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Article: August 2019: Supreme Court to Address Under What Circumstances A Later Congress May Revoke Governmental Obligations To Pay

Business Litigation Reports

At the end of its most recent term, the U.S. Supreme Court granted certiorari in Moda Health Plan, Inc. v. United States, and two similar cases asserting virtually identical claims.  These disputes present issues of critical importance regarding public-private enterprise and private entities’ options to seek money damages if the federal government reneges on a promise to pay. 

Moda and its companion cases present the question of under what circumstances, if any, a later Congress may obviate a statutory obligation to pay through the use of appropriations bills (as opposed to an explicit Act revoking the previously-enacted obligation to pay).  In Moda, this question arose in connection with certain payment obligations included in the Patient Protection and Affordable Care Act (“ACA”).  However, the decision has potentially broader implications because an essential tool for the government to achieve policy goals is influencing private action through financial incentives, such as tax credits or subsidies for behavior the government wants to encourage.  If the government can renege on its promises through less-than-obvious, after-the-fact means (such as an appropriations bill), and private parties are unable to compel the payment of those owed amounts in court, then that arguably decreases the private sector’s confidence in the government as a reliable business partner, and, along with it, the government’s power to drive conduct using financial incentives.

In civil litigation involving situations such as these, the Tucker Act provides an avenue to pursue money damages against the United States based on, among other things, “money-mandating” statutes, i.e., statutes promising to pay specific amounts in specific circumstances.

Assuming a litigant is able to establish that it falls under a money-mandating statute’s or a government contract’s requirements for payment, then the government is left with few options.  One of those options—if the facts support it—is to argue that the obligation to pay no longer exists because the government amended or revoked that obligation.  Congress, however, may only revoke such an obligation with words that either expressly modify or repeal the law that created that obligation, or words that clearly imply Congress’s intention to amend or repeal that law.  United States v. Langston, 118 U.S. 389, 393 (1886).  Repeals by implication are disfavored, and are “particularly disfavored” when contained in Congress’s annual appropriations bills to fund the federal government.  The general rule is that Congress’s failure to make funds available to satisfy a payment obligation does not itself eliminate a monetary payment obligation.  See, e.g., N.Y. Airways, Inc. v. United States, 369 F.2d 743, 748 (Ct. Cl. 1966).

Despite this rule, a majority of a panel of the United States Court of Appeals for the Federal Circuit  held in Moda that Congress had, through appropriations riders, suspended its obligation to pay ACA qualified health plan issuers certain amounts otherwise owed under the ACA’s “risk corridors” program.  The Supreme Court is now slated to examine that ruling.

“Risk Corridors” – An Incentive Program That Became A Political Football

Passed in 2010, the ACA implemented a wide range of reforms in the health insurance industry, including creating health benefit exchanges where issuers offer health plans on a virtual platform.  These exchanges presented a great deal of risk, because two of the ACA’s other major reforms were to require U.S. residents to obtain health insurance (i.e., the “individual mandate”) and to prevent health plan issuers from refusing health care coverage based on potential insureds’ preexisting conditions.  These reforms greatly expanded insured demographics in the nation, and health plan issuers lacked the data necessary to accurately assess the risk posed by this new, larger insurance pool. 

To encourage providers to participate in the newly-created health exchanges, and to keep premiums low despite the risk of the unknown demographics, Congress established several risk-mitigating programs, including “risk corridors.”  Risk corridors was a three-year program, from 2014 through 2016.  If an issuer’s income exceeded costs by a certain amount, then it was required to pay a portion of that excess to the government.  Likewise, if an issuer’s costs exceeded its income by a certain amount, the ACA stated the government “shall pay” the insurer a specified portion of those losses.  This three-year program was meant to cabin competition in the exchanges’ early years so issuers throughout the nation could learn how to price health plans for the new insurance pool.  It was heavily supported throughout the industry.

Nevertheless, at the end of 2014, nearly a year after the ACA went into effect, Congress included a rider in the annual appropriations bill that identified a particular fund, the Centers for Medicare and Medicaid Services (“CMS”) Program Management account, and stated that the funds appropriated that year to that account could not be used to make risk corridors payments.  Congress inserted similar riders in the appropriations bills for the following two years—restricting funding for the program’s three-year life.  These appropriations riders came after Congress had already tried and failed to amend the ACA to require a “budget neutral” program. 

