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UNLAWFUL REINSURANCE PAYMENTS: CMS 

DIVERTING $3.5 BILLION FROM TAXPAYERS 

TO PAY INSURANCE COMPANIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

APRIL 15, 2016 

Serial No. 114–135 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

SUSAN W. BROOKS, Indiana 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

CHRIS COLLINS, New York 

KEVIN CRAMER, North Dakota 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

DORIS O. MATSUI, California 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

BEN RAY LUJA ́ N, New Mexico 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky 

YVETTE D. CLARKE, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

TONY CA ́ RDENAS, California 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

TIM MURPHY, Pennsylvania 

Chairman 

DAVID B. MCKINLEY, West Virginia 

Vice Chairman 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

H. MORGAN GRIFFITH, Virginia 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

SUSAN W. BROOKS, Indiana 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

CHRIS COLLINS, New York 

KEVIN CRAMER, North Dakota 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

DIANA DEGETTE, Colorado 

Ranking Member 

JANICE D. SCHAKOWSKY, Illinois 

KATHY CASTOR, Florida 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky 

YVETTE D. CLARKE, New York 

JOSEPH P. KENNEDY, III, Massachusetts 

GENE GREEN, Texas 

PETER WELCH, Vermont 

FRANK PALLONE, JR., New Jersey (ex 

officio) 

(II) 

(III) 

C O N T E N T S 

Page 

Hon. Tim Murphy, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Diana DeGette, a Representative in Congress from the State of Colorado, opening statement ...................................................................................... 5 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 6 

Prepared statement .......................................................................................... 7 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 7 

Prepared statement .......................................................................................... 9 

WITNESS

Andy Slavitt, Acting Administrator, Centers for Medicare & Medicaid Services, Department of Health and Human Services ............................................. 11 

Prepared statement .......................................................................................... 13 

Answers to submitted questions 1 ................................................................... 54 

SUBMITTED MATERIAL

Subcommittee memorandum .................................................................................. 39 

Letter, undated, from Brent Nathan Brown of Mosinee, Wisconsin, to President Barack Obama, submitted by Ms. DeGette ............................................... 45 

Memorandum of February 23, 2016, from Congressional Research Service 

to House Committee on Ways and Means and House Committee on Energy 

and Commerce, submitted by Mr. Murphy ........................................................ 46 

1Mr. Slavitt did not answer submitted questions for the record by the time 

of printing. 

(1) 

UNLAWFUL REINSURANCE PAYMENTS: CMS 

DIVERTING $3.5 BILLION FROM TAXPAYERS 

TO PAY INSURANCE COMPANIES 

FRIDAY, APRIL 15, 2016 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:35 a.m., in room 

2123 Rayburn House Office Building, Hon. Tim Murphy (chairman 

of the subcommittee) presiding. 

Members present: Representatives Murphy, McKinley, Burgess, 

Blackburn, Flores, Brooks, Mullin, Hudson, Collins, Upton (ex officio), DeGette, Castor, Kennedy, Green, and Pallone (ex officio). 

Staff present: Gary Andres, Staff Director; Rebecca Card, Assistant Press Secretary; Jessica Donlon, Counsel, Oversight and Investigations; Emily Felder, Counsel, Oversight and Investigations; 

Brittany Havens, Legislative Associate, Oversight and Investigations; Charles Ingebretson, Chief Counsel, Oversight and Investigations; Chris Santini, Policy Coordinator, Oversight and Investigations; Jeff Carroll, Democratic Staff Director; Ryan Gottschall, 

Democratic GAO Detailee; Tiffany Guarascio, Democratic Deputy 

Staff Director and Chief Health Advisor; Christopher Knauer, 

Democratic Oversight Staff Director; Una Lee, Democratic Chief 

Oversight Counsel; Elizabeth Letter, Democratic Professional Staff 

Member; Andrew Souvall, Democratic Director of Communications, 

Outreach, and Member Services; and Arielle Woronoff, Democratic 

Health Counsel. 

OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA 

Mr. MURPHY. Good morning. We are here today at the Oversights 

and Investigations hearing on unlawful reinsurance payments to 

examine the transitional reinsurance program established under 

the Patient Protection and Affordable Care Act. 

The administration has inexplicably changed its position on a 

major component of this program and specifically how reinsurance 

payments are allocated. Despite issuing two final rules that allocated a portion of the reinsurance payments to the U.S. Treasury, 

CMS changed its position to prioritize payments to insurers. Essentially, CMS ruled that the Treasury doesn’t get any money until 

the insurers get paid. 

2 

CMS’ latest interpretation contradicts the plain language of the 

law. Repeatedly, this interpretation contradicts the plain language 

of the law. This is just the latest in a long line of examples of the 

administration breaking its own signature law in an attempt to 

prop it up. 

The reinsurance program was created to provide financial assistance to insurance companies who offered plans through 

Obamacare. The program incentivizes insurance companies to continue selling plans through healthcare.gov and State exchanges because it compensates them for enrolling high risk individuals. Final 

payments for this 3-year program will end in 2017. 

For each enrollee, insurance companies contribute a set dollar 

amount to the program, and then the funds collected are distributed to insurers who enroll the highest risk individuals. Built into 

this program was a deficit reduction measure, a proportion of each 

individual contribution is allocated to the Treasury. The statute estimates that approximately $5 billion would be designated to the 

Treasury through this program with $20 billion going to insurers. 

On March 11th, 2014, CMS issued a rule that spelled out how 

to divide the fund between Treasury, insurance companies, and administrative costs. CMS wrote that Treasury would receive about 

25 percent of the fund in 2015. 

But while insurers have received billions of dollars from the program, the Treasury has still received nothing. That is because CMS 

changed its mind ten days later after issuing its final March 11th, 

2014 rule. Ten days later, CMS published a rule completely reversing its policy position. In the new rule, CMS prioritized payments 

to insurers over payments to the Treasury and in short Treasury 

gets nothing until insurers are paid in full. CMS finalized this rule 

in May of 2014. 

But why did CMS dramatically reverse its own policy to favor insurance companies? We look forward to getting a straight answer 

from CMS today. We do know there is a cozy relationship between 

insurance companies and this administration, and the administration has worked to incentivize insurers to stick with the exchanges. 

In fact, we know that insurers have even emailed top White House 

officials begging for more taxpayer money to lower premiums and 

keep insurers selling Affordable Care Act plans. 

I expect Mr. Slavitt will attempt to justify why CMS changed its 

interpretation of the law, and he may argue that the statute is ambiguous or silent about what to do if the fund doesn’t collect the 

full amount. However, the statute clearly states in this statement 

here that the portion of the contribution intended for the Treasury 

shall be deposited into the general fund of the Treasury of the 

United States and may not be used for a reinsurance program. This 

means that each contribution includes a portion intended just for 

the Treasury and CMS cannot divert those funds to pay insurance 

companies instead. 

Now the nonpartisan Congressional Research Service agrees with 

us that the statute is not ambiguous and it is not silent on the 

issue. CRS analyzed the statute and CMS’ interpretations. The 

CRS found that the statute, quote, unambiguously states that each 

issuer’s contribution contain an amount that reflect its proportionate share of the U.S. Treasury contribution and that these 

3 

amounts should be deposited in the general fund of the U.S. Treasury, unquote. 

Mr. Slavitt may also argue that neither the law nor CMS contemplated what to do if the reinsurance fund came up short of the 

target amounts. The law states, however, that a portion of what is 

collected must go to the Treasury. Moreover, CMS did contemplate 

what would happen if the fund did not collect enough money. In 

its final rule issued March 11th, 2014, CMS predicted there would 

be a variance between the statutory benchmark and actual amount 

received through the program. 

When asked about the legal basis for diverting these funds at a 

February 24th, 2016, hearing before our Subcommittee on Health, 

Secretary Burwell provided no legal justification. The Secretary 

emphasized that this program is temporary, implying the committee’s concerns are unimportant because the program will be over in 

2017. 

I disagree. I think this issue holds the utmost importance. CMS’ 

actions exemplify a problem that goes beyond just this one Affordable Care Act program. When the executive branch decides to 

reprioritize the budget and divert money intended for the Treasury 

it is a concern for Congress. When CMS officials decide to ignore 

a clear mandate from Congress it is an affront to this legislative 

body. 

The administration cannot rewrite its own law to make it more 

convenient for special interests. This sets a dangerous precedent 

and is an affront to the separation of powers. Moreover, this program funnels money to insurers, now with money intended for the 

Treasury, in an attempt to prop up the Affordable Care Act. 

What will happen when this program runs out and there is no 

mechanism to underwrite high risk individuals who sign up on the 

exchanges? Will more insurers drop out? Will premiums raise even 

higher? The administration’s actions appear to be trying to delay 

the inevitable, the collapse of the Affordable Care Act if it is not 

reformed. 

I thank Mr. Slavitt for being here today. I know he and I have 

talked many times, and I appreciate his candor with me, and I 

hope that he will pledge to return CMS’ first, lawful interpretation 

of the reinsurance program and allocate funds to Treasury as required by law. 

[The prepared statement of Mr. Murphy follows:] 

PREPARED STATEMENT OF HON. TIM MURPHY

We are here today to examine the ‘‘transitional reinsurance program’’ established 

under the Patient Protection and Affordable Care Act. The administration has 

inexplicably changed its position on a major component of this program-specifically, 

how reinsurance payments are allocated. 

Despite issuing two final rules that allocated a portion of the reinsurance payments to the U.S. Treasury, CMS changed its position to prioritize payments to insurers. Essentially, CMS ruled that the Treasury doesn’t get any money until the 

insurers get paid. 

CMS’ latest interpretation contradicts the plain language of the law. This is just 

the latest in a long line of examples of the administration breaking its own signature law in an attempt to prop it up. 

The reinsurance program was created to provide financial assistance to insurance 

companies who offered plans through ObamaCare. The program incentivizes insurance companies to continue selling plans through healthcare.gov and State exVerDate Mar 15 2010 09:21 Apr 25, 2017 Jkt 037690 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 I:\114THCONGRESS\114X135REINSURANCE2SCANSSENT042417\114X135REINSURANC
4 

changes, because it compensates them for enrolling high risk individuals. Final payments for this 3-year program will end in 2017. 

For each enrollee, insurance companies contribute a set dollar amount to the program, and then the funds collected are distributed to insurers who enroll the highest risk individuals. Built into this program was a deficit reduction measure-a proportion of each individual contribution is allocated to the Treasury. The statute estimates that approximately $5 billion would be designated to the Treasury through 

this program-with $20 billion going to insurers. 

On March 11, 2014, CMS issued a rule that spelled out how to divide the fund 

between Treasury, insurance companies and administrative costs. CMS wrote that 

Treasury would receive about 25% of the fund in 2015. But while insurers have received billions of dollars from the program, the Treasury has still received nothing. 

