The Bigger Problem with SCOTUS’ Obamacare Bailout Ruling

I’ll start with the bad news: The Supreme Court granted insurers nearly $12 billion in Obamacare bailout funds. And now the worse news: It allowed the executive to stick Congress with the bill for unconstitutional actions lawmakers never authorized.

The ruling, issued on Monday after the Court heard oral arguments in December, made the case sound simple: Obamacare created an obligation on the federal government to pay insurers’ risk corridor claims. Congress refused to appropriate the money. Therefore insurers can go to court and obtain the $12 billion in question from the Judgment Fund, which has a permanent, unlimited appropriation to pay legal claims against the government.

But the reality doesn’t match the ruling’s cut-and-dried approach. Unilateral actions by the executive paved the way for risk corridors’ massive losses, a fact neither insurers nor liberal Obamacare supporters like to admit.

The Bailout’s Origins

In many ways, the Supreme Court case has its roots in guidance released by the Obama administration in November 2013. At that point, millions of people had received plan cancellation notices, but couldn’t buy health insurance plans while healthcare.gov remained in meltdown. President Obama faced withering and justified criticism for his “Lie of the Year”—the promise that “If you like your plan, you can keep it.”

The Department of Health and Human Services (HHS) tried to stanch the political bleeding. Instead of sending cancellation notices, states and insurers could allow individuals to retain plans purchased after Obamacare’s March 2010 enactment, but before the major insurance regulations went into effect on January 1, 2014.

Coming at a very late date, HHS’s unilateral action threatened to create more chaos for insurers. The carriers had priced their policies assuming millions of individuals with pre-Obamacare policies would lose their existing plans and sign up for exchange coverage. Instead, these largely healthy individuals would remain outside of Obamacare, as millions of sicker individuals flooded onto exchanges to obtain the richer Obamacare coverage.

How did HHS propose to offset insurers’ potential losses from this late change to their enrollee profile? The same November 2013 guidance allowing pre-Obamacare policies to remain in place proposed risk corridors as the solution:

Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.

In theory, risk corridors required plans with outsized profits on Obamacare policies to subsidize insurers with outsized losses. But because many insurers kept their pre-Obamacare policies in place, many more insurers suffered losses than gains. The program suffered approximately $12 billion in losses during its three years (2014-16), losses which prompted insurers’ suit, to recover the billions they consider themselves owed.

Unconstitutional Actions

But as law professor Nicholas Bagley (an Obamacare supporter) and others have pointed out, HHS’s November 2013 guidance came with a big catch: It violated the president’s constitutional duty to “take care that the laws be faithfully executed.” In essence, the Obama administration had stated that it would not enforce the law—the new insurance regulations coming into effect, which had led insurers to send the cancellation notices in the first place—because it found doing so politically inconvenient. (Sadly, the Trump administration has continued the unconstitutional behavior, by similarly allowing the plans to remain in effect.)

Those unconstitutional actions imposed major financial losses on insurers, an assertion that comes not just from the HHS guidance quoted above, but from the insurers themselves. An amicus brief submitted in the Supreme Court case by Americans for Prosperity noted that the insurer plaintiffs themselves admitted the administration’s unilateral actions represented the root cause of much of their financial losses:

As one Petitioner notes, this ‘unexpected policy change had marked and predictable effects.’ It lowered enrollment and since ‘the announcement came after premiums had been set[,]’ Petitioners were stuck with the prices they set, forced to ‘[b]ear greater risk than they accounted for[.]’ Petitioners argue that HHS recognized ‘that its unexpected policy shift could subject insurers on the exchanges to unanticipated higher average claims costs … [b]ut,’ the agency allayed their fears by providing reassurance that the risk corridors program would cover any losses. The Petitioners go through a lengthy history of HHS’s actions, pinning much of the blame on HHS’s ‘rosy scenario’ of how things would work out. [Internal citations omitted.]

Sticking Taxpayers with the Tab

Insurers could have responded in a different manner to the HHS guidance. They could have cancelled all their pre-Obamacare policies anyway, or they could have challenged the guidance in court. Some took the former action, because some states forced carriers to cancel all pre-Obamacare plans—but none took the latter course. In the main, insurers decided to take their chances, roll the dice, and not take a confrontational tack with the Obama administration, largely hoping they would receive the risk corridor bailout HHS alluded to in its guidance.

