the federal register the preamble and so on and even there time and again they say we actually think it's working and then they say to the extent there's a problem we're devising a fifty percent reduction scheme to go into effect so a state like new york can to the secretary look we think it's out of whack reduce these payments by up to fifty percent new york could have done that by august one two thousand and eighteen they didn't do it the agency objected to york's plan a plan to its adjustment that in twenty seven hundred twenty eight well i don't know that the agency has taken a position either way on the specifics of new york's plan but the agency has promulgated a regulation and that regulation is on the books it's paid it's three ten a seek their intervention in either way but the statute that i read to judge carney requires an affirmative determination by the secretary to bless the new york scheme not a it can't be the default rule is that these rules are all swept away and that's particularly so because the text of the regulation which is in effect it's three ten a and its founders are attend them to a brief it page five day says quote any state that elects to operate in exchange but that does not elect to administer risk adjustment which is undoubtedly new york quote will forego implementation of all state functions that's an existing regulation it's on the books and so to the extent you have this judge carney i think the natural question where is h h s in this h h s is right here in this regulation a formal regulation that says they can't do what they're doing and this court has never hesitated to strike something down and preemption defend here don't you have a claim against and under the you know we think actually that the h h s right is following its regulations and in those regulations preclude what new york is doing now to the extent that somehow there is some informal thing or whatever like that i suppose a challenge could be brought if a change just for acting on that and trying to make a determination in the absence of the secretary that the regulation is a go forward there seems to have blessed the procedure by making it a fish so for the ninety nine twenty nine thousand calendar year have a thing no not at all your honor and so i think that's really important that's their best argument it's found at their brief it page fifteen and it relies on a snippet from the preamble a two thousand and eighteen regulation that two hundred fifty five page regulation that regulation is largely about the fifty percent reduction scheme i was describing earlier and it makes no sense to think they would be going in blessing some unilateral scheme h h s when they were asked where the new whether the new york adjustment can be seen as permitting states to make adjustment without approval of their their response was amazingly unhelpful they said  states could examine whether any local approaches are warranted to help ease the transition for new this is it one six nine six exactly and then and then continued states that take such actions and make adjustments do not this i don't think they're on all three sides i think it's telling that my friends on the other side in their reply brief omit the those words about requiring h h s review and in the reply brief omit using state resources so that part i think is very important i think w whole and if you look at the last five pages not just page sixty but fifty five to sixty it makes clear h h s is generally in the driver seat now not always what they're saying i think there is that if there things there are things that new york can do for example they spend a lot of time talking about windfalls and so on new york sets the premium rates and they set them at the front end and they say eighty two percent of all of the money coming in has to be spent on medical expenses and then on the back end at the end of every year if an insurance companies like our clients have more have some sort of profit and eighty two percent is not spend on medical expenses they've got a rebate that back and so i think what's going on in that statement about state resources is that saying look new york you can have all sorts of regulatory things you can do the one thing you can't do is unilaterally reverse the federal risk adjustment scheme why because here it's thirty percent in a state like new york which will concede has all the right motivations but tomorrow it can be texas at ninety percent or a hundred percent of these payments and it was hostile to the how exactly and that would undercut the whole point of the national solution of the affordable care act in allow him in power unilaterally states to do in tinker with this in different ways and what i just post hoc approach what happened i think that they probably could i don't if my friends on the other side haven't made that argument but at least me has a better argument if it complies with the text of the statute eighteen zero four one b a secretary determination that the state standard comports with the federal methodology in the federal goals if they did those things i think we'd be in a different ballgame but they didn't they didn't and also in that search all the power and not to my knowledge i mean not to my knowledge and certainly not to some phone call by some informal staffer and so i think that underscores just lowkey a the real danger of their approach and that's why you know to the extent that you're concerned that sometime states are going to be you know the federal scheme is going to be out of whack in a particular place that's why a chief justice kagan has done several things including the fifty percent reduction scheme which is at the heart of what that big two hundred fifty didn't do that so they complain in their brief about the fed the new york data being all out of whack and so on look at their brief that data is from two thousand and fourteen and two thousand and fifteen and we complained about this in the district court document thirty seven and forty six we said look at this data is old it the newest out which at that point was from two thousand and sixteen shows new york is not out of whack anymore at all and they keep on relying on this old doubt as if as of what year was it no longer out whack two thousand and sixteen thousand in two thousand and seventeen adjustment it is based on data that worked and was compatible with the federal where we we don't know judge carney exactly what their methodology was when they decided  this two thousand and seventeen risk adjustment reversal hasn't been provided the i do think that's another thing about the federal scheme as it requires