This is because CMS changed its mind 10 days later after issuing its final March 

11, 2014 rule. 10 days later, CMS published a proposed rule, completely reversing 

its policy position. In the new rule, CMS prioritized payments to insurers over payments to the Treasury. In short, Treasury gets nothing until insurers are paid in 

full. CMS finalized this rule in May 2014. 

Why did CMS dramatically reverse its own policy to favor insurance companies? 

We look forward to getting a straight answer from CMS today. We do know there 

is a cozy relationship between insurance companies and this administration. And 

the administration has worked to incentivize insurers to stick with the exchanges. 

In fact, we know that insurers have even emailed top White House officials begging 

for more taxpayer money to lower premiums and keep insurers selling Obamacare 

plans. 

I expect Mr. Slavitt will attempt to justify why CMS changed its interpretation 

of the law. He may argue that the statute is ambiguous or silent about what to do 

if the fund doesn’t collect the full amount. However, the statute clearly states that 

the portion of the contribution intended for the Treasury ‘‘shall be deposited into 

the general fund of the Treasury of the United States and may not be used for the 

[reinsurance] program.’’ This means that each contribution includes a portion intended just for the Treasury—and CMS cannot divert those funds to pay insurance 

companies instead. 

The nonpartisan Congressional Research Service agrees with us—the statute is 

not ambiguous or silent on this issue. CRS analyzed the statute, and CMS’ interpretations. CRS found that ‘‘the statute unambiguously states that ‘each issuer’s contribution’ contain an amount that reflects ‘its proportionate share’ of the U.S. Treasury contribution, and that these amounts should be deposited in the General Fund 

of the U.S. Treasury.’’ Mr. Slavitt may also argue that neither the law nor CMS contemplated what to do if the reinsurance fund came up short of the target amounts. 

The law states, however, that a portion of what is collected must go to the Treasury. 

Moreover, CMS did contemplate what would happen if the fund did not collect 

enough money. In its final rule issued March 11, 2014, CMS predicted there could 

be a variance between the statutory benchmark and the actual amount received 

through the program. When asked about the legal basis for diverting these funds 

at a February 24, 2016 hearing before our Subcommittee on Health, Secretary 

Burwell provided no legal justification. The Secretary emphasized that this program 

is temporary, implying the committee’s concerns are unimportant because the program will be over in 2017. 

I disagree. I think this issue holds the utmost importance. CMS’ actions exemplify 

a problem that goes beyond just this one ObamaCare program. When the executive 

branch decides to reprioritize the budget and divert money intended for the Treasury, it is a concern for Congress. When CMS officials decide to ignore a clear mandate from Congress, it is an affront to this legislative body. The administration cannot re-write its own law to make it more convenient for special interests. This sets 

a dangerous precedent and is an affront to the separation of powers. 

Moreover, this program funnels money to insurers-now with money intended for 

the Treasury—in an attempt to prop up ObamaCare. What will happen when this 

program runs out, and there is no mechanism to underwrite high risk individuals 

who sign up on the exchanges? Will more insurers drop out? Will premiums rise 

even higher? The administration’s actions appear to be trying to delay the inevitable—the collapse of Obamacare. 

I thank Mr. Slavitt for being here today and hope that he will pledge to return 

to CMS’ first, lawful interpretation of the reinsurance program -and allocate funds 

to Treasury as required by the law. 

Mr. MURPHY. I now recognize the ranking member of the subcommittee, Ms. DeGette of Colorado, for 5 minutes. 

5 

OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Ms. DEGETTE. Thanks, Mr. Chairman. Well, I guess nobody here 

is surprised we are having yet another Oversight hearing on the 

Affordable Care Act. This subcommittee has had 16 oversight hearings on the act since it was passed, and also we have sent dozens 

of oversight letters to the Department of Health and Human Services, to CMS, and others, pertaining to the Affordable Care Act. 

I know for a fact the agencies have spent countless staff hours 

and taxpayer dollars preparing testimony for hearings responding 

to these letters and providing documents, information and briefings 

to satisfy the committee’s oversight interests. 

Now I just want to ask one question. Has anything of value been 

achieved through these efforts? Have we actually changed or modified the Affordable Care Act to work better? No, we haven’t. Now 

listen, I believe in Government oversight. In fact, I have urged the 

chairman of the full committee and you, Mr. Chairman, to have 

meaningful oversight hearings around the Affordable Care Act because I do believe there are some things that can be fixed. 

But, you know, good Government illuminates the shortcomings 

and causes of institutional failures and thereby it informs any substantive changes in public policy. Unfortunately, our oversight over 

the act over the last 6 years has served neither to enlighten the 

committee, improve the law nor help millions of Americans. And I 

just use, for example, of what we are doing here today is the 

hashtag that the majority is using on social media, hashtag Great 

Obamacare Heist, or some of the inflammatory statements in the 

press release that the majority sent out about today’s hearing and 

why we are having it. 

Now you have heard over and over again for 6 years that the 

ACA is destroying the lives of Americans, and also you just heard 

that the administration has not followed the law. I mean, I think 

that there may be a matter of misinterpretation or different interpretation, but nobody can argue that 20 million new Americans 

have insurance because of the Affordable Care Act. 

In this press release I just referenced, my colleagues describe the 

reinsurance program which is the topic of today’s hearing as a, 

quote, ‘‘taxpayer-funded giveaway.’’ Now this is a program, the reinsurance program, that the majority understood was necessary 

and in fact put in their own bill on Medicare Part D when they 

passed that in 2005. 

The reason we have the ACA reinsurance program is because it 

helped us transition from an individual market that relied on medical underwriting to one in which insurers can no longer discriminate against individuals for preexisting conditions and cannot decline to offer coverage to somebody because they are sick. This temporary transitional program achieves this goal by collecting contributions from insurance companies which are then in turn used 

to make payments to insurance companies in the individual market 

which will offset the largest claims for the sickest individuals. I 

would hardly call that a taxpayer funded giveaway. 

This self-same press release also described the administration’s 

decision to prioritize reinsurance payments to insurers as, quote, 

6 

unlawful. You just heard that in the chairman’s statement. Now 

this rhetoric is also unfair and inaccurate, because what we have 

here is a difference of opinion regarding a policy decision and a difference of views on how to interpret a provision of the ACA. 

So I look forward to hearing about those differences today, but 

unlawful again seems to be a little bit extreme. 

Now, I just want to put this in perspective, and I want to read 

an excerpt of a letter from Brent Brown to President Obama. Brent 

Brown is a lifelong Republican who recently introduced the President at a speech in Milwaukee, Wisconsin, and here is what he 

said. 

Quote, I did not vote for you either time. I have voted Republican 

for the entirety of my life. I proudly wore pins and planted banners 

displaying my Republican loyalty. I was very vocal in my opposition to you, particularly the ACA. Before I briefly explain my story, 

allow me to say this. I am so very sorry. I was so very wrong. You 

saved my life, Mr. President. You saved my life and I am eternally 

grateful. I have a preexisting condition and so could never purchase health insurance. Only after the ACA came into being could 

I be covered. Put simply to take not too much of your time if you 

are in fact taking the time to read this, I would not be alive without access to the care I received due to your law. 

Mr. Chairman, I would like unanimous consent to enter Mr. 

Brown’s letter to the record. 

Mr. MURPHY. Without objection. 

[The information appears at the conclusion of the hearing.] 

Ms. DEGETTE. And I think it is time to have a productive conversation about improving the ACA and the lives of all our constituents, and I yield back the balance of my time. 

Mr. MURPHY. The gentlelady yields back. I now recognize the 

chairman of the full committee, Mr. Upton, for 5 minutes. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Thank you, Mr. Chairman. This hearing does continue the subcommittee’s thoughtful and necessary oversight of the 

President’s healthcare law. Today, the three-and-half-billion-dollar 

question is why CMS is now diverting taxpayer dollars to insurance companies without any legal authority to do so. 

Health law statute plainly states that a portion of the contributions to the reinsurance program must be given to the U.S. Treasury. Still, CMS has chosen to violate the law by prioritizing reinsurance contributions to health insurers rather than allocating the 

required portion to the U.S. Treasury. 

Initially, CMS followed the letter of the law and according to its 

final rule issued on March 11th, 2014, and similar to its rule the 

prior year, CMS planned to allocate contributions to the reinsurance program between the health insurers, the Treasury, and administrative costs. Less than two weeks later, however, on March 

31st, 2014, CMS switched gears and issued a different proposed 

rule completely reversing their previous position. 

Rather than allocating a portion of the contribution to the Treasury as dictated by law, CMS instead prioritized reinsurance contributions to health insurers and finalized the rule two months 

7 

later. So why, the question is why the sudden reversal to redirect 

billions away from the taxpayer? 

Legal memorandum released earlier this year by the nonpartisan 

CRS found that the statute does not permit CMS to prioritize reinsurance payments to insurers. In fact, the Congressional Research 

Service found that CMS’ actions appear to contradict the plain language of the law. 

I would like to think that you have come to provide us some answers to those questions today as we look to understand the who, 

what, when, where, and why of that decision. The American public 

deserves answers and we look forward to that discussion. I yield 

back. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

This hearing continues the subcommittee’s thoughtful and necessary oversight of 

the President’s healthcare law. 

Today, the 3.5-billion-dollar question is why CMS is now diverting taxpayer dollars to insurance companies without any legal authority to do so. The health law 

statute plainly states that a portion of the contributions to the reinsurance program 

must be given to the U.S. Treasury. Still, CMS has chosen to violate the law by 

prioritizing reinsurance contributions to health insurers rather than allocating the 

required portion to the U.S. Treasury. 

Initially, CMS followed the letter of the law. According to its final rule issued 

March 11, 2014, and similar to its rule the prior year, CMS planned to allocate contributions to the reinsurance program between the health insurers, the U.S. Treasury, and administrative costs. Less than two weeks later, however, on March 21, 

2014, CMS switched gears and issued a different proposed rule completely reversing 

CMS’ prior position. Rather than allocating a portion of the contributions to the 

Treasury as dictated by law, CMS instead prioritized reinsurance contributions to 

health insurers and finalized this rule two months later. Why the sudden reversal 

to redirect billions away from taxpayers? 

A legal memorandum released earlier this year by the nonpartisan Congressional 

Research Service found that the statute does not permit CMS to prioritize reinsurance payments to insurers. In fact, CRS found that CMS’ actions appear to contradict the plain language of the law. 

We hope Centers for Medicare and Medicaid Services’ Acting Administrator Andy 

Slavitt has come with answers today as we look to understand the ‘who, what, 

when, where, and why’ of CMS’ decision. The American public deserves answers. 

I would note that on this date 104 years ago, the Titanic sank after striking an 

iceberg. The President’s health law is taking on water, and the administration is 

doing everything in its power, including violating the law, to keep it afloat. 