But Congress can, and should, have a say in the matter. A policy enacted unilaterally, and unconstitutionally, by HHS resulted in a financial impact (in the form of risk corridors) to the tune of billions of dollars.

Yes, Congress could have passed more stringent language blocking any appropriation for a risk corridor bailout. But following that logic to its conclusion would have effectively turned the Constitution on its head: The executive can make a unilateral, and unconstitutional, change, and both Congress and taxpayers have to pay the bill for it—unless and until Congress passes legislation by a veto-proof majority to undo the financial consequences of an action the executive never had authority to take in the first place.

A Costly ‘Bait-and-Switch’

Insurers decried the risk corridor funding shortfall as a “bait-and-switch” by Congress: Lawmakers authorized the payments as part of Obamacare, but never ponied up an appropriation for an obligation Congress created.

Risk corridors did suffer from a “bait-and-switch,” but it came from the Obama administration, not Congress. HHS changed the rules of the game, causing insurers major losses on their Obamacare plans—and sticking taxpayers with much of that tab via risk corridors.

But neither the majority opinion in the Supreme Court ruling, nor Justice Alito’s dissent, addressed the Obama administration’s “bait-and-switch.” As a result, the court created a bad precedent that empowers the executive, further diminishes the role of Congress, and places taxpayers at risk for more unilateral bailouts in the future.

This post was originally published at The Federalist.

What You Need to Know About Friday’s Court Ruling

Late Friday evening, a judge in Texas handed down his ruling in the latest Obamacare lawsuit. Here’s what you need to know about the ruling (if interested, you can read the opinion here), and what might happen next:

What Did the Judge Decide?

The opinion contained analyzed two different issues—the constitutionality of the individual mandate, and whether the rest of Obamacare could survive without the individual mandate (i.e., severability). In the first half of his opinion, Judge Reed O’Connor ruled the mandate unconstitutional.

Wait—Haven’t Courts Ruled on the Individual Mandate Before?

Yes—and no. In 2012, the Supreme Court ruled the individual mandate constitutional. In his majority opinion for the Court, Chief Justice John Roberts (in)famously concluded that, even though Obamacare’s authors proclaimed the mandate was not a tax—and said as much in the law—the mandate had the characteristics of a tax. Even though Roberts concluded that the mandate exceeded Congress’ constitutional authority under the Commerce Clause, he upheld it as a constitutional exercise of Congress’ power to tax.

However, in the tax bill last year Congress set the mandate penalty to zero, beginning on January 1, 2019. The plaintiffs argued that, because the mandate will no longer bring in revenue for the federal government, it no longer qualifies as a tax. Because the mandate will not function as a tax, and violates Congress’ authority under the Commerce Clause, the plaintiffs argued that the court should declare the mandate unconstitutional. In his opinion, Judge O’Connor agreed with this logic, and struck down the mandate.

What Impact Would Striking Down the Mandate Have?

Not much, seeing as how the penalty falls to zero in two weeks’ time. Striking the mandate from the statute books officially, as opposed to merely setting the penalty at zero, would only affect those individuals who feel an obligation to follow the law, even without a penalty for violating that law. In setting their premiums for 2019, most insurers have already assumed the mandate goes away.

Then Why Is This Ruling Front Page News?

If the court case hinged solely on whether or not the (already-defanged) mandate should get stricken entirely, few would care—indeed, the plaintiffs may not have brought it in the first place. Instead, the main question in this case focuses on severability—the question of whether, and how much, of the law can be severed from the mandate, if the mandate is declared unconstitutional.

What Happened on Severability?

Judge O’Connor quoted heavily from opinions in the prior 2012 Supreme Court case, particularly the joint dissent by Justices Anthony Kennedy, Samuel Alito, Antonin Scalia, and Clarence Thomas. He ruled that the justices viewed the mandate as an “essential” part of Obamacare, that the main pillars of the law were inseparable from the mandate.

The judge also noted that some of the lesser elements of Obamacare (e.g., calorie counts on restaurant menus, etc.) hitched a ride on a “moving target,” that he could not—and should not—attempt to determine which would have passed on their own. Therefore, he ruled that the entire law must be stricken.

Haven’t Things Changed Since the 2012 Ruling?