stakeholder input from all sorts of folks in the statute itself insurance commissioners insurance companies sions none of that exists with the new york scheme and that's one additional reason why we are emergent circumstances where there was this major and very significant unintended consequence that was inconsistent with their being rational federal risk adjustment program this was brought to their attention as tension by the state and there were emergent matters you know adjustments made to compensate for that the agency is now caught up with that issue and issue this  that that's only for two thousand and fourteen and fifteen and two to the extent that that is a problem there are many mechanisms in the existing law that eighty two percent rebate figure would require insurance companies like united to the to give money back if they received any sort of windfall and indeed and this is a i think what that regulate that snippet of text was getting at new york could say we're going to have a reinsurance program as there was before two thousand and sixteen so if any insurance company faced tremendous medical expenses that they didn't think that they were encouraged to incur at the beginning of the year new york can use its own funds to say on the backend look we're going to prop up and make sure that you're made whole but the po a magnitude that was really unexpected by either the federal government or the state government wasn't it well again i think it's only at the very front years that that was the magnitude when it was first started and i think now i think you can look at these numbers and say wow they're very high but they're high for a reason united an oxford are going in insuring riskier patient populations that's the whole point of the risk adjustment scheme if you didn't do that you'd have a massive adverse selection problem where every fact that insurance is typically a state issue from regulation and he was willing to make some concessions to the state superintendent because of that long tradition do you think that was misplaced to do so we don't doubt that it is because the supreme court has said in barrett bank as long as the statute specifically mentioning insurance a federal statute then mccarran ferguson doesn't apply and i don't think there's any doubt that the statute the affordable care act is all about insurance so i think that the standard rule which the supreme court set in gade is that even if you're dealing with the heartland of a state's police powers if you have a federal statute like this one which invites state regulation and says come to a federal agency for approval that's really a very strong indication that the statute pre amps the state regulate it has it is it has a savings clause it says it's expected to be in effect on this it prevents the application of the federal law  absolutely just carney as did gait and here's the most important point about gade quote this is from page ninety nine of the opinion the principal indication that congress intended to preempt state law was the requirement that a state shall submit a plan if it wishes to assume responsibility for the issue and that is exactly on fours with that eighteen zero four one statute that i read to you now there is a little difference in the wording so the savings clauses but i don't think  matters the saving this clause here says and this is it page two a of our appendix quote nothing in this title shall be construed to preempt any state law that does not prevent the application of the provisions of this title and as we have explained the new york scheme overrides the federal standards of the affordable care act mandates it prevents the application of the risk adjustment provisions that i began the argument with section eight hundred forty one for one please the court steven wu for the department of financial services plaintiffs are wrong to argue that what happened here was unilateral state action to reverse a federal program to the contrary what the department did here was exactly as a statute invision to consult with h h s to determine whether there were problems with the initial federal methodology since formal approval by the secretary does it it does not your honor i mean the statute talks about the secretary being obligated to consult with the states to come up with criteria and methods for accomplishing risk adjustment and that is squarely what the secretary did here this is a situation again where they see a massive new federal program came into existence it inserted itself into what had already been for a  century comprehensive state regulation of the insurance markets and this was a transitional period where we were working out cooperatively with the states how to manage the transition from the previous regulations to the new ones and what happened here was exactly which carney identified the federal methodology was issued for the twenty fourteen twenty fifteen plan years that it came out showing that there were disproportionate unintended consequences in new york and importantly those consequences meant that the federal methodology at the time failed to achieve department did i mean and that is like not seriously contested in the record the history of this program was that apartment went to the age of chess or maybe they just came to us there was a ongoing collaboration about the best way to accomplish risk adjustment in what is after all a state insurance market and the answer that has provided and has repeatedly stated in its rules about risk adjustment was to approve local approaches under state authority to deal unintended consequences but there's only a document that says we're to do with thirty percent overlay of your program ok and you know sign off there is a record of some conversations the initial letter from june twenty sixth he just says we disagree you know we having some problems there's nothing explicit about what the proposed remedy would be i know that there are the invitations by h h s for states who are experiencing severe difficulties to look at their own regulatory authority but this falls pretty sure above real signed off by the secretary doesn't it what's your best evidence that they knew about this particular program and agreed to it for so so here are the pieces i think number one what is stated in the regulations about risk adjustment is as you've identified the sort of broad recognition that local approaches under state authority are appropriate this invitation for states to take up that authority in order to deal with unintended consequences and again that's been stated since the may twenty sixth making all the way to the april twenty