Sasse and Johnson Demand Answers from Health and Human Services over Failure to Return Payments to Taxpayers

WASHINGTON — U.S. Senator Ben Sasse (R-Neb.), a member of the Senate Homeland Security and Governmental Affairs Committee, and Chairman Ron Johnson (R-Wis.) demanded answers Thursday from the Department of Health and Human Services (HHS) Secretary Sylvia Burwell about HHS’s decision to pay insurers over taxpayers.

Obamacare established the transitional reinsurance program to alleviate financial risks and burdensome costs imposed by the ACA. Under the transitional reinsurance program, for benefit years 2014, 2015, and 2016, HHS was required to collect monetary contributions from insurance providers of group health plans. HHS was supposed to return a total of $5 billion to taxpayers by depositing funds into the U.S. Treasury and to redistribute $20 billion to insurance providers of individual health plans. However, when HHS collected less in contributions than required by law in 2014, it fully reimbursed insurers but failed to deposit any funds into the U.S. Treasury. Overall, HHS has promised taxpayers only $500 million in future payments under the reinsurance program in 2014 and 2015, rather than the full $4 billion promised from Obamacare.

“Here’s what this is about: HHS is putting insurance companies ahead of taxpayers and that’s textbook Washington cronyism,” said Senator Sasse. “Lobbyists for big insurance companies got the billions they wanted but taxpayers haven’t received a single dime. HHS owes the public some answers.”

“Obamacare has been nothing but broken promises and wasted taxpayer dollars,” said Chairman Johnson. “First it was, ‘If you like your healthcare plan and doctor, you can keep them’, and American families would see premiums decline by $2,500 per year. Now, we learn the Obama administration has mismanaged a key element of their Rube Goldberg make-over of America’s health insurance industry. On top of billions wasted on failed state exchanges and co-ops, the administration is further adding to the deficit by prioritizing payments to insurance companies. It’s past time for the administration to put patients and taxpayers first.”

The letter can be found here and below:

July 28, 2016

The Honorable Sylvia M. Burwell
Secretary
U.S. Department of Health and Human Services
200 Independence Avenue, S.W.
Washington, D.C. 20201

Dear Secretary Burwell:

The Committee on Homeland Security and Governmental Affairs is examining the Department of Health and Human Services’ (HHS) implementation of the transitional reinsurance program created under section 1341 of the Patient Protection and Affordable Care Act (ACA).  In particular, we write to request your assistance in better understanding HHS’s decision to prioritize payments to insurers over payments to taxpayers under the transitional reinsurance program.  HHS’s decision could potentially cost taxpayers $4.5 billion.

The ACA created three risk mitigation programs to alleviate the financial risks and burdensome costs imposed by the ACA.   One of the programs, the transitional reinsurance program, was designed, in part, to “stabilize premiums in the individual [health insurance] market” in the wake of anticipated market disruptions that would necessarily follow the implementation of the ACA.   The transitional reinsurance program was also designed to provide an offset for the ACA’s significant new spending.  Under the transitional reinsurance program, HHS collects monetary contributions from health insurance issuers and group health plans; in turn, HHS redistributes those contributions among insurers that provide individual plans and deposits a portion of the contributions into the general fund of the U.S. Treasury.

The ACA established mandatory collection amounts for benefit years 2014, 2015, and 2016, and specified the parameters for HHS’s distribution of the collected funds.   The ACA required HHS to collect a total of $20 billion for reinsurance purposes and to deposit an additional $5 billion into the general fund of the U.S. Treasury, while also allowing HHS to collect contributions to cover the administrative costs of operating the reinsurance program.   Under the law, HHS must collect $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016 for reinsurance purposes.   Similarly, the law specifies that collections for the general fund of the U.S. Treasury must total $2 billion in 2014, $2 billion in 2015, and $1 billion in 2016.   The ACA permitted the contribution amounts to “be allocated and used in any of the three calendar years,”  except for the funds designated for the U.S. Treasury.   The statute expressly prohibited any use of the $5 billion Treasury funds for reinsurance purposes.   Nothing in the statute expressly provided HHS with discretionary authority to prioritize payments to insurance providers rather than to the U.S. Treasury.

