Health Reform WK-EDGE GAO says HHS improperly withheld reinsurance funds from Treasury; GOP attacks
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Friday, October 7, 2016

GAO says HHS improperly withheld reinsurance funds from Treasury; GOP attacks

By Sarah E. Baumann, J.D.

HHS lacks authority to ignore a statutory directive to deposit funds collected from the transitional reinsurance program directly to the Treasury, the Government Accountability Office (GAO) stated in a September 29, 2016 letter. Although HHS argues that it is permitted to prioritize payments to issuers over payments to the Treasury when collections do not reach statutory targets, the GAO stated that such prioritization is expressly prohibited by section 1341(b)(4) of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). House and Senate Republicans who asked the GAO to weigh in on the issue in April referred to HHS’ actions as "The Great Obamacare Heist" and urged the administration to stop the illegal diversion of taxpayer funds to insurance issuers (see CMS, GOP clash over transitional reinsurance program, April 20, 2016).

Section 1341 of the ACA established the transitional reinsurance program, which collects funds from issuers and redistributes them among eligible issuers that provide coverage to high-risk individuals, in order to stabilize health insurance premiums and encourage issuers’ participation in the health insurance markets. Section 1341(b)(3)(B) requires that that the collected funds be distributed in specified amounts for reinsurance payments and an amount to be deposited into the Treasury, along with an unspecified amount for administrative expenses. The law states that HHS shall collect contributions of $10 billion for 2014, $6 billion for 2015, and $4 billion for 2016. In addition, under 1341(b)(3)(B)(iv), each issuer’s contribution reflects a proportionate share of an additional $2 billion for 2014 and 2015 and an additional $1 billion for 2016. According to section 1341(b)(4), any of the amounts described in 1341(b)(3)(B(iv), "shall be deposited into the general fund of the Treasury of the United States and may not be used for the program established under this section."

HHS announced in 2013 and 2014 that it planned to allocate collections on a pro rata basis to reinsurance payments, Treasury deposits, and administrative costs, in the event that it did not collect the amounts specified in the ACA. It later revised its decision and stated that it would allocate all collections for reinsurance payments first; only if it reached the reinsurance amount would it then allocate funds toward the Treasury deposit and administrative expenses on a pro rata basis. HHS’ 2014 collections fell short, and it did not allocate any funds to the Treasury or toward administrative costs. Funds for 2015 have not yet been collected, but are expected to fall short of the statutory figure.

At lawmakers’ request, the GAO analyzed section 1341 and determined that section 1341(b)(4) "explicitly prohibits" HHS from using the funds collected under section 1341(b)(3)(B)(iv) to carry out the reinsurance program. HHS maintains that the statute does not address circumstances in which HHS fails to collect the $10 billion, $6 billion, and $4 billion amounts listed in in 1341(b)(3)(B)(iii), and that it is thus permitted to prioritize reinsurance payments over Treasury deposits and administrative cots until those figures are reached. The GAO asserts that a pro rata distribution between reinsurance payments, Treasury deposits, and administrative costs is appropriate.

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