For a variety of reasons, issuers suffered unexpectedly large losses during the ACA’s first three years.  Accordingly, in each year of the risk corridors program, payments in were dwarfed by the payments out due to insurers.  Due to this limited funding, the Department of Health and Human Services (“HHS”) implemented a policy of paying out to insurers on a prorated basis.  In total, risk corridors payments to insurers fell short by about $12 billion dollars over the three years of the program.

Health Plan Issuers File Suit To Seek Unpaid Risk Corridor Amounts

In 2015, Quinn Emanuel filed the first risk corridors suit in the nation.  That case, Health Republic Insurance Company v. United States, is a class action on behalf of a nationwide group of qualified health plan issuers.  We prevailed in opposing the government’s motion to dismiss that case and, in doing so, obtained the first order in the country on the risk corridors payments issue—and the government’s first defeat on that issue.  After the court denied the government’s motion, the case was slowed down by the class certification and opt-in process.  Meanwhile, Moda and other cases proceeded to summary judgment, in which Moda obtained a full win based heavily on the reasoning from the Health Republic motion to dismiss decision.  Health  Republic is now stayed pending resolution of the Moda appeal, and Quinn Emanuel has submitted several amicus briefs supporting Moda’s arguments, including at the Federal Circuit and in the certiorari petition process.

After Moda won at the trial court level, the government’s appeal raised two key questions:  (1) did the risk corridors statute require the government to pay providers who suffered losses according to the statutory formula; and (2) if so, did Congress suspend or repeal that obligation via subsequent appropriations riders?  The Supreme Court is expected to address those same questions.

As to the first question, the government had argued that, despite the plain language of the ACA, which states that the HHS Secretary “shall pay” the statutory amount to insurers, there was no money-mandating obligation.  Instead, the government argued that Congress had intended for risk corridors to be “budget neutral”—i.e., only pay out what was paid in by “successful” issuer. 

In response, Moda cited the ACA, as well as statements from HHS, that the program was not budget neutral.  The Federal Circuit agreed.  In its opinion, the Moda majority (supported by the dissent) held the risk corridors portion of the ACA was “unambiguously money-mandating.”  Furthermore, both the majority and dissent recognized longstanding precedent holding the government’s failure to fund an obligation does not itself eliminate the obligation itself.  Based on this, the Federal Circuit held that the ACA, as originally enacted, obligated the government to pay issuers the full risk corridors amount provided by the statutory formula.

The second question, however, proved decisive in the majority’s decision that the government did not owe additional amounts at this time.  That question focused on whether Congress suspended or repealed the money-mandating obligation embodied in the ACA, and it turned on whether the language in the appropriations riders was sufficiently clear to amend or repeal the risk corridors statute. 

In deciding this question, the Federal Circuit acknowledged Supreme Court precedent holding Congress cannot suspend a money payment obligation absent “words that expressly, or by clear implication, modified or repealed the previous law.”  United States v. Langston, 118 U.S. 389 (1886).  Typically, this is a very high hurdle, as best exemplified by two cases discussed extensively by both the Moda majority and dissent.  These include Gibney v. United States, 114 Ct. Cl. 38 (1949), in which the Federal Circuit’s predecessor found no obviation of an obligation to pay where Congress simply passed an appropriations bill limiting expenditures for that obligation; and New York Airways, Inc. v. United States, 369 F.2d 743 (Ct. Cl. 1966), in which the same predecessor court found that a mere failure to appropriate funds does not modify an obligation laid out in substantive law. 

