Practice Economics

GAO report calls out HHS for misdirecting ACA reinsurance funds


The Health and Human Services department is failing to properly administer a reinsurance program under the Affordable Care Act by unlawfully diverting funds intended for the U.S. Treasury, according to a nonpartisan watchdog report.

The Government Accountability Office (GAO) report, released Sept. 29, finds that HHS is breaking ACA regulations that require a portion of funds collected under its Transitional Reinsurance Program to go to the Treasury. Instead, the agency has redirected $5 billion so far to pay health insurers that enroll high-cost patients under the program.

Sen. John Barrasso (R-Wyo.)

Sen. John Barrasso (R-Wyo.)

“In light of the foregoing analysis, we conclude that HHS lacks authority to ignore the statute’s directive to deposit amounts from collections under the Transitional Reinsurance Program to the Treasury and instead make deposits in the Treasury only if its collections reach the amounts for reinsurance payments specified in section 1341,” Susan A. Poling, GAO general counsel, wrote in a legal opinion. “The agency is not authorized to prioritize collections in this manner.”

Republican lawmakers, including Sen. John Barrasso III (Wyo.), chair of the Senate Republican Policy Committee, praised the legal opinion, saying it shows the Obama administration is bending the rules when it comes to rolling out the ACA.

“This is a major victory for the American people who are suffering with higher premiums and fewer choices because of this failed law,” said Sen. Barrasso, who with several fellow Republican legislators requested the GAO investigation. “The administration should end this illegal scheme immediately, and focus on providing relief from the burdens of this law.”

At press time, neither the White House nor HHS had responded to request for comment on the report.

The Transitional Reinsurance Program is a 3-year initiative under the ACA that collects fees from employers and other private health insurance plans and directs the funds to health plans that face large claims for patients with high-cost medical conditions. The ACA specifies that between 2014 and 2016, HHS would collect $25 billion in fees, of which $5 billion would go into the Treasury.

But when HHS was unable to collect the full amount over the 3 years, it did not distribute funds into the Treasury, but instead used it pay the health plans. To justify that decision, HHS officials announced that the department would allocate all collections first for reinsurance payments until collections totaled the target amount set forth for reinsurance payments under the law, and that any remaining collections would go toward to administrative expenses and the Treasury, according to the GAO report.

But the GAO argues that HHS falling short of the projected collections does not alter the meaning of the statute.

“Specifically, where actual funding has fallen short of an agency’s original expectations, courts have directed the agency to distribute available funds to approximate the allocation plan Congress designed in anticipation of full funding,” Ms. Poling wrote. The HHS “assertion that the statute is silent with respect to allocation of collections overlooks the fact that section 1341 expressly directs HHS to collect amounts for the Treasury and prohibits the use of these amounts for any purpose other than deposit in the Treasury. HHS’s analysis focuses on words and phrases in the statute in isolation rather than in their appropriate context.”

While the GAO cannot force HHS to act with the opinion, lawmakers could use the report to craft legislation forcing HHS to repay the Treasury.

Katherine Hempstead

Katherine Hempstead

“This issue has been brewing for a while, and is another example of a series of attempts to challenge or limit payments being made to carriers under the ACA,” Katherine Hempstead, senior adviser to vice president at the Robert Wood Johnson Foundation, said in an interview. “It’s no mystery why making these payments is a pretty high priority for the [Centers for Medicare & Medicaid Services] right now, given the losses sustained by many market participants. My guess is that the can will probably be kicked down the road on this and a number of other issues for the next administration and Congress to resolve.”

The reinsurance program was one of three programs intended to protect against the negative impacts of adverse selection and risk selection, while working to stabilize premiums during the initial years of the health law’s implementation. The program aims to protect against premium increases in the individual market by offsetting expenses of high-cost patients.

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