Regardless of one’s view of the President’s health law, the law and its implementation demand vigilant oversight. Congress cannot stand silent when its laws are 

not being faithfully executed. 

Further, as we continue to see today, billions of taxpayer dollars are at stake. 

Mr. MURPHY. The gentleman yields back. I now recognize the 

ranking member of the full committee, Mr. Pallone, for 5 minutes. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Mr. Chairman. When we passed the 

Affordable Care Act into law more than 6 years ago, we dramatically changed the healthcare landscape in this country and the law 

has been a historic success. It has achieved its goals and made access to comprehensive health care a reality for the American people. Thanks to the Affordable Care Act, 20 million more Americans 

now know the security of health insurance, and for the first time 

8 

ever the uninsured rate has fallen below ten percent. And these are 

remarkable achievements. 

Before the Affordable Care Act was passed, the insurance system 

in this country was broken. Even my Republican colleagues who 

were obsessed with repealing the law acknowledge that this is the 

case. 

Absolutely no one is advocating for returning to the old system 

of rapidly rising costs, gross inefficiencies, and painful inequalities. 

It was a system where upwards of 129 million Americans, nearly 

one in two people, could be discriminated against in the individual 

market for preexisting medical conditions ranging from diabetes to 

breast cancer to pregnancy. And these individuals could be charged 

more than a healthy person for the same coverage and were often 

denied coverage all together. Many insurance plans lacked important benefits and limited coverage. 

Fortunately, thanks to the Affordable Care Act, these things are 

no longer true. People who were previously deemed uninsurable because of preexisting conditions are finally getting health insurance 

coverage and this has meant a big change in how insurance companies do business. 

Under the old system, insurers sought to protect their bottom 

lines by avoiding the sickest and costliest patients in the individual 

market, a practice known as medical underwriting. Today, insurers 

must offer coverage to everyone and they cannot cancel someone’s 

policy because he or she gets sick. 

The law’s temporary reinsurance program operates to smooth 

this transition from a medically underwritten individual insurance 

market to one in which everyone is guaranteed coverage. Simply 

put, the reinsurance program spreads the cost of large insurance 

claims for very sick individuals across all insurers, helping to stabilize premiums during the early years of the new marketplace. 

The program collects contributions from health insurance companies, which are then used to make payments to the insurance companies in the individual market to offset the costs of their sickest 

enrollees. 

Now my Republican colleagues on this committee have called 

these payments, quote, handouts to insurance companies, and I 

quote, taxpayer funded giveaways. And neither of these things is 

true. The reinsurance program is a temporary program funded entirely by contributions from insurance companies to smooth the 

transition from a medically underwritten market to one where everyone is guaranteed coverage. 

Unfortunately, this type of overblown rhetoric and blatant misinformation is typical when it comes to my Republican colleagues and 

the Affordable Care Act. In fact, this same framework is a permanent fixture of our Part D program, a law that Republicans support, defend and promote. And I just find it ironic and hypocritical 

that this framework is acceptable for Medicare Part D, which was 

signed into law by a Republican President, but it is supposedly a 

taxpayer funded giveaway under a healthcare law from a Democratic President. You can’t have it both ways. 

They have used similar rhetoric to describe the administration’s 

decision to prioritize reinsurance payments to insurers over payments to the U.S. Treasury, the subject of today’s hearing. For inVerDate Mar 15 2010 09:21 Apr 25, 2017 Jkt 037690 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 I:\114THCONGRESS\114X135REINSURANCE2SCANSSENT042417\114X135REINSURANC
9 

stance, a March 22, 2016 press release from the majority describes, 

and I quote, CMS’ decision to loot billions from the Treasury to pay 

off insurance companies and calls on the agency, and I quote again, 

to stop unlawful payments to insurers. And these characterizations 

by the GOP are simply absurd. 

Let’s be clear. What is at stake here is simply a policy disagreement about how to interpret statutory language in the Affordable 

Care Act. The administration has interpreted the law through a 

formal, transparent notice and comment rulemaking process. It determined that the statute is silent on what the agency should do 

in the event that collections are insufficient to fully fund both payments to insurance companies and payments to the U.S. Treasury. 

It then concluded that in the event of a shortfall, payments to insurers should be prioritized and that this prioritization furthers the 

statutory goals of the program. 

I know my Republican colleagues clearly disagree with this interpretation and they are entitled to their view. But the hyperbole 

and the misinformation is counterproductive and does nothing to 

help a single person get health insurance. 

So let me just conclude by expressing my disappointment in the 

direction this committee continues to take in conducting oversight 

of the Affordable Care Act. Hearings like this only serve to hurt 

Americans and reverse the progress that has been made for the 

millions who now benefit from the law. And I believe we should instead work to improve the law and ensure all of our constituents 

have access to the quality, affordable health care they deserve. 

I yield back, Mr. Chairman. 

[The prepared statement of Mr. Pallone follows:] 

PREPARED STATEMENT OF HON. FRANK PALLONE, JR. 

When we passed the Affordable Care Act into law more than 6 years ago, we dramatically changed the healthcare landscape in this country. The law has been a historic success. It has achieved its goals and made access to comprehensive healthcare 

a reality for the American people. 

Thanks to the Affordable Care Act, 20 million more Americans now know the security of health insurance, and for the first time ever, the uninsured rate has fallen 

below 10 percent. These are remarkable achievements. 

Before the Affordable Care Act was passed, the insurance system in this country 

was broken. Even my Republican colleagues who are obsessed with repealing the 

law acknowledge that this is the case. 

Absolutely no one is advocating for returning to the old system of rapidly rising 

costs, gross inefficiencies, and painful inequalities. It was a system where upwards 

of 129 million Americans—nearly one in two people—could be discriminated against 

in the individual market for pre-existing medical conditions, ranging from diabetes 

to breast cancer to pregnancy. 

These individuals could be charged more than a healthy person for the same coverage and were often denied coverage altogether. Many insurance plans lacked important benefits and limited coverage. 

Fortunately, thanks to the Affordable Care Act, these things are no longer true. 

People who were previously deemed uninsurable because of pre-existing conditions 

are finally getting health insurance coverage. 

This has meant a big change in how insurance companies do business. Under the 

old system, insurers sought to protect their bottom lines by avoiding the sickest and 

costliest patients in the individual market, a practice known as medical underwriting. Today, insurers must offer coverage to everyone, and they cannot cancel 

someone’s policy just because he or she gets sick. 

The law’s temporary reinsurance program operates to smooth this transition from 

a medically underwritten individual insurance market to one in which everyone is 

guaranteed coverage. Simply put, the reinsurance program spreads the cost of large 

10 

insurance claims for very sick individuals across all insurers, helping to stabilize 

premiums during the early years of the new marketplace. The program collects contributions from health insurance companies, which are then used to make payments 

to insurance companies in the individual market to offset the costs of their sickest 

enrollees. 

My Republican colleagues on this committee have called these payments ‘‘handouts to insurance companies’’ and a ‘‘taxpayer-funded giveaway.’’ Neither of these 

things is true. The reinsurance program is a temporary program, funded entirely 

by contributions from insurance companies, to smooth the transition from a medically underwritten market to one where everyone is guaranteed coverage. 

Unfortunately, this type of overblown rhetoric and blatant misinformation is typical when it comes to my Republican colleagues and the Affordable Care Act. In fact, 

this same framework is a permanent fixture of our Part D program—a law that Republicans support, defend and promote. I find it ironic and hypocritical that this 

framework is acceptable for Medicare Part D, which was signed into law by a Republican President, but it is a supposed ‘‘taxpayer-funded giveaway’’ under a 

healthcare law from a Democratic President. You can’t have it both ways. 

They have used similar rhetoric to describe the administration’s decision to 

prioritize reinsurance payments to insurers over payments to the U.S. Treasury, the 

subject of today’s hearing. For instance, a March 22, 2016 press release from the 

Majority describes ‘‘CMS’ decision to loot billions from the Treasury to pay off insurance companies,’’ and calls on the agency to ‘‘stop unlawful payments to insurers.’’ 

These characterizations are absurd. 

Let me be clear: what is at stake here is simply a policy disagreement about how 

to interpret statutory language in the Affordable Care Act. 

The administration has interpreted the law through a formal, transparent, notice 

and comment rulemaking process. It determined that the statute is silent on what 

the agency should do in the event that collections are insufficient to fully fund both 

payments to insurance companies and payments to the U.S. Treasury. It then concluded that in the event of a shortfall, payments to insurers should be prioritized, 

and that this prioritization furthers the statutory goals of the program. 

My Republican colleagues clearly disagree with this interpretation. They are entitled to their view. But the hyperbole and the misinformation is counterproductive 

and does nothing to help a single person get health insurance. 

Let me conclude by expressing my disappointment in the direction this committee 

continues to take in conducting oversight of the Affordable Care Act. Hearings like 

this only serve to hurt Americans and reverse the progress that has been made for 

the millions who now benefit from the law. 

We should instead work to improve the law and ensure all of our constituents 

have access to the quality, affordable health care they deserve. 

Mr. MURPHY. The gentleman yields back. Now let me introduce 

our one witness here. Andy Slavitt is the Acting Administrator for 

the Centers for Medicare and Medicaid Services. As Acting Administrator, he oversees programs that provide access to quality health 

care for 140 million Americans including Medicaid and Medicare, 

the Children’s Health Insurance Program, and Health Insurance 

Marketplace. You have been before us in this committee, so welcome back. 

I ask unanimous consent also that the members’ written opening 

statements be introduced in the record, and without objection, the 

documents will be entered into the record. 

You are aware that this committee is holding an investigative 

hearing, Mr. Slavitt, and when doing so has the practice of taking 

testimony under oath. Do you have any objections to testifying 

under oath? 

Mr. SLAVITT. I do not. 

Mr. MURPHY. And the Chair then would advise you that under 

the rules of the House, under rules of committee, you are entitled 

to be advised by counsel. Do you desire to be advised by counsel 

during your testimony today? 

Mr. SLAVITT. No, thank you. 

11 

Mr. MURPHY. In that case, would you please rise, raise your 

hand, and I will swear you in. 

[Witness sworn.] 

Mr. MURPHY. Thank you. You are now under oath and subject to 

the penalties set forth in Title 18, Section 1001, of the United 

States Code. You may now give a 5-minute summary of your witness statement. 

STATEMENT OF ANDY SLAVITT, ACTING ADMINISTRATOR, 

CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF HEALTH & HUMAN SERVICES 

Mr. SLAVITT. Chairman Murphy, Ranking Member DeGette, and 

members of the subcommittee, I’m pleased to be here again and 

look forward to discussing the Affordable Care Act’s transitional reinsurance program. 

The transitional reinsurance program is a critical building block 

in the new health insurance market from which so many consumers are benefiting. By now you’ve heard the statistics, an estimated 20 million Americans have gained coverage and the Nation’s 

uninsured rate is at its lowest recorded level. 

