The Obama administration is illegally refusing to make payments to the U.S. Treasury and instead giving funds collected under Obamacare to insurers, according to a new report from an independent government watchdog.
The administration disagrees with the findings.
The funds in question were collected as part of Obamacare’s reinsurance program, one of three programs included in the health care law to reduce risk for insurers participating on exchanges. Siding with Republicans who have been investigating the program, the Government Accountability Office said Thursday that the law mandates that some of the money collected must be deposited into federal coffers.
“We expect the administration to comply with the independent watchdog’s opinion, halt the billions of dollars in illegal Obamacare payments to insurers, and pay back the American taxpayers what they are owed,” said a spokeswoman for the Energy and Commerce Committee Republicans.
The report was conducted at the request Republican members of both the House and Senate, including Sens. Mike Enzi (R-Wyo.), Orrin Hatch (R-Utah), Lamar Alexander (R-Tenn.) and John Barrasso (R-Wyo.), and Reps. Tom Price (R-Ga.), Fred Upton (R-Mich.) and Kevin Brady (R-Texas).
The report echoes the language of a pending lawsuit against the administration from House Republicans alleging that the Obama administration has illegally spent money on a component of Obamacare. A congressional investigation into the same issue in House v. Burwell came to the same conclusion.
The lawsuit, brought by the House over Democrats’ objections, focuses on the Affordable Care Act’s cost sharing reduction program. The lawsuit says the administration did not have an appropriation for the money given to insurers under the program. (This money is then passed to consumers through reduced out-of-pocket costs.) In May, a district court judge ruled in favor of the House, but the Obama administration is in the process of appealing the decision.
“This is about fairness and respect for the rule of law clearly anchored in the Constitution,” said the lawmakers in a statement released with Thursday’s GAO report. “The facts are simple — the Constitution is on our side. This new opinion from the government’s top watchdog confirms that the Obama administration is not above the law. The administration needs to put an end to the Great Obamacare Heist immediately.”
Reinsurance is a transitional program set up under the ACA as a way to stabilize premiums by reducing insurers’ incentive to charge higher premiums in anticipation of sick people enrolling before healthy people. Funds are collecting from all health insurance plans and then distributed to plans with high-cost enrollees.
Obamacare specified the amounts to be collected in each of the program’s three years of operation and distinguished between three different uses of the money: making reinsurance payments, depositing funds in the Treasury, and administering the program.
It specifies that, for reinsurance purposes, $10 billion should be collected in 2014, $6 billion in 2015, and $4 billion in 2016. For the Treasury, an additional $2 billion must be deposited in 2014 and 2015, and an additional $1 billion is owed in 2016. The administration can decide how much to collect for administrative costs.
But HHS didn’t collect as much as it anticipated from insurers. For the benefit year 2014, it collected only $9.7 billion. While this was enough to cover claims — $7.9 billion — it was short of the projected $12 billion anticipated would be paid out to insurers and the Treasury. HHS interpreted the law as permitting it to roll the $1.7 in leftover collections to be used for reinsurance in future years. It did not deposit any money into the Treasury.
In a statement, HHS said the program has complied with the law. “CMS has implemented the Transitional Reinsurance Program lawfully and in a transparent manner, and strongly disagrees with today’s GAO opinion. This critical program, which expires this year, helps to reduce premiums for consumers. CMS laid out its approach to implementing the reinsurance program, including describing the legal rationale, through regulations that involved a public notice-and-comment process,” the statement said.
HHS officials read the law differently than Republicans or the GAO. They say the law gives the administration the flexibility to distribute funds as it sees fit if there is a funding shortfall, and that it is silent on what to do if the amounts collected are less than expected.
For 2015, for which HHS is collecting money now, the agency only anticipates $6.5 billion, less than the about $8 billion it anticipated, according to the GAO report. In June, the Centers for Medicare and Medicaid Services announced that total claims for 2015 were $14.3 billion.
But the GAO report says the law is the law, regardless of how things have played out in reality.
“The fact that HHS’s collections ultimately fell short of the projected amounts does not alter the meaning of the statute,” the report reads. “HHS continues to have an obligation to carry out the statutory scheme using a method reflective of the specified amounts even though actual collections were lower than projected.”
The GAO has no authority to enforce its interpretation of the law, so it’s unclear what happens next. But the finding is only the latest strike against Obamacare’s programs that were designed to provide stability to insurers trying to transition into the new health care landscape. It comes while insurers are already having difficulty with the transition, with exchange premiums on the rise and several plans announcing they will be pulling out of the marketplace in 2017.
Had the administration put reinsurance money into the Treasury, health analysts say insurers would be receiving even less in payments for benefit year 2015 in the midst of their other issues.
“At least as it stands, insurers have their money. If there was some legal action that took the money back from insurers, it would add to the pile of problems insurers have had in the marketplaces,” said Larry Levitt, senior vice president of the Kaiser Family Foundation.
“I would be very surprised if the administration did it, unless for some reason they legally had to,” he said. “I don’t think the administration wants to do anything to upset insurers right now.”
Update 6:30 p.m. This article has been updated to include a response from the administration.