Over the years, however, there have been counter examples; i.e., instances where courts found that appropriations legislation included sufficiently express and clear wording, such that it obviated a statutory obligation to pay.  But, in those cases, the appropriations bills in question clearly indicated—by language, legislative history or both—Congress’s intent to eliminate or modify the obligation.  See, e.g., United States v. Vulte, 233 U.S. 509 (1914) (military bonus suspended by appropriations bills, but only for the two years where the bills specifically eliminated the bonus); United States v. Dickerson, 310 U.S. 554 (1940) (obligation suspended for four years where appropriations language was express for two years, and legislative history made it clear that Congress also intended the suspension to apply to the following two years); United States v. Will, 449 U.S. 200 (1980) (four appropriations statutes amended a previous statute increasing certain rates for payment where one of the appropriations bills contained clear and express revocation language, and the legislative history for the other three bills plainly indicated that they, too, were intended to rescind the rate increase).

In Moda, both the trial court and the appellate court considered the above precedent, and the plaintiffs contended throughout that the precedent requires enforcement of the government’s statutory obligation to pay risk corridor amounts.  However, the Moda majority found that the three appropriations riders had “temporarily suspended” the government’s obligation to pay the full statutory risk corridors amounts, therefore rendering the statute budget neutral for the years of the program.  The majority held that Congress’s intent in this regard was clear from (1) the fact that it had asked the GAO about possible funding sources for risk corridors, then cut off access to the only identified source for payment other than budget neutral payments, and (2) one of the riders’ proponents made a reference to budget neutrality when discussing the appropriations bill in 2014.

The Moda dissent (by Judge Newman) strongly disagreed with this holding on the grounds that it deviates from the authorities mentioned.  The dissent noted that, although the majority claimed this was only a permissible “temporary suspension,” the case on which the majority relied for this proposition, Vulte, involved the suspension of a bonus payment for just two years of an ongoing annual bonus program that ran for multiple years.  By contrast, the risk corridors program is a limited program that lasted only three years, so a “temporary” suspension of payments for each of those three years equaled a full obviation of the obligation to pay, via (the dissent argued) language that was not clear and unambiguous, as required by law.

Further, the dissent noted Vulte did not retroactively strip the plaintiffs of payment for actions they had already taken.  In Moda, by contrast, issuers incurred losses and were only informed after the fact that they would not be paid the full amounts technically required by the statute.  The dissent contended this sort of “bait and switch,” if allowed to stand via a denial of the money damages claims, would seriously undermine the government’s ability to incentivize private action in the future.  (This argument was presented in an amicus curiae brief Quinn Emanuel submitted on behalf of a group of economists as part of the appeal.)

Moda Before the Supreme Court – Implications For Future Public-Private Enterprise

As noted, the Supreme Court granted certiorari in Moda and two other risk corridors cases on June 24, 2019.  It is expected that the Court will decide by June 2020 when, if ever, Congress may use appropriations riders to limit or eliminate an obligation to pay.  If the Supreme Court sides with the Moda trial court, that will limit future Congresses’ ability to obviate payment obligations, which should, in turn, create more certainty for private actors about when they can seek money damages if the government fails to pay.  If the Supreme Court instead sides with the Federal Circuit Moda majority, that arguably provides future Congresses more power to limit the payment obligations imposed by a previous Congress with different policy goals.  Either way, the implications for future private litigants in government-related litigation are significant.

The Path Forward

Although the risk corridors cases will provide important insight into the effects of future congressional action on government obligations to pay, all is not lost now for private litigants that believe the government owes them money.  One notable example can be found in the context of a different ACA program that Congress also failed to fund.  Cases involving that program—the largest of which is a class action helmed by Quinn Emanuel, Common Ground Healthcare Cooperative v. United States—address the government’s failure to reimburse issuers’ “cost-sharing reduction” payments.  Cost-sharing reduction payments are payments issuers must make by law to reduce out-of-pocket expenses (like copayments) for certain low-income individuals.  Congress never funded the cost-sharing reduction program, but, importantly, did not include any appropriations riders or similar language stating that appropriations were not be used for the program.  The Obama administration nevertheless made those reimbursements for years, a policy that the Trump administration reversed in October 2017. 

Quinn Emanuel recently secured summary judgment on behalf of the opt-in class in Common Ground, including based on Moda’s holding that virtually identical payment language in the risk corridors statute was “unambiguously money-mandating.”  As that decision shows, private parties are still able to collect on governmental payment obligations.  Moda, however, will help clarify the limits on Congress’s ability to circumvent those options through less-than-obvious means.