When we talk about these numbers it’s important to understand 

that it just doesn’t happen by itself. Critical provisions of the ACA 

like reinsurance allow people with significant medical expenses to 

be covered affordably. Reducing the cost of health insurance is in 

everyone’s interest, for individuals in small businesses who pay 

premiums, and because the Government gives Federal tax credits 

to people with modest incomes it is a much better deal for the 

Treasury. We all benefit. Covering people with significant medical 

expenses is a core policy objective of the ACA. 

I will refer to an example of the Hubbard family who live in Dallas, Texas. Sean Hubbard is studying for a PhD, and his wife 

Jamie works in a hair salon. They signed up for health insurance 

through the marketplace. Sean described what happened when his 

son Navin was born a month early. Other than being small he appeared to be healthy, but doctors discovered that Navin had a 

heart defect that would require surgery, and transferred him to 

Medical City Children’s Hospital. 

In all, the bills have come to nearly $3 million, but we’ve been 

covered through it all. The little fellow has come home in mid-February, and though he’s doing well he has more surgeries, speech 

and physical therapy and other procedures in his future, and it’s 

comforting to know that because of the Affordable Care Act Navin 

can’t be denied coverage in the future because of preexisting conditions. 

My point isn’t simply to remind us what’s happening throughout 

the country as millions of families get coverage for the first time, 

but also to point to the importance of the details that matter, critical policy provisions like reinsurance. 

We all know that the Hubbard situation could be visited on any 

of us. Sometimes we need expensive health care to get well. I spent 

more than two decades in the healthcare industry before joining 

the Government and I can tell you that until 2014, every day medical expenses like this haunted American families for the rest of 

their lives. The Affordable Care Act fundamentally changed that 

12 

and changed the entire insurance market. Insurance companies can 

no longer deny or put limits on a consumer’s coverage because they 

have a serious illness. 

This is precisely why reinsurance is so important. It spreads the 

risk across large populations. Every insurance company pays a 

smaller amount of money in the confidence that if they happen to 

enroll people like the Hubbards they’ll receive money back to help 

cover the costs of the complex medical care. This is certainly not 

a concept unique to the Affordable Care Act, Congress also included the reinsurance program in Medicare Part D for similar reasons. 

Let me directly address the implementation of this provision and 

in particular how the allocation of funds were determined. In the 

case of reinsurance the statute didn’t contemplate what should 

occur if collections either fell above or below the mark indicated in 

the statute. While I’ve been in Government only a short time, I can 

tell you that occasionally across all of our programs including 

Medicare and Medicaid we do encounter instances in which the 

statute is silent as to the necessary details to implement the policy. 

Given this, 2 years ago CMS proposed an approach of reimbursing high cost claims as a first priority and sought public comment 

on both the legal and policy reasoning of how to address the specific scenarios that weren’t contemplated by the statute. CMS received universal public support for the policy of returning payments back to cover claims as a first priority, and no one, not one 

commenter questioned the legality or appropriateness of the approach. 

In the brief time that I’ve been with the agency, I can tell you 

that we take concerns that we receive very seriously. We understand that differences of interpretation sometimes happen, and as 

the committee has more recently expressed. Our lawyers carefully 

reviewed and assessed the recent memo from the Congressional Research Service to confirm our approach is supported by the statute. 

As the CBO recently noted, the entire cost of the Treasury of the 

ACA’s coverage provisions is projected to be 25 percent lower than 

originally estimated. The reinsurance program is reducing costs. It 

continues to help many, many families like the Hubbards and 

serves taxpayers well by lowering Federal tax credit obligations. 

This year we will add approximately $500 million to the U.S. 

Treasury from the program as collections will exceed the targeted 

amount to reimburse high cost claims for 2015. We are committed 

to operating this program for American families and with focus on 

efficiency for taxpayers. I look forward to answering your questions 

now to the best of my abilities. 

[The prepared statement of Mr. Slavitt follows:] 

13 


STATEMENT O.F 

ANDY SI;AVITJ: 

ACTING ADlVHNISTRATOI~ 

CENTERS FOR MEDICARE & MEDICAID SEIWICES 

:' ,,,", 

U.S. liOl)~E ENERGY AND GQl\IMER~ECOMMITTEE, 

SUBCOMMITTElt 0~ O~~SIG~*'AND INVESTIGATIONS 

APRIL 15,2016 
14 


U.S. House Energy and Commerce Committee, 

Subcommittee on Oversight and Investigations 

The Transitional Reinsurance Program 

April IS, 2016 

Chairman Murphy, Ranking Member DeGette, and members of the Subcommittee, thank you for 

the opportunity to discuss the Affordable Care Act's transitional reinsurance program. The 

Centers for Medicare & Medicaid Services (CMS) implemented the reinsurance program in 

accordance with the statute to help provide stability in the health insurance market as the 

Affordable Care Act extends new benefits to consumers. 

CMS' s priority is to provide Marketplace customers with access to quality, affordable coverage. 

In the years since the passage of the Affordable Care Act, we have seen increased competition 

among health plans and more choices for consumers. 1 During the third Marketplace Open 

Enrollment, nine out often returning customers were able to choose from three or more issuers 

for 2016 coverage, up from seven in ten in 2014.2 Moving forward, CMS is eager to build on the 

progress in reducing the number of uninsured Americans- an estimated 20 million Americans 

gained coverage since the Affordable Care Act's coverage provisions have taken effect,3 and the 

Nation's uninsured rate is at its lowest level since data collection began over five decades ago. 4

•

5 

During the third open enrollment that concluded at the end of January, 12.7 million Americans 

selected affordable, quality health plans for 2016 coverage through the Marketplaces.6 

The Affordable Care Act made many significant refonns in the individual and small group health 

insurance markets, including ending discrimination based on pre-existing conditions, 

establishing essential health benefits, and removing annual and lifetime dollar limits on these 

benefits. These reforms work in tandem with the medical loss ratio, also known as the 80/20 rule, 

1 www .hhs. gov /aboutlnews/20 15/07/30/competition-and-choice-in-the·health-insurance-marketplace-lowered· 

premiums-in-20 15.html 2 \vww.hhs.gov/aboutlncws/2015/07/30/competition-and-choice-in-the-health-insurance-marketplace-loweredpremiums-in-20 IS.html 3 https:/ /aspe.hhs. gov /pdf·rcport/health-i nsurance-coverage-and-affordable-care-act-20 I 0-2016 

4 http://'.'o'WW .cdc.gov /nchs/ data/nhis/earlvre lease/i nsur20 1602 .pdf 5 http://www.cdc.gov/nchs/data/nhsr/nhsr017.pdf 

6 https://www .ems. gov fNewsroom/MediaReleascDatabase/F act-sheets/20 16-F act -sheets·items/20 16-02-04 .htm I 
15 


and rate review, to result in significant benefits for consumers, providing many with access to 

high-quality, affordable health insurance. 

The Affordable Care Act also includes programs based on similar, successful programs in the 

Medicare Part D prescription drug benefit- reinsurance, risk adjustment, and risk corridors- to 

stabilize premiums and the health insurance market. These programs mitigate the impact of 

potential adverse selection inside and outside the Marketplaces, while stabilizing premiums and 

encouraging plan participation in the individual and group markets, including in the 

Marketplaces. 

Thanks in part to these programs, the Affordable Care Act will continue to provide consumers 

with affordable coverage options, encouraging issuers to participate in the Marketplaces and 

compete on price and quality. The reinsurance, risk adjustment, and risk corridors programs help 

ensure that the Affordable Care Act works as intended, with insurance plans competing on the 

basis of quality and service and not by seeking to attract the healthiest individuals. Better 

competition leads to improved coverage so that consumers whether they are healthy or sick 

-can pick the best plan for their needs. 

Transitional Reinsurance Program 

Section 1341 of the Affordable Care Act directs that a transitional reinsurance program be 

established in each state from 2014 through 2016. The transitional reinsurance program is 

designed to partially reimburse the costs of high-cost enrollees in the individual market, helping 

to smooth risk, and thereby reduce premiums, in the individual health insurance market as the 

market reforms are implemented and the Marketplaces facilitate increased enrollment. In 

accordance with section 1341, health insurance issuers and certain group health plans make 

contributions. From these contributions, reinsurance payments are made to individual market 

issuers with claim costs within a pre-determined level as described below. 

Reinsurance contributions are based on a uniform per capita contribution rate, which is 

calculated and announced each year in time for issuers and group health plans to incorporate into 

their rates. CMS announced the 2014, 2015, and 2016 reinsurance contribution rates in the 

2 
16 


annual Payment Notices for 2014,2015, and 2016, each of which was published in final form 

about one year before the applicable coverage year. Reinsurance payments to issuers are based 

on a portion (the coinsurance rate) of the issuer's costs per enrollee once paid claims costs reach 

a certain level (attachment point) and until a payment limit (cap) is reached.7 CMS also 

proposed and finalized the 2014, 2015 and 2016 reinsurance payment parameters- that is, the 

coinsurance rate, attachment point and cap- in the annual Payment Notices for 2014, 2015 and 

2016. States had the option to establish a reinsurance program and collect additional reinsurance 

contributions, or defer establishment and performance of all reinsurance functions to the 

Department of Health & Human Services (HHS). 8 Connecticut is the only state that elected to 

operate its own reinsurance program, and it is responsible for disbursing reinsurance payments to 

its issuers. 

Operationalizing the Transitional Reinsurance Program 

To implement the transitional reinsurance program, CMS followed the standard public 

rulemaking process, seeking public comment on all reinsurance policy proposals. Less than six 

months after enactment of the Affordable Care Act, CMS published a Request for Comment, 

inviting the public to provide input regarding the rules that would govern Marketplace and 

related functions such as reinsurance and risk adjustment.9 In July 20 II, CMS published the first 

proposed rule related to reinsurance, risk adjustment and risk corridors, in anticipation of the 

market reforms taking effect in 2014, and to provide issuers and other stakeholders with 

adequate notice of our intended policies. 10 Since that time, each rule implementing various 

aspects of the reinsurance program has been proposed and finalized according to our established 

rulemaking process. Annual per capita contribution rates and payment parameters for the 

reinsurance program were proposed and finalized in our Notice of Benefit and Payment 

Parameters (Payment Notice) for 2014,2015 and 2016 benefit years. Consistent with the 

statutory flexibility to allocate and use contributions in any of the three years in which they are 

7 For 2014, the attachment point is $45,000 and the cap is $250,000. 8 Connecticut is the only state to establish its own reinsurance program, and is operating the program for 2014-2016. 9 Planning and Establishment of State-Level Exchanges; Request/or Comments Regarding Exchange-Related 

Provisions in Title I of the Patient Protection and Affordable Care Act (August 3, 2010); available at 

httpso!lwww.wo.govl(dsvslpkg!FR-2010-08-03/pdf/20!0-!8924.pd[ 

1

° From preamble to CMS-9975-P, Patient Protection and Affordable Care Act; Standards Related to Reinsurance, 

Risk Corridors and Risk Adjustment; Proposed Rule; https://www.gpo.gov/fdsys/pkg/FR-2011-07-15/pdf/2011-

17609.pdf 

3 
17 


collected, CMS adopted a regulation to use remaining funds collected for reinsurance payments 

(if any) from one year to make payments in the subsequent years of the program, 

In order to maximize the financial effect of the transitional reinsurance program and ensure that 

all of the contributions collected for a benefit year are expended for claims for that benefit year, 

CMS finalized a proposal in the Payment Notice for 2015 to increase the coinsurance rate on 

reinsurance payments for a benefit year, up to a maximum of I 00 percent, if reinsurance 

contributions exceed the total requests for reinsurance payments for that benefit year. While the 

reinsurance contribution rate, program parameters and models were established prior to the start 

of the first open enrollment period in 2013, CMS continued to use the rulemaking process to help 

ensure that the program would function as intended. 

