Supreme Court considers claims under Obamacare that government owes billions to insurers

WASHINGTON - A lawyer for insurance companies warned the Supreme Court of a $12 billion "bait-and-switch" that raised "the fundamental question of whether the government has to keep its word."

One justice wondered, on the other hand, whether the court should be ordering the federal government to pay billions of dollars to private companies. Is there a "special solicitude for insurance companies?" asked Justice Samuel Alito.

It was Round 5 for the Affordable Care Act, also known as Obamacare, at the Supreme Court on Tuesday. And only one of the oddities was that Washington lawyer Paul Clement, who had argued unsuccessfully in 2012 that the ACA was unconstitutional, was back to claim that under the law, his insurer clients were owed billions of dollars.

It appeared he might have more luck this time. The law's legality was not being questioned. Instead, it was whether Congress had "seduced" insurance companies, in the words of Chief Justice John Roberts, to offer low-premium policies to at-risk customers and then reneged on a promise to help bear the costs.

Most justices seemed to think it had.

Justice Stephen Breyer said he was reminded of law school. "Day One of 'contracts,' " he told Deputy Solicitor General Edwin Kneedler, who was representing the government. "So why does the government not have to pay its contracts, just like anybody else?"

The controversy stems from an ACA provision designed to encourage insurance companies to offer policies for the uninsured and those with existing conditions. For three years starting in 2014, the law said that if insurers had higher-than-expected costs, the government would reimburse a portion. Conversely, they had to pay into the fund any unexpected savings.

Expenses overwhelmed savings. For instance, insurers paid $362 million into the fund the first year, but others claimed reimbursable expenses of $2.87 billion.

By the time the program ended, insurers said they were owed $12 billion.

But congressional Republicans, no friends to Obamacare, mandated that the payments to insurance companies must come from the savings, as to be revenue neutral. They prohibited the Department of Health and Human Services from using any other resources for the payments.

Clement said that the government was breaking a contract, and that would have negative implications for any future action in which the government wants cooperation from private companies.

Alito was Clement's most challenging questioner, but Roberts too said it was well-known that federal agencies can spend only money Congress gives them.

Insurance companies "have good lawyers," Roberts said. "The Constitution says no money shall come out of the Treasury except pursuant to an appropriations clause, and I would have thought at some point they would have sat down and said, 'well, why don't we insist upon an appropriations provision before we put ourselves on the hook for $12 billion?' "

Clement said it has long been recognized that the "government can obligate itself and Congress can obligate itself without using any magic words of appropriation. And the governing standard is, if a statute is money-mandating, then that obligates the government."

Kneedler had a harder time with the justices. He said the provision in the statute was not a contract, but a provision like any other that depends on congressional appropriations.

"The insurers were not performing services for the government. They weren't working for the government," Kneedler said. "They weren't furnishing goods to the government. They were participating in a market economy."

Breyer said that raised all sorts of questions. There are plenty of statutes, he said, "that say, if you do X, the government shall pay you, Mr. Veteran, Mr. Paratrooper, Mr. - you know, you name it." Does that mean "they don't really mean it?" Breyer asked.

Kneedler said there were plenty of reasons for the insurance companies to enter the markets created by the act besides the prospect of having their losses covered.

Justice Elena Kagan was skeptical. "Are you saying that the insurance companies would have done the same thing with or without this promise to pay?"

Perhaps they may have charged higher premiums, Kneedler responded.

"But that's a materially different thing," Kagan said, and not at all what Congress intended to happen.

Clement objected to Kneedler referring to the payments as subsidies.

"None of my clients get paid a penny unless they suffer actual losses," Clement said.

The argument involved a number of cases, including Maine Community Health Options v. United States.

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