eighth rulemaking where people raised its new york program specifically asked if it was permissible questions about approval mean to me squarely this isabel whether this requires the approval of determined was that in lieu in light of the unintended consequences because of state specific factors they would allow states to exercise their own authority to deal with those consequences and blast that's express in the in the regulations new york then took up that invitation and promulgated this rule and what we know from the record is that there was extensive consultation between the state and the us about this specific did not elect to administer risk adjusted correct this is a this is a full mental division that i think plaintiffs conflate here which is that h h s has decided to administer what's known as the federal methodology which is you know under federal standards approved by a truss but they have expressly recognized that states have you know inherent separate authority predating ac a to accomplish risk adjustment on their own and that is what is discussed in among other places the april twenty eight hundred will make in what has is making the distinction between there is flexibility under this rule which means flexibility to adjust the federal methodology itself and state authority and the three does not seem to really allow for much much flexibility where the state does not elect to administer risk adjustment but forgo implementation of all still functions in the some part there but the in the sub part language is the important one and if you look at the regulatory language it repeatedly refers specifically to the federal methodology itself and the idea again is that if you want to have a methodology approved under federal standards and administered will require h h s review as outlined above so they don't talk about consultation they don't talk about meetings they talk about review but i think at worst the federal regulation is silent as to the flexibility i'm just trying to understand what is confusing after talking at length about precisely the forms of flexibility that you've just described it seems to require some form of approval and maybe there's a separate issue about whether the approval whether you google but it seems to require that by its very language but so the distinction here is approval to modify the federal methodology which us as a church has explained in the april twenty eighth when will making requires federal prove all under federal standard but again what the agency has separated out from that system is local approaches under state authority which they explicitly said do not require federal prove little why would they do that and make it so much more complicated for states that want to enforce their own methodology why would they do that when the statute seems to be crystal clear also there's two answers to that i mean one goes back to the origins of this exact policy which is that there were new york specific factor that made the federal methodology not work here and again what didn't work here was to accomplish the objectives of the a c a what new york found was a few applications the federal methodology was destabilizing the market was driving insurers out of the new york market as army guests most of new york ex wife because of new york factors that the federal methodology at that time did not consider and so the transitional approach so in your adversary says that that was the death it was for twenty fourteen but that that if i understood correctly that those child counting methods and adjustment itself acknowledged that there were still problems on the federal methodology and i think approved i believe an eighteen percent change in the federal risk adjustment payments to accommodate those different that's much less though they come in closer to parity her correct it's much less and i think that's no sixteen well number one the for the twenty seven thousand plan year d f s is using data from twenty sixteen is my understanding but maybe the other hand search your question is that all of this stuff lags year behind years behind the plan years i mean you get data from the administration of this program for a plan you're a year year and a half earlier and only then propose changes to sort of correct for deficiencies in the i mean this is part of the reason why it wasn't until twenty sixteen that h h s began to identify the problems from the twenty four percent stake in this case is the twenty seven t right attempted adjustment that's current new york state and why weren't you using the twenty six data in that in that case those adjustments did use the data for the relevant plan here transfer payments correct that's correct that's correct and and i want to make another sort of broader point here which is that what has she has done here and this is fully consistent with the statute i mean and i know that this would never happen in new york state but let's say that we were in texas and and the reason is because a core predicate of our argument is h h s is involvement and sign off on what new york has has done here i mean i think assumed within the idea that a state would for instance do a one hundred percent reversal of the risk adjustment is the federal agency would never approve argue that you saw approval so let some point the state believe that it needed some form of approval were some sign of approval from h h s yeah i mean and again this is the distinction that i think is critical here has demands in terms of formal approval or just changes to the methodology that it administers under these regulations but what the state got from a church us and i think is clear from the language in the regulations is approval to do its own thing under state authority without federal supervision this is a change in methodology that the change in methodology is basically to make further adjustments that account for features of the new york program that federal law does not but the federal program at that time did not did not nominate got approved and the approval was in the nature of this ongoing collaboration that's quite what what what new york identified and you just agreed was that they were unintended consequences from the federal methodology and to deal with i would say there's two answers to that one is that the statute doesn't preclude that kind of division of a forty year and the statute which broadly talks about the secretary's oversight over you know risk adjustment program and requires consultation with the state has to be understood against the backdrop where the state's had risk adjustment programs had preexisting authority and even