In the years leading up to the 2014 coverage year, when issuers and group health plans would 

begin offering coverage under the new market rules established by the Affordable Care Act, and 

consumers would begin purchasing coverage through the Marketplaces, CMS relied on models 

and projections to develop estimates related to a number of Affordable Care Act programs, 

including the premium stabilization programs. In order to meet issuers', group health plans' and 

states' rate-setting timelines, CMS needed to propose and finalize reinsurance collections rules 

more than a year before the beginning of the coverage year, so that issuers and group health 

plans could incorporate those expectations into their rates. Thus, in estimating a 2014 

contribution rate that would target $12.02 billion in collections, CMS conducted modelling 

efforts through the summer and fall of 2012, using the latest available data on the insured and 

self-insured markets nationally, which was generally 2010 data. 

CMS created the Affordable Care Act Health Insurance Model (ACAHIM) to estimate market 

enrollment and per enrollee expenditures, incorporating the effects of State and Federal policy 

choices, and accounting for the behavior of individuals and employers. We used the ACAHIM, 

which was developed with reference to existing models such as those of the Congressional 

Budget Office and the CMS Office of the Actuary, to characterize medical expenditures and 

health insurance enrollment choices nationally in 2014. The ACAHIM is made up of integrated 

modules that predict the number and characteristics of market entrants and medical spending. 

4 
18 


The outputs of the ACAHIM, especially the estimated enrollment and expenditure distributions, 

were used to analyze estimated Marketplace enrollment in 2014. 

The ACAHIM model was also used to establish the uniform contribution rate and reinsurance 

payment parameters for all three years- 2014, 20 I 5, and 2016. These parameters and rates 

needed to be established for all three years, based on issuers', group health plans' and states' 

rate-setting time lines. 

Due to the uncertainty in our estimates of reinsurance contributions to be collected, and to help 

ensure that the reinsurance payment pool is sufficient to provide the premium stabilization 

benefits intended by the statute, we sought comment in the 2015 Exchange and Insurance Market 

Standards Proposed Rule 11 on potential revisions to the allocation of reinsurance contributions 

collected. Specifically, we proposed that, if collections fell short of our estimates (and therefore, 

short of the target collection amounts) for a particular year, we would allocate contributions that 

are collected first to the reinsurance payment pool and administrative expenses, until our targets 

for reinsurance payments and administrative expenses were met. Once those targets were met, 

the remaining contributions collected for that benefit year would be allocated to the U.S. 

Treasury. 

We sought comment on this proposal, including with respect to our legal authority to prioritize 

reinsurance contributions to reinsurance payments over payments to the U.S. Treasury. We also 

invited comments on alternative allocation approaches to maximize the premium stabilization 

benefits of the reinsurance program. All comments CMS received were supportive of the 

proposed policy. In the 2015 Exchange and Insurance Market Standards Final Rule, published 

on May 27,2014, 12 CMS finalized our proposed reallocation approach with minor modifications. 

Consistent with the policies finalized through rulemaking, CMS announced on June 17, 2015, 

that the national coinsurance rate for the 2014 benefit year for the transitional reinsurance 

program would be increased from 80 percent to 100 percent because reinsurance contributions 

11 https://www.cms.gov/cciio/resourees/regulations-and-guidance/downloads/cms-9949-p.pdf 12 https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/508-CMS-9949-F-OFR-Version5-16-1 4.pdf 

5 
19 


for the 2014 benefit year exceeded the requests for reinsurance payments.'3 As noted above, 

these changes were made in order to maximize the financial effect of the transitional reinsurance 

program and ensure that all of the contributions collected for a benefit year are expended for 

claims for that benefit year. This announcement also noted that since collections fell short of the 

estimates for the 2014 benefit year, the first $10 billion collected would be allocated for 

reinsurance payments, and any of the funds for reinsurance payments that remained would be 

used for such payments in the subsequent benefit year. For the 2014 benefit year, CMS received 

approximately $9.7 billion in reinsurance contributions, and made nearly $7.9 billion in 

reinsurance payments to 437 issuers nationwide. On February 12, 2016, CMS announced that 

we anticipate that we will collect approximately $6.5 billion in reinsurance contributions for the 

2015 benefit year. This will provide $7.7 billion in reinsurance contributions for reinsurance 

payments for the 2015 benefit year (reflecting approximately $1.7 billion in contributions from 

the 2014 benefit year and approximately $6 billion in collection from the 2015 benefit year), 

while $500 million will be allocated on a pro rata basis for program administration and to the 

General Fund of the U.S. Treasury. Should we receive collections in excess of the amounts we 

have previously anticipated, this additional amount will be allocated between program 

administration and the General Fund of the U.S. Treasury pursuant to the reinsurance allocation 

process outlines in the Patient Protection and Affordable Care Act; Exchange and Insurance 

Market Standards for 2015 and Beyond. 

Conclusion 

The Affordable Care Act created the reinsurance program to stabilize premiums and the 

insurance market in the first years of the new Marketplaces and implementation of the new 

federal reforms. Now in its final year, the reinsurance program continues to reduce uncertainty 

for issuers so the market can function more smoothly, encouraging issuers to offer high-quality, 

affordable plans, and stabilizing premiums for consumers. CMS believes that the reinsurance and 

other premium stabilization programs are an important part of our efforts to mitigate adverse 

selection and limit the consequences of uncertainty that could prevent Americans from accessing 

13 https://www.cms.gov/CCIIO/Programs-and-lnitiatives/Premium-Stabilization-ProgmmsfThe-TransitionalReinsurance-Program/Downloads/RI -Payments-National-Proration-Memo-With-Numbers-6-17-1 5. pdf 

6 
20 


health insurance. I appreciate the opportunity to discuss the regulatory framework outlined by 

CMS and look forward to answering your questions. 

7 
21 

Mr. MURPHY. Thank you, Mr. Slavitt. Before I start I want unanimous consent to include the CRS memo in the record, so without 

objection, I will include that there. 

[The information appears at the conclusion of the hearing.] 

Mr. MURPHY. I recognize myself for 5 minutes. On March 11th, 

2014, CMS did issue a final rule that it allocated a proportion of 

reinsurance contributions to Treasury in accordance with the law, 

and just ten days later CMS issued another rule reversing its position and prioritizing payments to insurers over the Treasury. Why 

did CMS change its mind? 

Mr. SLAVITT. Thank you, Mr. Chairman. Well, this was before my 

time at CMS so I couldn’t give you other than what I’ve seen in 

the regulation, which is first of all it’s not uncommon for new regulations to supplant older regulations as people learn more, and I 

think it was laid out in the regulation that was proposed subsequently that they were concerned about the precision of the estimate and so they laid out the policy reasoning and legal reasoning 

subsequently as to why they felt like that was the right course. 

Mr. MURPHY. In its prior rulemaking though CMS had already 

contemplated what would happen if the reinsurance fund did not 

collect enough money and CMS said the Treasury would still receive a portion of the funds, so this is out of CMS’ interpretation 

at the time. So the rule did not change because CMS had to figure 

out what to do if the fund came up short, correct? 

Mr. SLAVITT. I think the—I’m sorry. Can I ask you to repeat that 

question? 

Mr. MURPHY. Sure. The rule did not change because CMS had 

to figure out what to do if the fund came up short. I mean, was 

that their motivation that it would come up short? 

Mr. SLAVITT. I think they were—I think there was uncertainty 

as to how to handle situations if it did come up short, and so I believe they looked at the situation and determined that that was the 

best policy decision and sought public comment as to whether or 

not that indeed was the right policy decision, but also laid out the 

legal reasoning to get comment on whether or not that was appropriate. 

Mr. MURPHY. But they had already contemplated that scenario 

that it might come up short and again then made this leap to 

change their interpretation, and this is what is so puzzling to us. 

One day they interpret it one way according to the law, and another day as you said some lawyers reviewed and changed their 

minds on that. I would think that we have responded in truth and 

the law instead of interpretations. 

But let’s go back to this nonpartisan Congressional Research 

Service statute which does speak to directly to the issue. I mean, 

CMS wrote that the law unambiguously states, and let me read the 

whole quote here, because the statute unambiguously states that 

each issuer’s contribution contain an amount that reflects its proportionate share of the U.S. Treasury contribution and that these 

amounts should be deposited in the general fund of the U.S. Treasury, a contrary agency interpretation would not be entitled to deference under Chevron. Now you have read the CMS memo, I am 

assuming? 

22 

Mr. SLAVITT. Yes, I have, but more importantly so have our lawyers. 

Mr. MURPHY. Well, I don’t give a darn what your lawyers say if 

they are wrong. I mean, what they are saying is, so this is a very 

unambiguous statement from CMS and Congress made a clear rule 

in this in the law. And just because some lawyer said, well, we 

don’t agree with what the law says and we don’t even agree with 

what CRS says, we are going to come up with our own interpretation, I don’t see where the law grants any latitude to say, here is 

what the law says but this is open to the interpretation of any lawyer who wants to see otherwise. 

So help me with this. I don’t understand where the authority 

comes from to make that change. 

Mr. SLAVITT. Sure. Well, we believe we have the statutory authority. And I think what is at root here is that the statute is very 

clear on what happens in the circumstance where $12 billion is collected and the statute is silent on what happens when different 

amounts are collected. 

And I think as again because I wasn’t here we’ll piece this back 

based on what I’ve learned is that that meant either interpretations, there could be multiple interpretations of what to do in those 

situations. 

Mr. MURPHY. I think the wording unambiguously is pretty clear. 

I don’t think that says there is multiple interpretations. Have you 

seen the movie, The Big Short? 

Mr. SLAVITT. I have. 