Last year, Congress famously couldn’t agree on how to “repeal-and-replace” Obamacare—but then voted to set the mandate penalty to zero. A bipartisan group of legal scholars argued in this case that, because Congress eliminated the mandate penalty but left the rest of the law intact, courts should defer to Congress’ more recent judgment. Judge O’Connor disagreed.

What Happens Now?

Good question. Judge O’Connor did NOT issue an injunction with his ruling, so the law remains in effect. The White House released a statement saying as much—that it would continue to enforce the law as written pending likely appeals.

On the appeal front, a group of Democratic state attorneys general who intervened in the suit will likely request a hearing from the Fifth Circuit Court of Appeals in New Orleans. From there the Supreme Court could decide to rule on the case.

Will Appellate Courts Agree with This Ruling and Strike Down Obamacare?

As the saying goes, past performance is no predictor of future results. However, it is worth noting two important facts:

1.      The five justice majority that upheld most of the law—John Roberts, Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan, and Sonia Sotamayor—all remain on the Supreme Court.
2.      As noted above, Chief Justice Roberts went through what many conservatives attacked as a bout of legal sophistry—calling the mandate a tax, even though Congress expressly said it wasn’t—to uphold the law, more than a year before its main provisions took effect.

What About Pre-Existing Conditions?

On Friday evening, President Trump asked for Congress to pass a measure that “protects pre-existing conditions.”

I have outlined other alternatives to Obamacare’s treatment of pre-existing conditions. However, as I have explained at length over the past 18 months, if Republicans want to retain—or in this case reinstate—Obamacare’s treatment of pre-existing conditions, then they are failing in their promise to repeal the law.

The Troubling Premise Behind the Latest Obamacare Lawsuit

On Thursday, a group of Democratic attorneys general received permission to intervene in a lawsuit filed by Texas Attorney General Ken Paxton and other Republican officials. That lawsuit, originally filed in February, seeks to strike down all of Obamacare.

The lawsuit forces me to distinguish between policy preferences and the rule of law. Strictly on the policy, I want to repeal Obamacare as much as the next conservative does. However, in this case, striking down the law through legal fiat would represent judicial activism at its worst—asking unelected judges to do what elected members of Congress took great pains to avoid.

John Roberts’ Logic

Last December, Congress set the individual mandate penalty to zero beginning in January 2019. As others previously argued, the action eliminated the basis on which the Supreme Court found the mandate constitutional. Thus, the lawsuit alleges, the court should strike down the individual mandate—and, consistent with the reasoning of four dissenting justices (Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito) in the 2012 NFIB v. Sebelius case—all of Obamacare with it.

Congress Has Spoken

There’s one major flaw with the lawsuit’s logic: While Obamacare did not contain a severability clause, Congress in its infinite wisdom last year chose to eliminate the mandate penalty—and only the mandate penalty. Severability tests the court established work to determine first and foremost “whether the provisions will work as Congress intended,” as the dissenters noted back in 2012.

Because Congress, in the time since Obamacare passed, quite clearly eliminated only the mandate penalty, it demonstrated its intent. Regardless of whether federal courts strike down the mandate—now an edict in law unenforceable by any penalty—as unconstitutional, they cannot, and should not, strike down any other portion of the law.

Anti-Democratic Principle

In essence, the lawsuit asks the federal courts to do what Congress decided last year not to do: repeal all of Obamacare. Rather than working to persuade Congress to go back, consider health care anew, and pass the full repeal lawmakers ran on for four straight election cycles, the litigants instead hope to nullify Obamacare through a deus ex machina intervention of five of nine justices on the Supreme Court.

As a matter of law, the court should do no such thing. Substituting the judgment of unelected judges for popularly elected members of Congress would further erode the institutions supporting the rule of law. The protests on both the left and right regarding last year’s health-care legislation would pale in comparison to any demonstration should five unelected judges now decide to strike down all of Obamacare, and with good reason.

Moreover, this apparent application of situational ethics—“conservatives” supporting judicial activism when it furthers their policy objectives—will only undermine future attempts to constrain legislating from the bench. When it comes to asking courts to strike down massive pieces of legislation, conservatives should be careful what they wish for, because they just might get it—not on Obamacare, but on other major bills they do support.

This post was originally published at The Federalist.