The Corner

Law & the Courts

Obamacare Insurers Might Get Bailouts Congress Refused to Fund

A sign on an insurance store advertises Obamacare in San Ysidro, San Diego, Calif., October 26, 2017. (Mike Blake/Reuters)

Indeed, judging from the oral argument at the Supreme Court earlier this week, that seems more likely than not.

Here’s the backstory. When the Democrats drafted Obamacare, they knew they were asking insurers to take a big risk in the first few years of the program — no one knew how unhealthy the new enrollees would be, and the law prohibited insurers from charging sick people more. Many insurers would be reticent to take such a gamble without high premiums. So the law created “risk corridors” to contain the problem.

Specifically, Obamacare promised that the government would reimburse insurers for a set percentage of their losses during the early years of the exchanges. Insurers that made money, meanwhile, would chip in to fund these bailouts.

The law made its promises in stark language: The government “shall pay” the insurers who lose money, just as the insurers who make money “shall pay” into the system. But there was no guarantee that the payments from profitable insurers would be enough to cover the government’s obligations to the money-losing ones, and the statute didn’t provide any extra money for this purpose. A future Congress would have to appropriate these funds if they became necessary.

Well, they became necessary — but Republicans in Congress refused to appropriate the money, costing insurers who’d trusted the government’s promises billions of dollars. Some insurers are now seeking recompense from the Judgment Fund, an account Congress set up to pay judgments against the government.

The many legal issues here are technical and boring, and I won’t try to fully do them justice. But the basic arguments from the two sides illustrate what a frustrating situation Obamacare’s drafters and the later Republican Congress have managed to put us in.

First, the Constitution gives Congress the power of the purse: The federal government can’t pay out money unless Congress has authorized it to. When Congress refused to fund the payments, it arguably, by implication, repealed the government’s obligation to make them, even though it left the “shall pay” language in the law.

The counterargument is that no, the government can’t seduce companies into risking lots of money with the promise that any losses will be partially covered, and then simply refuse to cover the losses after they’ve happened. As Justice Stephen Breyer noted repeatedly, this kind of promise looks a lot like a contract — you do X, we’ll pay you $Y; they did X, they’re owed $Y. The Judgment Fund exists to take care of this kind of situation, and without it the government could run afoul of the takings clause by suckering companies this way.

Having read the oral-argument transcript, I agree with most others in thinking the insurers probably have at least five votes. They’ll likely get their bailouts, if a few years late.

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