Mr. MURPHY. So you know in there the whole issue was while 

they are taking all these mortgages, AAA, AB rated, that the banks 

were basically reselling these and repackaging these to keep these 

bond packages strong, and other people were saying it cannot be 

sustained, the banks at some point can’t keep doing this. 

This whole thing looks to me of the same ilk, and I worry here. 

Look, I like the story you told about people who have insurance. 

I agree with you. I am glad people have that kind of coverage now. 

What worries me is that when this whole thing ends in a few 

months and they are not going to have this kind of thing to prop 

it all up anymore, we are going to see some collapse here in the 

health insurance market like occurred there for the bond markets. 

I am out of time. I now give 5 minutes to Ms. DeGette. 

Ms. DEGETTE. Oh, OK. That was kind of an interesting question 

about a movie, about the big banks and everything. Mr. Slavitt, do 

you think—I haven’t seen the movie, but I am going to—do you 

think that what is happening here with the reinsurance is the 

same thing that the big banks did in this movie depiction? 

Mr. SLAVITT. No, Congresswoman. 

Ms. DEGETTE. And why not? 

Mr. SLAVITT. Well, this is reinsurance payments, which is—and 

I’ve been in the healthcare industry for quite some time. 

Ms. DEGETTE. Right. 

Mr. SLAVITT. The premiums are funded by the plans themselves 

in order to cover losses that they receive. So this is not in fact taxpayer funded, as you pointed out earlier, but it really is a very, 

very common technique to make sure that people with large claims 

can get covered, particularly in the early years of the market. 

23 

Ms. DEGETTE. It just smooths out the system, right? 

Mr. SLAVITT. Exactly, smooths it out. 

Ms. DEGETTE. And this is going to be phased out once the market is stabilized, right? 

Mr. SLAVITT. Right, after 3 years. Yes. 

Ms. DEGETTE. Now you said you weren’t at the, we know you 

weren’t at CMS at the time this policy was designed; is that right? 

Mr. SLAVITT. That’s correct. 

Ms. DEGETTE. So when it was designed—but you say you have 

gone back and you have researched it—— 

Mr. SLAVITT. Yes. 

Ms. DEGETTE [continuing]. And figured out what happened; is 

that right? 

Mr. SLAVITT. That’s correct. 

Ms. DEGETTE. You also talked to your lawyers about it. 

Mr. SLAVITT. That’s correct. 

Ms. DEGETTE. OK. Now, so when in 2015 CMS proposed 

prioritizing reinsurance payments to health insurance issuers over 

payments to the U.S. Treasury in the event that collections fell 

short of the amount needed to make both payments in full, do you 

know how that proposal came about? 

Mr. SLAVITT. I don’t know exactly how it came about, but I know 

that because they were unsure given that the statute didn’t contemplate what to do, the approach they took was to file a notice 

of proposed rulemaking with the Federal Register for everybody to 

see so they could see comments both on the approach at the policy 

as well as the legal reasoning for that. 

Ms. DEGETTE. And did they go through that process then? 

Mr. SLAVITT. They did. 

Ms. DEGETTE. And did they get any comments that this was illegal? 

Mr. SLAVITT. No, they did not. 

Ms. DEGETTE. Did they get any comments that it was a quote, 

taxpayer funded giveaway? 

Mr. SLAVITT. No, they did not. 

Ms. DEGETTE. OK. Do you know if the agency consulted with its 

lawyers when it put the proposal together? 

Mr. SLAVITT. Yes. I can tell you that the lawyers scrupulously review every regulation that the agency proposes. 

Ms. DEGETTE. And the lawyers felt I assume that it would be 

legal to do this kind of rulemaking; is that right? 

Mr. SLAVITT. That’s correct. 

Ms. DEGETTE. Now you told Mr. Murphy that you have subsequently talked to the lawyers about whether this was legal despite 

the language that Mr. Murphy cited to from the statute. What was 

the advice that they gave you about why they thought it was legal? 

Mr. SLAVITT. Well, so first of all it’s not uncommon for there to 

be differences of opinion and for there to be memos that come in 

that don’t agree. I think our practice, and I followed up specifically 

with the lawyers, was to make sure that upon reading that letter 

they still had the same interpretation that they had before. 

Indeed, their comment was that they believed that the regulation’s still very clearly supported by the statute and that there’s 

statutory authority for it. 

24 

Ms. DEGETTE. Even now? 

Mr. SLAVITT. Even now. And I would say, you know, I think we 

have a very good track record of responding. So, for example, the 

GAO over the last year, 2015, we have had 47 recommendations 

from the GAO and 43 times we’ve concurred with those recommendations. Four times we didn’t concur. So sometimes, many 

times, we were in agreement. There are occasions when we seek 

comments that we don’t think we agree with. 

Ms. DEGETTE. And is this one of those four times? 

Mr. SLAVITT. This is one of those times. 

Ms. DEGETTE. OK. So do you still think that this is an appropriate rule? 

Mr. SLAVITT. Yes. This is a highly successful program. It’s benefiting many, many Americans and the taxpayers. 

Ms. DEGETTE. And do you think that when it phases out that the 

bottom is going to fall out of the insurance industry? 

Mr. SLAVITT. I don’t think so. 

Ms. DEGETTE. Why not? 

Mr. SLAVITT. Because I think the market now has a better feel 

for the people that are being insured. And I think that wasn’t the 

case 3 years ago, and it was a little more so last year and a little 

more so this year, but I think by the time we get to the third year 

people have a pretty good understanding of the illnesses that—— 

Ms. DEGETTE. And they will be able to smooth out the—— 

Mr. SLAVITT. I believe so. 

Ms. DEGETTE [continuing]. Discrepancies. OK, thank you. I yield 

back. 

Mr. MURPHY. The gentlewoman yields back. I now recognize the 

vice chairman of the committee, Mr. McKinley, for 5 minutes. 

Mr. MCKINLEY. Thank you, Mr. Chairman. And I would like to 

follow up a little bit on the comments that were made when Chairman Murphy raised about the change of opinions and decisions 

that have been made under this administration. 

Administrator, thank you for coming back. It is good to see you 

again. But small rural hospitals all across this country are in dire 

shape. We know that nearly 60 hospitals have closed over the last 

5 years in these rural hospitals. In my State, over half the critical 

access hospitals are operating rural health clinics and they are 

being adversely impacted by CMS’ decision to disallow the cost of 

operating these rural health clinics. 

Now this is in contrary to a previous decision that approved it 

back in 2004, said that very specifically that you could include the 

cost. Now it has been a reversal. CMS apparently intends to enforce this new decision retroactively over 5 years, and the cumulative impact of this on rural health clinics and critical access hospitals in West Virginia is going to force a back payment of millions 

of dollars when they can barely afford to keep their doors open as 

they speak. 

Now these hospitals as you well know are treating our poor and 

our most vulnerable citizens in rural communities. Just last week, 

West Virginia’s Health and Human Resources wrote you all, CMS, 

a letter. Are you aware of that letter? 

Mr. SLAVITT. Yes. I’m not familiar with it in detail. 

Mr. MCKINLEY. I am sorry? 

25 

Mr. SLAVITT. I’m not familiar with it in detail. 

Mr. MCKINLEY. OK. I am just simply asking you at this point 

since at stake is whether rural hospitals they simply can’t afford 

to make this retroactive payment, they simply can’t do it and it is 

almost a sixth of all the hospitals or 12 of the hospitals, and so 

nearly 20 percent of all the hospitals in West Virginia are threatened—— 

Mr. SLAVITT. Right. 

Mr. MCKINLEY [continuing]. Whether or not they can make this 

payment or not. So I am asking, please, they have reached up this 

far up. They have been trying, and I know you all have dug your 

heels in and I understand that. But this is a time not, to maybe 

rethink that please, and see if there isn’t some kind of solution if 

we could work through this. Because they were based on a previous 

decision and you have made another decision, your department’s 

made another decision that is contrary to that. 

We are just trying to prevent a retroactive payment. If it has to 

go forward I think they can make the adjustment, but going backwards I have got to appeal to your sensitivity. Will you take a look 

at that? Will you try to take a good look at that letter? 

Mr. SLAVITT. Yes, we will. And I know we’ve been working with 

your staff on this issue, we’ll continue to, and health care in rural 

America is a foremost issue for us. We have recently appointed a 

rural health task force and we will ask this task force to look specifically into this for you. 

Mr. MCKINLEY. If you would, please. And would you also agree 

to work with the State of West Virginia to provide some technical 

assistance in drafting a Medicaid State plan amendment that 

would recognize the important role that these critical access hospitals serve in providing rural healthcare services and consequently 

clarify their eligibility for continued Medicaid DSH payments? 

Would you do that, please? 

Mr. SLAVITT. Yes. Yes. 

Mr. MCKINLEY. Just in closing, the last three questions. Does 

CMS provide any grants or other forms of financial assistance to 

rural hospitals so they can better cope and address these situations 

that are occurring? Again with the backdrop, all across America 

these small hospitals are closing. 

Mr. SLAVITT. Right, yes. 

Mr. MCKINLEY. We can’t afford to have that as you well know, 

but do you have anything like that of funding sources? 

Mr. SLAVITT. We have a number of initiatives that apply in many 

specific situations that support the economics and the long term economics in rural health. We have to look and see what’s appropriate in the case of West Virginia, but there are a number of programs that I think are across the department. 

Mr. MCKINLEY. I am going to say you are agreeing, and can you 

work with our office and also the State hospital association to ensure they have the resource, if that is what I am hearing you say 

that you may have some sources that they may not be aware of? 

Mr. SLAVITT. Yes, we will absolutely do that. 

Mr. MCKINLEY. Thank you. Most importantly, just please, don’t 

make it retroactive. They can’t do it. Thank you. I yield back my 

time. 

26 

Mr. SLAVITT. Thank you. 

Mr. MURPHY. Thank you. I now recognize Ms. Castor of Florida 

for 5 minutes. 

Ms. CASTOR. Thank you, Mr. Chairman. Good morning, Mr. 

Slavitt. 

Mr. SLAVITT. Good morning. 

Ms. CASTOR. Despite countless attempts by my Republican colleagues in Congress to repeal, undermine, defund the Affordable 

Care Act, the law is making affordable health insurance a reality 

for so many American families and especially in my State of Florida. Since passage of the ACA 5 years ago, an estimated 20 million 

Americans have gained coverage through the ACA’s various coverage provisions. 

And I would like to think of the Affordable Care Act in a couple 

of different categories. You have the improvements to Medicare, the 

fact that so many of our older neighbors are paying much less for 

their prescription drugs, billions of dollars back into the pockets of 

our older neighbors. And then lengthening the life of the Medicare 

trust fund is vitally important, all of the preventive care that our 

older neighbors on Medicare receive. 