HHS issued regulations in 2013, 2014, and 2015 that established annual assessment amounts for insurers to pay per-enrollee so that HHS could collect the contribution amounts mandated by the ACA.   HHS determined that for the 2014 benefit year, to meet its statutory requirements, it would collect $63 per enrollee, which HHS projected would result in total collections of $12.02 billion—$10 billion for reinsurance, $2 billion for the U.S. Treasury, and $20.3 million for administrative costs.   HHS determined for the 2015 benefit year it would collect $44 per enrollee, which HHS projected would result in total collections of $8.025 billion—$6 billion for reinsurance, $2 billion for the U.S. Treasury, and $25.4 million for administrative costs.   HHS determined for the 2016 benefit year, it would collect $27 per enrollee, which HHS projected would result in total collections of $5.032 billion—$4 billion for reinsurance, $1 billion for the U.S. Treasury, and $32 million for administrative costs.

In reality, HHS collected far less in reinsurance contributions than the ACA requires.  For benefit year 2014, HHS collected only a total of $9.7 billion under the transitional reinsurance program, falling approximately 20 percent short of the projected $12.02 billion that HHS intended to collect to meet its statutory obligations.   HHS paid $8 billion in reinsurance claims to insurers at a 100 percent coinsurance rate for benefit year 2014.   Yet, despite fully reimbursing insurers, HHS declined to deposit any money into the general fund of the U.S. Treasury in benefit year 2014.  Instead, HHS carried over the remaining $1.7 billion for use for reinsurance-eligible issuers in benefit year 2015.

Despite collecting 20 percent less than it projected in benefit year 2014, HHS did not modify its collection methodology for the 2015 benefit year.  Unsurprisingly, then, HHS miscalculated the per capita contribution rate needed in order to meet its statutory obligations.  For the 2015 benefit year, HHS announced that it anticipated it would collect only $6.5 billion for 2015, 19 percent short of the projected $8.025 billion.   HHS has announced that for benefit year 2015, it intends to pay to pay the U.S. Treasury only $500 million of the $2 billion owed while sending $7.7 billion to insurers ($6 billion for 2015 plus $1.7 billion in funds carried over from the 2014 benefit year).   All told, the American taxpayers will receive only $500 million in payments under the transitional reinsurance program for benefit years 2014 and 2015 instead of the combined $4 billion required by Congress in the ACA.

During the rulemaking process, HHS received public comments about its proposed contribution rate for benefit year 2014.   Several commenters “asked HHS to defer the collection of the $2 billion payable to the U.S. Treasury in 2014 until 2016.”   In response to those comments, HHS explained in 2013 that it “considered the commenters’ statutory interpretations for how such a deferral may be permissible under section 1341 of the Affordable Care Act and would support such a deferral, but concluded that we have no statutory authority to defer the collection.”   HHS’s statement suggests that it initially interpreted section 1341 to require that it strictly meet its statutory obligations for each year.

It appears, however, that HHS reversed course when it became clear that it had miscalculated the per capita contribution and would be unable to meet its statutory obligation both to insurers and taxpayers.  In subsequent reinsurance regulations, HHS proposed:

[I]f collections fall short of our estimates for a particular benefit year, we propose to alter the allocation so that the reinsurance contributions that are collected are allocated first to the reinsurance pool and administrative expenses, and are allocated to the U.S. Treasury once the targets for reinsurance payments and administrative expenses are met.

In its final regulation, HHS claimed it had the legal authority under section 1341 to “determine the priority, method, and timing for the allocation of reinsurance contributions collected” because the statute was silent on “how HHS should approach the distribution of reinsurance contributions if insufficient amounts are collected to fully fund all three components of the program (that is, reinsurance payments, administrative expenses, and payments to the U.S. Treasury).”

HHS’s position that it may prioritize payments to insurance companies over taxpayers—and, subsequently, the payment scheme it operated under the transitional reinsurance program for the benefit years 2014 and 2015—is not consistent with the law.  First, nothing in the ACA’s text or structure contemplated that HHS would be unable to fully finance the transitional reinsurance program because section 1341 requires HHS to develop a methodology that collects a clearly-defined amount of money for benefit years 2014, 2015, and 2016.   HHS’s failure to collect this amount of money is itself a violation of the law.  The statute’s silence with respect to the allocation of insufficient collections under the transitional reinsurance program simply does not give HHS the authority to prioritize payments in the event it fails to collects sufficient funds.

