Responding to Nicholas Bagley on Risk Corridors

Over at the Incidental Economist, Nicholas Bagley has a post that finally acknowledges some legal precedent for the argument I and others have been making for months, most recently on Monday—that the Judgment Fund cannot be used to settle lawsuits regarding Obamacare’s risk corridors. I noted in my Monday post that three non-partisan sources have issued rulings agreeing with my argument: The Justice Department’s own Office of Legal Counsel (OLC), the Comptroller General, and the Congressional Research Service (CRS). Unfortunately, Bagley mis-represented the first opinion, ignored the second entirely, and called the third one an outlier (which it isn’t) that he didn’t agree with.

While Bagley agrees that the Judgment Fund cannot be utilized where Congress has “otherwise provided for” payment, he argues that the circumstances where Congress has “otherwise provided for” payment are exceedingly rare. He claims “the Judgment Fund is unavailable only if Congress has designated an alternative source of funds to pay judgments arising from litigation.” [Emphasis original.]

Bagley alleges that the 1998 opinion from the Justice Department’s Office of Legal Counsel, cited in my Monday post, illustrates his point. He claims the OLC opinion “offers an example of how ‘specific and express’ a statute has to be before Congress will be understood to have ‘otherwise provided for’ the payment of money damages.” But, funny enough, he doesn’t quote from the memo itself. That might be because, as I noted on Monday, the memo contradicts Bagley:

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.

The memo says nothing about how specific and express a statute must be for the Judgment Fund not to apply, as Bagley claims. Instead, it sets up a rather broad rule of construction: If a source of funding exists to pay claims, the Judgment Fund cannot be used to pay claims—it only serves as a payer of last resort. If another source of funding exists, but lacks sufficient cash to pay the judgment in full, then Congress—and not the Judgment Fund or the courts—must fill in the deficit through a new appropriation.

The 1998 memo from the Justice Department mirrors another 1998 ruling by the Comptroller General—the keeper of the handbook of appropriations law. In that case, Congress had imposed appropriations restrictions prohibiting the federal government from paying the cost of re-running a Teamsters union election. This fact pattern mirrors the statutory restrictions Congress imposed to prevent additional taxpayer funds being used to bail out risk corridors. And the Comptroller General’s ruling made clear that the Judgment Fund could not be utilized to circumvent the appropriations restriction:

The costs of supervising the 1996 election rerun, like the 1996 election, are programmatic costs that, but for the restrictions in sections 619 and 518 of the 1998 Justice and Labor Appropriations Acts, would be payable from available Justice and Labor operating accounts. The fact that Congress has chosen to bar the use of funds made available in the 1998 Justice and Labor Appropriations Acts to pay the cost of the Election Officer’s supervision of the 1996 election rerun should not be viewed as an open invitation to convert the Judgment Fund from an appropriation to pay damage awards against the United States to a program account to circumvent congressional restrictions on the appropriations that would otherwise be available to cover these expenses. Accordingly, we believe that the Judgment Fund would not be available to pay such an order, even if the court were to award a specific sum equivalent to the actual or anticipated costs of supervising the rerun.

While Bagley chose to ignore this ruling entirely, the precedent again indicates that the Judgment Fund cannot be utilized as a “piggy bank”—in this case, that it cannot fund that which Congress has expressly forbidden.

Particularly viewed in combination with these other two rulings, the Congressional Research Service report then stands not as the anomaly Bagley portrays it, but as illustrating the consistent principle that the Judgment Fund cannot be used to circumvent appropriations decisions rightly within the purview of Congress. The CRS memo references the prior opinions by the Comptroller General and OLC discussed above, as well as a separate legal precedent involving payments under the Ryan White HIV/AIDS program. In that case, the Court of Appeals for the Second Circuit also held that a lack of funds in program coffers did not make the Judgment Fund available—instead, the plaintiffs had to appeal to Congress for additional appropriations to pay claims.

Though Bagley does not admit it in his piece, all the non-partisan experts in appropriations law—the Comptroller General, the Congressional Research Service, and even the Justice Department’s own legal team—agree that the Judgment Fund cannot be used to pay claims where Congress has provided another avenue of payment. Despite this overwhelming evidence, Bagley attempts to argue that “every entitlement program has some source of appropriated funds, suggesting that the Judgment Fund would be unavailable in every lawsuit involving an entitlement.” [Emphasis original.]

Here again, Bagley errs—there are entitlements without a permanent appropriations source, including risk corridors. The Comptroller General’s opinion classifying risk corridors as “user fees” notes very clearly that “Section 1342 [of Obamacare, which established risk corridors], by its terms, did not enact an appropriation to make the payments specified [by the law]”—in other words, it created an entitlement without an appropriation. Moreover, Judge Rosemary Collyer’s May ruling in House v. Burwell, litigation regarding Obamacare’s cost-sharing subsidies—which also lacked an explicit statutory appropriation—noted multiple examples of entitlements without a permanent appropriation, including a 1979 Comptroller General opinion relating to payments to Guam. As her ruling noted:

The [Comptroller General’s] risk corridors decision illustrates that a statute can authorize a program, mandate that payments be made, and yet fail to appropriate the necessary funds. Thus, not only is it possible for a statute to authorize and mandate payments without making an appropriation, but [the Comptroller General] has found a prime example in [Obamacare].

Bagley’s argument therefore fails due to his faulty premise—that every entitlement must have an appropriated source of funds.

One other matter worth noting: The Clinton administration’s 1998 Office of Legal Counsel opinion should also prevent settlements—as opposed to judicial verdicts—from being paid from the Judgment Fund. The opinion cites a prior 1989 OLC memo to note 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.” Again, the Comptroller General agrees in its Principles of Federal Appropriations Law:

A compromise settlement is payable from the same source that would apply to a judgment in the same suit….The resolution of a case does not alter the source of funds. A contrary view, as Justice points out, might encourage settlements driven by source-of-funds considerations rather than the best interests of the United States.

If the Obama administration cannot pay out a judgment regarding risk corridors—and for all the reasons above, it cannot—then it also cannot settle the lawsuit using Judgment Fund dollars. But that’s exactly what this administration intends to do—circumvent the express will of Congress, and opinions by his own Justice Department, to muscle through a massive insurer bailout “on the nod.”

Mr. Bagley has been encouraging such a backdoor bailout for months, claiming that insurers can claim risk corridor cash via the Judgment Fund. But only this week did he finally “discover” the Congressional Research Service memo directly contradicting his claims, which Sen. Marco Rubio’s office publicly released in May. And in attempting to rebut that memo, he did not acknowledge the Comptroller General’s similar opinion, mis-represented the Office of Legal Counsel’s position, and falsely claimed every entitlement must have an appropriation. Regardless of whether motivated by a lack of information or a desire to avoid inconvenient truths, his flawed and incomplete analysis vastly understates the strength of the argument that the actions the Obama administration contemplates in settling the risk corridor lawsuits violate appropriations law and practice.