And I think about the consumer protections, ending discrimination against people who had cancer, diabetes that health insurance 

companies can no longer discriminate and keep them out, they 

have gained coverage. And now after a few years we can finally 

take a true measure on coverage for so many of our neighbors. 

According to a recent Gallup poll, the uninsured rate has 

dropped to a historic low. As of the first quarter of 2016, the rate 

has dropped 6.1 percentage points since the mandate provision of 

the ACA took effect in 2014. And our African American and Hispanic neighbors have experienced the greatest decrease in uninsured rates by approximately ten percent. So now we are at this 

overall historic low in America for the uninsured rate. 

And let me tell you the story of the State of Florida, my home 

State, where we had one of the highest rates of uninsured in the 

country. In Florida, 1.7 million Floridians selected or were automatically re-enrolled in quality, affordable health coverage through 

the marketplace. That is ten percent of the entire country, because 

nationwide nearly 11.7 million consumers selected a plan or automatically re-enrolled. 

The tax credits have really helped. Seventy two percent of Florida marketplace enrollees obtained coverage for $100 or less after 

the tax credits in 2015. And in Florida, consumers, we are fortunate to have a competitive market. We have consumers could 

choose from 14 issuers in the marketplace last year. That was up 

from 11 in 2014. 

Florida consumers could choose from an average of 42 health 

plans in their county for 2015 coverage. This was the goal, to have 

a competitive marketplace so Americans can do what they do best, 

go shopping and compare. And having the navigators kind of help 

them through a lot of these decisions has been a godsend. 

And then there was the question would young adults, we need 

healthy folks to enroll and that plays right into this transitional reinsurance. And the good news is that in Florida over a half million 

consumers under the age of 35 signed up for marketplace coverage, 

27 

and about half a million consumers 18 to 34, which was 28 percent 

of all plan selections, were signed up. 

So this continuing to harp on this has been a disaster. It is just 

not true and now the facts bear it out. But I was wondering if you 

could put this historic low of the uninsured rate into perspective. 

What does this mean for our country to have such a low uninsured 

rate? 

Mr. SLAVITT. Well, thank you, Congresswoman. Having been in 

health care my entire career and never seeing the uninsured rate 

decline, it certainly has been rewarding to see that happen and to 

feel it. At least in my job you can see it in the actual people as you 

can in your constituents. 

Florida, I believe, as you said, has a lot to be proud of. The uninsured rate, I believe, has declined by a third in Florida, and if the 

State chooses to expand Medicaid at some point, that will—— 

Ms. CASTOR. It will be even lower. 

Mr. SLAVITT [continuing]. Be even greater. So I think there’s a 

lot of good things that have happened and good things to come. 

Ms. CASTOR. Well, thank you to you and your team for everything that you have done to help make health insurance more affordable for so many of our neighbors across America. 

Mr. SLAVITT. Thank you. 

Ms. CASTOR. Thank you. 

Mr. MURPHY. The gentlewoman yields back, and now Dr. Burgess is recognized for 5 minutes. 

Mr. BURGESS. Thank you, Mr. Chairman. Thank you, Administrator Slavitt, for joining us here in our committee again. I think 

it is important that we continue to have these types of discussions. 

Certainly in the very early days of President Obama’s administration the statement was made repeatedly that transparency 

would abound in this healthcare law. In many ways it was meant 

as a criticism to Republicans that boy, if your member is not on 

board with this everybody will know it; if your member is standing 

with the insurance companies and not with the administration everybody is going to know it because it is all going to be transparent. It is all going to be on C–SPAN, and then we found that 

it wasn’t. 

And in fact, even going back to 2009 when Henry Waxman was 

chairman of this committee, I submitted a resolution of inquiry 

asking for who was involved in crafting the things that eventually 

became known as the Affordable Care Act. And to my surprise, Mr. 

Waxman agreed about halfway with me and agreed that I should 

have seven of the 11 things that I asked for. I never got them, but 

it was a minor moral victory for me that I got Mr. Waxman’s concurrence during that. And as we have gone on through this, time 

after time we bump up against things where it just doesn’t seem 

like it all adds up. 

So at this point can you tell me which person, official, office within CMS is responsible for interacting with HHS leadership with the 

White House on these reinsurance payments? Is there a single individual or office? 

Mr. SLAVITT. Thank you for the question. I think the best way 

for me to answer that question—given that I wasn’t here, I couldn’t 

name any specific individuals—is everybody. This was a public, 

28 

transparent rule put out that had to be reviewed and cleared 

across the Government and so everybody had the concurrence and 

the review, and then as it went into the Federal Register that was 

also true for the general public and everybody else. 

Mr. BURGESS. Yes. 

Mr. SLAVITT. So there was no attempt for someone to do something without a broad review within the department and then even 

broader review with the public. 

Mr. BURGESS. You know the old saying, too many people in 

charge; no one in charge. Someone has to be in charge, so who 

would have been the person who picked up the phone and called 

the White House when it was seen that there were problems meeting your obligations? 

Mr. SLAVITT. This is before my time so I don’t know the answer 

to that question. 

Mr. BURGESS. Could you research that for us and get us that information from 2014 who that person would have been? 

Mr. SLAVITT. I certainly could try. 

Mr. BURGESS. So outside of the formal rulemaking process did 

anyone outside the executive branch communicate with Health and 

Human Service leadership or CMS about prioritizing reinsurance 

payments or the resinsurance program generally? 

Mr. SLAVITT. Not to my knowledge. But again I wasn’t here, but 

not to my knowledge. 

Mr. BURGESS. Multiple reports in the press during the years 

2012, 2013, 2015 about episodes where all of the insurance executives were going down to the White House and meeting with the 

President and his team and Secretary Sebelius. Would there be any 

way the committee could know if these reinsurance payments were 

part of those discussions that occurred at the White House? 

Mr. SLAVITT. Not to my knowledge. 

Mr. BURGESS. Would there be any internal office memoranda 

that would have been generated by these meetings? Would the Secretary’s office have responded to the White House with any emails? 

We need to see those types of communications. 

Mr. SLAVITT. Yes, not that I have seen. 

Mr. BURGESS. Well, again, we have asked for the production of 

some documents but what has been produced has not been particularly helpful. Are there additional documents that you are working 

on to provide to the committee? 

Mr. SLAVITT. Yes. I know we’ve provided a number of documents 

and I know that we’re working on more. 

Mr. BURGESS. When could the committee expect to receive those 

documents? 

Mr. SLAVITT. I think quite soon. We’re just, I can’t give you a 

date until I check with my team, but we can get back to your staff 

and make sure we get this to you as quickly as we can. I know 

they’re working on it. 

Mr. BURGESS. To me quite soon is April 18th because that is 

when our income taxes are due. Could it be that soon? 

Mr. SLAVITT. I can’t commit to Monday, no. 

Mr. BURGESS. You know it has been a repetitive problem in this 

subcommittee, and it is not just with HHS, as with Department of 

Energy during Solyndra where it just seems like there was a deciVerDate Mar 15 2010 09:21 Apr 25, 2017 Jkt 037690 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 I:\114THCONGRESS\114X135REINSURANCE2SCANSSENT042417\114X135REINSURANC
29 

sion made internally to change the rules on behalf of the administration. And it is troubling, this committee continues to be troubled 

by that and unfortunately today’s hearing is just additional evidence that we are not there yet as far as the transparency part. 

Thank you, Mr. Chairman, I will yield back. 

Mr. MURPHY. Mr. Hudson, you are recognized for 5 minutes. 

Mr. HUDSON. Thank you, Mr. Chairman. And thank you, sir, for 

being here today. I heard you answer an earlier question about 

that once the transitional reinsurance program ends in 2017, the 

question of given that United Health pulled out were you concerned about other companies pulling out of the program, and you 

indicated that you didn’t think there was much concern of that. 

But I am just curious as you are looking at that who are you discussing this with? Are you talking to folks in the marketplace? 

How are you basing your decision that you think the market is stabilized? 

Mr. SLAVITT. So I’ll start with some data. In 2016, the average 

individual had, nine out of ten individuals had three or more 

health plans to choose from. So what we call a full shelf is present 

in 90 percent of the country. Now obviously people are just beginning the rate filings process for 2017, and so we’re going to see and 

we’ll certainly have to let that speak for itself as people make their 

decisions. 

I anticipate there will be additions and subtractions, and in formal conversations that I’ve had with people throughout the industry including State departments of insurance who of course are 

monitoring these things very closely and what I hear from companies themselves is indeed that. There may be some people to pull 

out of certain markets and there will be people that enter additional markets but that I don’t see the overall equation changing. 

Mr. HUDSON. OK. So it is not your anticipation then that you are 

going to see a whole lot more companies withdrawing from these 

exchanges once this reinsurance, I mean, supplement is there? I 

mean, it is obviously creating a large liability for these companies 

and we are already seeing some pull out while they have still got 

the subsidy in place. 

Mr. SLAVITT. Yes. Our job is to make sure that people can see 

it coming so they can price for it. But what people expect of Government and what I expected when I was in the private sector was 

some predictability and some visibility. So as long as they know in 

advance, as they’ve long known that this is a 3-year temporary program, then as they submit bids for the coming year they can submit them knowing what they now know about the population which 

they didn’t know earlier and about the fact that there will no 

longer be a reinsurance program. 

Mr. HUDSON. Right. Well, has CMS discussed methods to convince some of these insurers to stay in the exchanges in the event 

that you see a dropout following the termination of this transition 

period? 

Mr. SLAVITT. You know, most of the conversations that occur, 

occur locally within a State between the State department of insurance and the rate submission process. That is generally handled 

there locally. We do whatever we can to support and make sure 

30 

that we are balancing out the marketplace so that it can be a functional marketplace with stability and with predictability. 

So we tend to, I would say we tend to focus on the big policy decisions that will make the market healthy for the long term, not so 

much on the micro decisions that will affect an individual plan here 

and there. 

Mr. HUDSON. Well, when you start with these policy options 

what are you talking about exactly? 

Mr. SLAVITT. So to give you an example, we focused recently on 

the rules for special enrollment periods and what should be required of an individual to demonstrate that they’re eligible for insurance during a special enrollment period, in other words outside 

of the open enrollment period. 

Getting that right is important because if the rules are too lenient then you end up with people who may just apply for insurance when they get sick which disrupts the market, and if they’re 

too tight it will keep people, citizens who deserve coverage and 

need coverage, away from having the coverage. 

So those are the kinds of policy decisions that we recently have 

been making decisions around, and I think it’s our job to watch the 

marketplace because it’s still early, see what’s working and what’s 

not working and make adjustments. And I expect good Government 

will be continued with small adjustments along the way. 

Mr. HUDSON. OK. But other than just going through the State 

exchanges, you haven’t had any discussions or any discussions 

about specific things you could do with companies thinking about 

pulling out of the exchange without this transitional subsidy, that 

there is no really plans or discussion of any other ways to try and 

convince them to stay? 