under the federal program continue to regulate these insurance companies i mean i think it is very telling for example that plaintiffs here suggest that the states could have responded by adjusting the rebates that these insurers are required to pay under state law i assume that if the state had said your rebates are adjusted because of the effects of the federal risk adjustment program we'd be right back in this court as well so that is the record make clear exactly what  informally proved so so in two ways one is that a church has identified what it called disparities between what the federal methodology looked at which is the use of this national data set that did not take account of local  for and expressly required or acknowledge that it's richard's herrick that's a very generic thing what what can we we how do we know that they didn't approve forty percent transfer back or twenty percent transfer back well and i think the most direct and maybe the most direct response to that is that well what's what's generic is the is the language because a church has been using the same language since twenty sixteen what is not generic is the reference to the new york program which quite pointedly was about the very risk adjusted program at issue here let me ask a quick question about the  program in some of your materials it seemed that the state was into continuing to apply the program in two thousand and twenty and beyond but i wonder whether that was so given the appearance of these new regulations that anticipated twenty twenty program by the feds so i'll answer it in this way which is that the framework is in place for further adjustments on top of the federal risk adjustment program for two thousand and twenty and beyond of course we haven't yet seen what happens with this twenty twenty methodology which doesn't take into a take a take effect until the twenty twenty plan year as i understand and so the question of exactly how the states in the federal government will deal with that situation in a couple of years i don't think is squarely presented here yet your argument is that the new rules will make explicit what were you think implicit approval before the new rules were published well i wouldn't go quite that far and i don't think has has either i mean again in the april twenty eighth making has created this procedure for the federal methodology to be adjusted for for state specific factors but again doing before they issued this rubric but even in the rule making and this is at the end of that page sixty part of the regulation has just again reiterated that they continue to record is that local approach is might be appropriate i mean i think taking a step back i think the general problem here is that this is not exactly an area that is amenable to sort of in advance clear lines i mean what happens here is these are extremely complicated markets where there are lots of unintended consequences from regulations and the history of this program including the federal program was to sort of make the system work and and fundamentally what d f the how d f s approach this issue was to determine again in consultation with h h s that federal and state objectives were not being met and the fundamental purpose or risk my right in understanding that the state never heard from h h s that directing that would be directed to stop doing what it was doing  that's it that's exactly correct and h h s has every power under the statute to both say that and more importantly to have direct an informant power that's part of our armstrong earlier point in failure to stop with approval well it's not it's not that it's  points i mean one we do have a separate armstrong argument that says that h s is quite explicit authority to determine whether states are in compliance and to enforce that removes private accountable really from the equation but separately  involvement with d f s and the specific program here and it sort of repeated endorsement of local approaches is extremely powerful evidence that there is no conflict with federal objectives and to be clear the state and the federal objectives here are the say they are to stabilize the like maybe looking at the same objectives but having different methods well xcept that of course has has expressly endorse local approaches under state law i mean the contrast with a case like gade for instance is one where in gade the federal agency came in and said explicitly we do not want states to enforce local laws and they relied upon an express preemption provision that said on the issue of safety have you known as you can't change the methodology but that the you can change the federal methodology under their rules but what has just as acknowledge is that there is a separate state authority to accommodate local concerns and they have just decided that that change is outside of the federal methodology altogether and again the shared project here on the state and federal level is to ensure that risk adjustment accurately accounts for differences in the relative health of the enrolled the population for these different insurers and that's why h h s has adjustments within the federal suggestion program it's why we have these programs as well and the joint determination at the federal and state level is that the federal methodology was not accomplishing that goal that it was leaving disparities in place and in fact worsening disparities making the health insurance marketplace worse saw it is it is heightened it is heightened formalism over practicality to say that the federal government was required in the states were required to adhere to a methodology that regulators on both levels agreed was not working and all that d f s is asking for here is for this court to endorse a program that the federal government unfortunately precluded by this court decision and clear air clear market at work network mark cleary or markets page eighty seven quote even when federal and state statutes have a common goal this state law will be preempted if it interferes with the method  this is the clean air markets decision by this court it's also the supreme court decision in all yet which says that you can share the same goals but if you have a federal scheme that puts the federal government the driver seat it's undoubtedly preempted now my friend in response judge carney to your question what is the best evidence that this scheme was approved his answer i thought was very telling he said quote here are the pieces because he couldn't point to any one thing he pointed to four things as i counted them they're all add up to nothing the first s said local approaches are ok that's