Second, HHS argued that section 1341 permits prioritization of payments to reinsurance-eligible insurers over payments to the U.S. Treasury because the statute uses “mandatory language with respect to the collection” of funds for reinsurance payments and uses “more permissive language with respect to the collection of amounts for administrative expenses and payments for the U.S. Treasury.”   No such distinction exists in the text of section 1341.  section 1341(b)(3)(B)(iv), which governs the contribution to the U.S. Treasury from the transitional reinsurance program, states that the program “shall be designed so that each issuer’s contribution amount for any calendar year reflects its proportionate share of” the U.S. Treasury contribution.

HHS argued that the use of the word “reflects” in this provision is “permissive language.”   As a result of this peculiar interpretation HHS essentially interpreted the text of the ACA to say that each issuer’s “proportionate share” of contributions allocable to the U.S. Treasury is zero until and unless the total amount collected from all issuers meets the statutory mandate for reinsurance payments.   Under this interpretation, HHS ensures that the entire contribution from some group plans under the transitional reinsurance program will be paid solely to reinsurance-eligible issuers and will not reflect any amount that will be contributed to the U.S. Treasury.

This interpretation directly conflicts with the plain language of section 1341, which requires that that a proportionate share of aggregate U.S. Treasury contribution be reflected in “each issuer’s contribution.”   Simply put, at least some portion of each issuer’s contribution under the transitional reinsurance program must be deposited into the U.S. Treasury.  In addition, section 1341(b)(4) requires that the annual collections to the U.S. Treasury described in section 1341(b)(3)(B)(iv) be only deposited into the U.S. Treasury and “may not be used for” reinsurance program payments.   According to the independent and non-partisan Congressional Research Service, HHS’s interpretation that the entire contribution of an issuer be applied to only reinsurance-eligible issuers and that no part of it is used for the U.S. Treasury “would appear to be in conflict with a plain reading of § 1341(b)(4).”

Because HHS has not followed plain language of the ACA, the U.S. Treasury and the American taxpayer will now be short at least $3.5 billion.  To assist the Committee in further understanding HHS’s implementation of the transitional reinsurance program, we respectfully request the following information and material:

1. HHS used the same flawed methodology to calculate the uniform reinsurance contribution rate for 2014, 2015, and 2016 collections despite its clear failure to yield adequate collections for the 2014 benefit year.

a. For benefit years 2015 and 2016, why did HHS not adjust the calculation to improve its accuracy in meeting the statutory requirements of the ACA?

b. What, if any, analysis did HHS conduct concerning the calculation methodology and adjustments to the methodology?

c. Please provide all communications referring or relating to HHS’s calculation methodology and its consideration of adjustments to the methodology after HHS became aware of the shortfall.

2. When did HHS realize that the collection rate of $63 per enrollee would be insufficient to collect the projected $12.02 billion for the 2014 benefit year?

3. When did HHS realize that the collection rate of $44 per enrollee would be insufficient to collect the projected $8.025 billion for the 2015 benefit year?

4. Has HHS determined whether collections will be sufficient to fully pay the U.S. Treasury the statutorily-mandated $1 billion for the 2016 benefit year?  Please explain.

5. Does HHS plan to contribute to the U.S. Treasury the full $5 billion that the plain text of the ACA mandates?  Please explain.

6. Please provide all documents and communications referring or relating to HHS’s decision-making process that resulted in HHS’s prioritization of payments to insurance companies over payments to the U.S. Treasury.

7. Please provide a record of all meetings with all persons associated with the comments HHS received in favor of the agency’s ability to prioritize reinsurance payments.

Please provide this material as soon as possible but no later than 5:00 p.m. on August 11, 2016.

The Committee on Homeland Security and Governmental Affairs is authorized by Rule XXV of the Standing Rules of the Senate to investigate “the efficiency, economy, and effectiveness of all agencies and departments of the Government.”   Additionally, S. Res. 73 (114th Congress) authorizes the Committee to examine “the efficiency and economy of all branches and functions of Government with particular references to the operations and management of Federal regulatory policies and programs.”

For purposes of this request, please refer to the instructions and definitions contained in the enclosure.  When delivering production sets, please produce to Majority staff in room 340 of the Dirksen Senate Office Building and to Minority staff in room 613 of the Hart Senate Office Building.  If you have any questions about this request, please contact Samantha Brennan or Kyle Brosnan of Chairman Johnson’s staff at (202) 224-4751 or Alyene Senger of Senator Sasse’s staff at (202) 224-4224.  Thank you again for your assistance in this matter.

Sincerely,

Ron Johnson                                                                           Ben Sasse
Chairman                                                                                U.S. Senator

cc:        The Honorable Thomas R. Carper
Ranking Member