Last week the Federal Circuit heard three cases that attracted amicus briefs. In one of these three cases, Sanford Health Plan v. United States, the United States presented two questions to the Federal Circuit related to the Affordable Care Act. As we noted in our argument preview, these questions ask whether health insurance companies may recover cost-sharing payments identified in the ACA but never funded by Congress. Last Thursday, the United States, Sanford Health Plan, and third party Community Health Plan (whose case was consolidated with Sanford for the oral argument) presented their arguments to a panel of the court that included Judges Dyk, Bryson, and Taranto. This is our recap of those arguments.
Notably, before reaching the merits, the panel took the time to clarify whether the district court had entered a final judgment, as well as to identify the issues that were present in each of the consolidated cases. Initially there was some confusion and some disagreement as to which arguments were being raised. The panel and the parties eventually seemed to come to an understanding that there is a final judgment giving the Federal Circuit jurisdiction to hear the appeal. And, after sorting out which arguments were being raised by each party, the panel proceeded with the oral arguments.
Alisa Klein, arguing on behalf of the federal government in both cases, began with “the central issue of liability.” Before she could get through her introduction, however, one of the judges asked whether, “[i]f the government loses the Moda case [at the Supreme Court], will the Moda case govern here?” In her response to the question, Klein distinguished Moda. She explained that the present cases, unlike that case, “focus on § 1401 and 1402 of the ACA, which are the tax credit and cost sharing subsidy provisions.”
Klein framed the issue in the present cases as whether to interpret the ACA to provide a damages remedy that Congress did not expressly state. In the course of her argument, Klein referenced Common Ground Healthcare Cooperative’s amicus brief, explaining that “there is no question that when Congress enacted the ACA it would have known that it did not fund the cost sharing subsidies, and if future Congress’s did not choose to fund the cost sharing subsidies, then premiums would go up.” The implication was that the increase in premiums would eliminate or nearly eliminate any damages.
Klein’s argument was best summarized by one of the judges: “As I understand your argument, the understanding of the likely relation between premiums and insurers costs was so widespread, so clear, that one must understand what Congress did in [section] 1402 against the background of this, so that Congress would have expected a perfect solution outside a damages remedy.” The judge went on to ask whether this ability to increase premiums provided “[s]omething so close [to full compensation] that [Congress] did not contemplate a need for a damages remedy?” Klein responded with a simple “yes.” The same judge then proceeded to explain that he “would expect to see some materials, not necessarily from Congress because of the unusual process, but somewhere from that time expressing ‘everybody’s’ understanding of the relation between these two things.” Klein responded by noting that, “although this particular issue of cost-sharing premiums was not addressed with specificity, the big issue that the Congressional Budget Office did address . . . was what happens when premiums go up, and that . . . very explicitly was as a result of the structure of the ACA’s tax credit provision.” Klein continued, “[t]ax credits go up as well, absorbing the premium increases.”
In the final minutes of her argument, Klein responded to a series of questions, like her first one, about what would happen if Moda were to be decided against the government. Specifically, one judge asked, “if Moda finds that there is an implied-in-fact contract, then the argument that you have been making about Congressional understanding of the premium and tax credit operation wouldn’t affect the contract argument right?” Klein answered that “we trust the Supreme Court will not find an implied-in-fact contract based on [its] precedent, but hypothetically speaking, [the Court] would have to be concluding from the ACA that Congress had an intent to enter into risk-corridor contracts.”
Daniel Wolff, arguing on behalf of Sanford Health Plan, opened his argument by asserting that “the government in this case invites complexity where there is none.” He continued: “This is first and last a case about statutory interpretation.” He went on to state that “what you don’t do when interpreting a statute is abandon the key term that governs, which in this case is ‘shall make,’ and this court has already decided this case in Moda.” From this statement, Wolff opened himself up to questions about precedent and cases with similar fact patterns. For example, the judges specifically asked: “If you have a directive to pay money, and there is no specific appropriation applicable to this case, are there any other cases with those facts?” Wolff replied by citing a Supreme Court contract case. Wolff claimed the case contains the same legal principle relevant to the correct disposition of the present case.
The judges then shifted the discussion to “the distinct argument between § 1401 and § 1402,” the separate provisions of the ACA related to, respectively, tax credits to defray insurance premiums (§ 1401) and the alleged obligation here, payments to health insurance companies to ensure reduction of shifting of costs to insureds (§ 1402). Wolff replied that “there is no support to find that there is a relationship between § 1401 and § 1402.” Wolff claimed one would expect to find some sort of coupling language if Congress had intended this. After hearing the argument, one of the judges remarked that “it would be odd for Congress to anticipate the funding [under § 1402] would be cut off.” Upon hearing this, Wolff quickly responded that “[t]hat’s the point, that the Congress that wrote this . . . intended that [the payments described in] § 1402 . . . be paid.”
During her rebuttal, Klein focused on a single point that she had made in her main argument. She reiterated that one of the amicus briefs states that “if the federal government doesn’t reimburse insurers for cost sharing reductions, then insurers would increase premiums to cover these costs.” She went on to say that, “[a]s a result of the ACA structure, these higher premiums would translate into higher federal costs for premium tax credits, and moreover because many more people are eligible for premium tax credits than for cost sharing reductions, the result would be a substantial increase in federal costs.” In other words, § 1401 and § 1402 work together, and insurance companies by raising premiums as a result of not receiving compensation under § 1402 have received increased federal assistance under § 1401.
It will be interesting to see if the Federal Circuit decides this case before Moda, and whether Moda will impact this case. We will keep track of developments and report on any opinion by the Federal Circuit in this case as soon as it issues.