Can HHS legally fund the ACA’s risk corridors?

May 2, 2014

Over at The Incidental Economist, Nicholas Bagley has an interesting post on whether the Department of Health and Human Services has the legal authority to fund its risk corridors.  The risk corridor program is intended to offset insurance company losses for selling health insurance policies on exchanges as the PPACA is being implemented.  The PPACA authorizes it for through 2016, but neglected to appropriate any funds.  Oops.

Bagley explains the potential problem:

The trouble is that the risk corridor program lacks any appropriations language. That won’t matter for exchange insurers that have lower medical costs than they anticipated. They’ll still be on the hook for making risk corridor payments — payments that, according to CBO, will amount to about $16 billion over the three-year life of the program. But the lack of an appropriation could matter a lot for insurers with heftier-than-expected costs. In CRS’s view, HHS cannot pay them the $8 billion they’re set to receive through the program.*

In a normal political environment, this wouldn’t be a big deal. Because no payments are due until 2015, Congress still has plenty of time to appropriate the funds. But this isn’t a normal political environment, and the next Congress may resist spending money on a program that Republicans — who will almost certainly retain control of the House — have decried as a bailout. Should Congress fail to appropriate the needed funds, the administration will come under intense pressure to find a workaround.

Is this fatal to the program? Perhaps not. Bagley suggests that the administration may still be able to fund the risk corridors through a revolving fund, that could be treated as budget neutral (and potentially avoid Anti-Deficiency Act problems).  But even if this solution stretches the limits of HHS’s authority under the health care reform law, we have the familiar problem that it’s not clear who would have standing to challenge HHS in court.

Jonathan H. Adler teaches courses in constitutional, administrative, and environmental law at the Case Western University School of Law, where he is the inaugural Johan Verheij Memorial Professor of Law and Director of the Center for Business Law and Regulation.
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Jonathan H. Adler · May 2, 2014