (those with more than 50 employees) subject to the law—states would not have the option of enacting more stringent and conflicting laws and regulations;
  • Remains silent on codifying classes of mental disorders—the language does not require group health plans to offer coverage for all disorders under DSM-IV;
  • Does not mandate an out-of-network coverage benefit—plans must offer out-of-network coverage only to the extent they do so for medical and surgical benefits, while the House bill mandates out-of-network coverage for all plans offering mental health benefits; and
  • Permits group health insurance plans to utilize medical management practices, including utilization review, authorization, medical necessity and appropriateness criteria, and use of network providers—the House bill includes no such “safe harbor” for plans.

While some conservatives may still have concerns with the mandates imposed by the Senate legislation and the way in which these mandates would increase health insurance premiums, many segments of the business community have embraced the Senate compromise as a reasonable attempt to achieve the goal of both bills without eroding ERISA pre-emption or imposing undue restrictions on benefit plan design.  Many of those same trade organizations are opposing H.R. 1424 as a legislative over-reach that will impede their ability to offer quality coverage through group health insurance plans.