fine we don't disagree with that it's a question of what local approach is the ones that i offer to you in my opening absolutely fine unilateral scheme to reverse the federal scheme and not ok he then says second that they consultant that's great consultation is not secretary determination which is what the statute requires his third piece of evidence the state's kennicott the they chicest the states can accomplish risk adjustment on its own the regulation three ten a squarely for a bit and then lastly that textual snippet which we've been talking about but exactly three that reasons judge pooler you said the last line says you need h h s approval now here's why this is so important because i think it's all illustrated by judge lo his question about state x and the ninety percent figure when you ask my friend about that he said no h h s would never approve such a thing but his whole argument all four of these snippets are generic approvals it's not he's not he doesn't have sort of this new catch all this is so egregious still don't you find it surprising that h h s is nowhere to be seen i think that is undoubtedly their best argument not the one he made but i think you're absolutely right that's the best argument that the strongest intuitive powers to be in it say a few things about that number one the regulation itself that you pointed to shows that they are hearing that there's a flat prohibition in the regulation second the supreme court and why if versus levine it page by seventy six says agencies have no special expertise when it comes to preemption and indeed in why  spent powers don't they have explicitly foresman powers to go after noncompliance salute your honor but i think and they haven't exercised anything along that line or three years now your hundred percent right but i think that the general rule in its illustrated by the east hampton case is that even when an agency doesn't go after something it can still be preempted and that's exactly what happened in that case of a year but look your argument relies right i think i think mostly most correct well it even engaged in the seventh circuit before it came to the supreme court the agency was nowhere to be found in the seventh circuit still struck the scheme down was exactly on all fours with this true at the supreme court the agency filed a brief saying it was preempted but i think the supreme court has said time and again and why it is a very good example this court's decision and steel institute by just jacobs is another example in which the court has said we don't need we don't think agencies have any special expertise when it comes to preemption and yes they there is that alternative enforcement mechanism just as there was in all of the armstrong line of cases but if the regulation and the statute requires a secretary level affirmative determination you'd be flipping things again point me to the language that you were in the statute yes that requires an explicit somehow formal adopt and have in effect the federal standards established under subsection a or a state law or regulation that the secretary determines implements the standards under the state they are imposing their own risk adjustment standards entirely undoing the federal scheme now they say oh it's just a whole separate risk adjustment program there is no such thing it's just like saying if you're a store and there's a fifty percent sale on goods if the cashier at the back and when you're checking them out can reimpose the fifty percent to bring you up to full price you're paying full price here everyone under the scheme is paying exactly the price is  under the new york scheme is paying a different cost and benefit getting different numbers than what the federal government has published the federal government published that clients like ours should get a certain amount of money others should pay a certain amount of money what they have done is take a thirty percent or whatever the reversal of that and if they can do it here for thirty percent state x can do it for ninety or one hundred percent and in fact the agency contemplates fifty percent upcoming exact act so this is an order of in that promulgating that regulation h h s said look we actually don't think there's anything wrong with our risk adjustment payment schemes over the last years we know there have been criticisms but to the extent there are here's the way to fix it here's a process here's a substance that's required and they'd never bother to even go through that process and they could if the deadline was august process was available to them for twenty seventeen it wasn't for twenty seventy but even now with the you know so the  they've never went through it now you know that in earlier years like twenty fourteen and fifteen they didn't try and do anything like the confiscation schemes of the first year they tried was two thousand and seventeen and we submit to you if you allow that unilateral scheme for twenty seventeen you allowed for any year at any number because there is no requirement of specific approval under their test they're looking at generic and disha and that generic and disha cannot get to what they need under the statute a that would be a very very different case in that circumstance that if it tried to meet the statute that the secretary determines all they've got is some phone calls by someone named person that is they didn't file a brief ever appeared they didn't file a brief here either and again that's kind of like they filed a brief pull out they didn't they did not and and were invited to and did not exactly and in this court in friends of east hampton how did the same situation and the agency didn't participate in the court found that scheme preempted the agency responded before judge codell but just said we can't make the filing deadline you set and you felt some urgency and then went forth right exactly and then they didn't  correct i'm not saying that i'm just saying they never they didn't provide the decision that the kind of hypothetical that just lo here was suggesting or any conclusion from then on participation well i think you i think you can because there's an existing statute regulation to return on the books which is as clear as day and indeed and see no motorcars says that if they're going to deviate from that they have to provide a reasoned explanation and silence is definitely no reasoned explanation thank you thank you both very good argument but we've served decision this stance in effect until we reach our until we publish our decision is that your understanding or theirs to stay  today that argument to either of you know oh thank you