Argument Recap

On Tuesday the Supreme Court heard oral argument in Maine Community Health Options v. United StatesModa Health Plan Inc. v. United States, and Land of Lincoln Mutual Health Insurance Company v. United States. While both the insurance companies and the government faced a barrage of questions challenging their positions, the government seemed to face more significant resistance to its position. In short, it sounded like several members of the Court lean toward requiring the government to pay the insurance companies for losses incurred in participating in the health insurance market in reliance on a provision in the Affordable Care Act.

Paul Clement argued on behalf of the insurance companies. He began his argument by stressing that “[t]his case involves a massive government bait-and-switch and the fundamental question of whether the government has to keep its word after its money-mandating promises have induced reliance.” He characterized the government as “suggest[ing] that there is no such thing as an enforceable congressional promise and that even the clearest command to pay money is subject to a caveat that it’s subject to appropriations, and reliance, even on clear language, is inherently unreasonable.” But, he said, “[t]hat position is inconsistent with all this Court’s cases” and that “[s]imply failing to appropriate the money” does not “cancel[] the obligation.”

Clement explained that the “risk corridor program[] at issue here was an important component of the government’s solution to the problem” that the new healthcare “exchanges depended on the participation of private health insurance companies, and those companies were being asked to insure previously uninsured people on unprecedented terms.” “So,” he said, “Congress made a clear money-mandating promise to pay” the risk corridor payments, and “[b]ased on that promise, my clients and others got state-approved rates to offer policies on the exchanges.” But “when it became time to pay, the government then started pointing to some ambiguous appropriation riders” rather than follow through on its promise. “But those riders by their plain terms did not repeal the [payment’ obligations,” Clement argued.

 Justice Ginsburg suggested that the Court has been “reluctant to imply any right of action” and instead has “insisted on Congress providing the right of action.” Clement did not disagree with those points, but instead argued that the implied right of action is “inferred from the money-mandating promise itself.” Moreover, he argued, “it ha[s] been long established that this kind of ‘shall pay’ language gave rise not just to jurisdiction under the Tucker Act but to a cause of action for damages.” In response to a point of clarification from Justice Kagan, Clement later acknowledged that “’shall pay’ alone might not do it, but when you combine that with specificity about what amounts are going to be paid and to whom and under what circumstances, that’s clearly sufficient.”

Chief Justice Roberts pointed out that the “Constitution says no money shall come out of the Treasury except pursuant to an appropriations clause.” In response, Clement argued that “the government can obligate itself without using any magic words of appropriation” and “if a statute is money-mandating, then that obligates the government.” Justice Alito, in turn, questioned whether there is “any source, other than the Judgment Fund, that could be used to pay these billions of dollars.” Clement responded that he could not identify any such source, and explained that “that’s a problem for why the Secretary of Health and Human Services can’t voluntarily make the payments without violating the Antideficiency Act. . . . But the fact that the government decides that . . . ‘we have these obligations, but we just don’t feel like appropriating enough money for them’ just doesn’t cancel the obligation or make it go away.”

Clement then distinguished what he said might be permissible—that when the government says ‘we’re not going to pay,’ and they’re talking about only a prospective obligation, maybe it’s fair to infer that they want that prospective obligation to go away.” Instead, as here, he suggested that “if they’re to say we don’t want to pay for something that’s an obligation they already incurred, then they’re actually risking . . . a very serious takings violation.”

In response to Justice Alito’s question whether there has ever been a case “where this Court has, in effect, required Congress to appropriate, through the Judgment Fund or in any other way, billions of dollars for private businesses,” as we effectively predicted, Clement highlighted that Winstar “got you into the billions of dollars as well.”

Edwin Kneedler argued for the government. He emphasized that, under the Appropriations Clause of the Constitution, when Congress does not make an appropriation, the Secretary of Health and Human Services cannot make a payment. And so because the Act in question “did not make an appropriation . . . the Secretary could not make a payment.” Later, when Congress passed the first appropriations legislation after the Act, “the only thing they appropriated was payments in, the user fees.” He argued, therefore, that “the Secretary’s compliance with that constitutional and statutory framework does not constitute a violation for which a cause of action can be inferred under the Tucker Act.”

Justice Breyer analogized the case to a contract, asking “why does the government not have to pay its contracts, just like anybody else?” Kneedler responded by pointing out that “this is not a contract.” Indeed, he said, “[i]t’s very far from a contract” given that “statutes are generally, absent a clear statement, construed not to establish a contract, not to establish private contractual rights or vested rights because a statute states a policy of the legislature until the legislature changes that policy.” Justice Breyer then, as Justice Alito did earlier, asked about the Winstar case.

Justice Ginsburg noted that there were bills to repeal the statute that included the “shall pay” language, but “there weren’t sufficient votes in the Congress to repeal” and so, “whatever [Congress] did, it didn’t repeal the obligation, the risk corridors obligation.” She asked if that fact is significant. Kneedler effectively responded that it was not significant because “nobody says the appropriations law here repealed it” but rather made “payments in match payments out so it would be budget neutral.”

Several Justices challenged Kneedler to admit that the insurance companies relied upon the government’s statute stating that the government would pay. Eventually Kneedler agreed that “we can assume that [the ‘shall pay’ language] contributed to” the insurance companies’ decisions to enter the market, but he stressed the statute merely provided a subsidy. And, he later explained, neither side has a Supreme Court case indicating whether the “shall pay” language is enforceable without an appropriations act in the context of a subsidy.  

When Kneedler later said that “an act of Congress, absent clear indications, is not construed to create a contract and is not construed to create vested rights,” Chief Justice Roberts seized on the phrase “absent clear indications.” He asked, “what clear indication would be required, short of a contract?” Kneedler refered to the situation where the statute “expressly says this represents an obligation of the Secretary to pay.” But, Justice Kavanagh pointed out, this statute doesn’t say shall pay “subject to appropriations,” while many other provisions do. When Kneedler didn’t have any explanation for what “subject to appropriations” means, Justice Kagan said she “would think it’s pretty clear what the ‘subject to appropriations’ language does.” She continued, “It puts people on notice. It says this is not a guarantee. It says, you know, you should take this with a grain of salt. And when it’s not there, the government says we’re committed.”

When Justice Breyer returned to the contract analogy, Kneedler resisted, arguing that “[a] statute is a fundamentally different thing” because it “is not an individual bilateral relationship in which the government says we will make the commitment to you if you do something.” Justice Sotomayor also later wondering aloud “why isn’t this an enforceable contract where the government is bound.”

Two of the final lines of questioning seemed to indicate the direction at least several members of the Court were leaning. Justice Kavanagh, for example, asked whether, if the Court rules against the government, “are there other existing statutory problems lurking out there”? Kneedler conceded he did not know. Later, Justice Kagain highlighted that this is a situation, under the government’s view, where the “shall pay in” is obligatory but the “shall pay out” on the part of the government is not obligatory. “You pay in, that’s obligatory. We commit ourselves to paying out. It turns out, if we feel like it. What kind of statute is that?” she remarked.

Clement pointed out in rebuttal that he “asked one of [his] associates to look at how many times that [the ‘subject to appropriations’ language] appears in the U.S. Code,” and “[w]hen he gave [Clement] 200, [Clement] told him he could stop.” In short, he argued, “[t]his is a recurring provision in the U.S. Code and [the government] would wipe out 200 references to ‘subject of appropriations.’ They would mean absolutely nothing.” And, in the end, seeking to downplay the “billions of dollars that this failure to uphold their obligations is going to cost the government,” he argued that the Court “shouldn’t lose sight of the fact that [the government] also saved billions of dollars in tax subsidies by reducing the premiums through this commitment.”

Based on the hostility several Justices showed toward the government’s position in this case, it does appear likely that the Court will find for the insurance companies and reverse the Federal Circuit, obligating the government to pay billions of dollars to the insurance companies. If so, in the words of Justice Kavanaugh, “Congress . . . will be on notice going forward that it needs to include ‘subject to appropriations’ kind of language in any mandatory statute.” With that said, it would be a heavy price to pay to learn this lesson.