Mr. SLAVITT. Yes. I wouldn’t characterize that our job is to convince them to stay nor would I tell you that we’ve heard concerns 

about the transitional policy going away. I think people because 

they’ve long understood that it was a 3-year plan that hasn’t been 

a major topic of discussion at least to my knowledge. 

Mr. HUDSON. OK, thank you. Mr. Chairman, as my time is expiring I will yield back. 

Mr. MURPHY. Thank you. I know we have votes coming up in a 

few minutes so we will move quickly. Mr. Green is recognized for 

5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. Administrator Slavitt, 

thank you for being here today, and I want to thank you for making the Affordable Care Act and health reform work. 

It first rolled out in our district in a very urban area of Houston. 

Before the Affordable Care Act we were one of the highest in the 

country of people who worked but didn’t get insurance through 

their employer. When it first rolled out we identified 20,000 people 

who were able to get health insurance and each renewable time we 

have increased that. 

My frustration is that just recently we identified 50,000 of my 

constituents in urban Houston would be able to get health care if 

the State would have expanded Medicaid, 50,000 just in our district, and that is with a hundred percent Federal reimbursement 

to State. Not a penny of State dollars for 3 years would have to 

go to that, so it is just frustrating. 

31 

My colleagues have been throwing around the 3.5 billion figure. 

It is even part of today’s title, but I think it is important to talk 

about that number in context. Last month, the Congressional 

Budget Office came out with a new Affordable Care Act estimate 

stating that, quote, compared with the projection made by CBO 

and JCT, the Joint Committee on Taxation, in March of 2010 just 

before the ACA was enacted, the current estimate of the net cost 

of insurance coverage over the 2016 to ’19 period is lower by $157 

billion, lowered by 25 percent. And I repeat: $157 billion under 

budget. That is not something we see here in the halls of Congress 

very often. That is 157 billion left in the Treasury. 

And I know that the insurance market and these estimates are 

complex, and we have been talking about how important reinsurance has been in creating stability in the market while new consumer protections are created. My first question, is it fair to say 

that reinsurance has played at least a role in the success covering 

so many people while coming in substantially under budget? 

Mr. SLAVITT. Yes, Congressman. 

Mr. GREEN. We know that consumers win when the health insurance premiums are low, but how does that impact the U.S. Treasury? 

Mr. SLAVITT. Well, because the insurance premiums for modest 

income Americans are subsidized in effect with tax credits, everything we do to improve affordability for consumers directly reduces 

the obligation of the Federal Government. And so this $157 billion 

under budget is, I think, in part a result as you point out of good 

stewardship and effective execution of some of these programs like 

reinsurance. 

Mr. GREEN. So does that suggest at the end of the day the decision to prioritize reinsurance payments and make sure this program works effectively as intended by the statute has been a good 

deal for the taxpayers? 

Mr. SLAVITT. It has. 

Mr. GREEN. I want to thank you for that. There are many recent 

examples of counterproductive action by Congress to thwart the 

overall goals of health reform. Successful attempt by Republicans 

to limit payments to insurers under the risk corridor program resulted in payouts of only 12 cents on the dollar that insurers originally expected to receive. That was hailed as a victory by my Republican friends, but it only served to undermine and destabilize 

the health insurance market while mainly harming smaller insurance. 

Administrator Slavitt, if Congress takes the legislative action to 

limit reinsurance payments what would be the effect on premiums 

for consumers? 

Mr. SLAVITT. Anything that hurts the affordability of health care 

is in my view something that we really ought to be very, very careful about because it’s counterproductive. And I think it’s all of our 

jobs to figure out how to continue to reduce the cost of health care 

for American citizens and for the entirety of the program, and reinsurance has been a vital tool to do that. 

Mr. GREEN. So this would be detrimental and disruptive to the 

individual market? 

Mr. SLAVITT. Yes. 

32 

Mr. GREEN. If premiums did increase it seems likely that that 

would be the consequences for the Treasury. 

Mr. SLAVITT. That would come in many cases, particularly subsidized care, subsidized tax credits, it would come directly out of 

the U.S. Treasury if premiums were to increase as a result of that. 

Mr. GREEN. Well, I hope today’s hearing is not simply another 

attempt to find new ways to obstruct and undermine the Affordable 

Care Act through the legislative process. Congress should be pursuing action to improve the functioning of the ACA and help individuals get covered, not engaging in efforts to destroy it. 

I have said this many times at this committee, no law we have 

ever passed in Congress is perfect, but for the last 6 years all we 

have seen is repeal after repeal instead of sitting down working 

across the aisle to make sure it is best for the taxpayer and it is 

also best for the people who need that insurance. And I yield back 

my time. 

Mr. MURPHY. Thank you. We are going to recognize Ms. Blackburn if we can get that done. And I want to say there are two other 

members who want to come back and ask, and then also Mr.—— 

Mrs. BLACKBURN. Yes, thank you. 

Mr. MURPHY [continuing]. But Ms. Blackburn will be recognized. 

Mrs. BLACKBURN. Thank you so much, Mr. Chairman. Mr. 

Slavitt, I have got a couple of quick questions. I want to follow up 

on something that Dr. Burgess was saying and something the 

chairman had mentioned to you in the beginning. You say that you 

feel like that the rule gives you the authority, or the law gives you 

the authority to change the rule. 

Mr. SLAVITT. Yes, we believe we have the statutory authority. 

Mrs. BLACKBURN. OK. Can you point out to me explicitly where 

it says that? Is there any way that you can read this and then tell 

me that we are not explicit in what this says and where you could 

have put rules in place and then go back and you change your 

mind and you decide to rework this? So can you point to me, can 

you submit to us the memo that says this is where we think we 

misread the law the first time and then we changed our mind? 

Mr. SLAVITT. Sure. Thank you for the question. 

Mrs. BLACKBURN. Do you know that memo exists? 

Mr. SLAVITT. The entire legal reasoning was made public in the 

regulations, so we can make sure to get you a copy of that. 

Mrs. BLACKBURN. OK. Well, that would be helpful, because I was 

a little bit confused when you said you didn’t know what the process was or what the decisions were because you were not there. 

But then you turned around and you said that it was a public and 

transparent process. And in answering Ms. DeGette you said that 

there was advice given and you knew that there were memos to 

that effect. 

So I think what we would like to see from you, since the law is 

pretty explicit I think we would like to see from you explicitly 

which memo and know what person decided that this was going to 

be a good idea. So will you submit that for us and can we have it 

within the next week? 

Mr. SLAVITT. Yes. We will submit the legal reasoning to you, absolutely. 

33 

Mrs. BLACKBURN. OK. That will be good if you can give us that 

entire paper trail. In answering another question you said that you 

thought it was important for the insurers—I just want to be sure 

I understood this right—for the insurers to see the money coming 

so they can price for it. 

Mr. SLAVITT. I believe what I had said or intended to say, can’t 

remember exactly what I said, is that we give enough visibility and 

clarity as to the rules and enough time that the insurance companies know what’s coming and know what to expect. And that way 

if we are aiming to lower premiums for Americans, which of course 

we all are, that that can be effective. 

Mrs. BLACKBURN. So you think that we have got to put additional taxpayer funds into this program in order for the premiums 

to come down because we don’t have enough money that people are 

paying, or the insurance costs too much, or they have access to the 

queue not to the care so the hospitals still have a tremendous 

amount of uncompensated care; is that what I am to understand 

from you? 

Mr. SLAVITT. No, Congresswoman, and I apologize if you misinterpreted me. No taxpayer funds have gone into this program. 

These are funds that come from the insurance companies, from the 

employers and from individuals to fund and smooth out large losses 

like the ones I talked about. 

Mrs. BLACKBURN. OK. So then they have to have that money in 

order to get the prices down, which means the consumer who is 

buying the product is going to pay more so the insurance company 

has access to the money to put back in the product; is that correct? 

Mr. SLAVITT. Yes, I don’t agree with that characterization, with 

respect. 

Mrs. BLACKBURN. OK. 

Mr. SLAVITT. I think—— 

Mrs. BLACKBURN. So the money just exists? 

Mr. SLAVITT. No, I think—— 

Mrs. BLACKBURN. So OK, let me move on. If we can manufacture 

money I guess we can manufacture a lot of things. In the reinsurance program what insurance company has gotten the most money? 

Mr. SLAVITT. I don’t know the answer to that, but I would—— 

Mrs. BLACKBURN. Would you find that out and get it to us? 

Mr. SLAVITT. Sure. We’ll look at that. 

Mrs. BLACKBURN. OK. 

Mr. SLAVITT. Yes. 

Mrs. BLACKBURN. That sounds great. In the interest of time, I 

will yield back. 

Mr. MURPHY. Thank you. I know we have a vote now, and there 

is, I think, three members, Mr. Flores, Mr. Mullin and Ms. Brooks 

want to come back. Can you stick around and we will just do this 

after votes real quick? We will go right to the questions and then 

wrap it up. I appreciate that. Thank you very much. We will be 

back after votes. 

[Recess.] 

Mr. MURPHY. All right, we are reconvening this hearing from 

Oversight and Investigations on unlawful reinsurance payments, 

and now I am going to recognize the gentleman from Oklahoma, 

Mr. Mullin, for 5 minutes. 

34 

Mr. MULLIN. Thank you, Mr. Chairman. And thank you for being 

here today and thank you for hanging over as we had to run and 

vote. They don’t seem to care about hearings. They just call votes 

whenever. 

Anyways, look, there is a couple of questions that I think is very 

important to us so we can get an understanding. One, if you could 

answer this the best you can. I understand that on March 21st, 

2014, HHS issued a proposed rule for making payments that are 

required by law under the reinsurance program. It is my understanding that this rule accurately reflect what was required by 

statute, the payments being made in three areas, one to the Treasury, insurance companies and to cover administration costs; is that 

correct? 

Mr. SLAVITT. I believe so. 

Mr. MULLIN. You believe so? 

Mr. SLAVITT. Yes. 

Mr. MULLIN. I mean that is what the law is, right? 

Mr. SLAVITT. Yes. 

Mr. MULLIN. Then ten days later HHS issued another proposed 

rule that completely changed what was proposed in the first rule. 

Now the payments would go to the insurance companies and the 

Treasury would only get payments until a certain threshold was 

made for the insurance companies; is that correct? 

Mr. SLAVITT. It is, yes. 

Mr. MULLIN. Can you explain why? 

Mr. SLAVITT. So because the statute was silent on how to handle 

situations where either a lower amount or greater amount—— 

Mr. MULLIN. What do you mean silent? It specifically addressed 

the three issues. It doesn’t speak, it is a statute. It is written. 

Mr. SLAVITT. Yes, it is written to address the estimated collection 

of $12 billion. What it doesn’t address is what happens if a lower 

amount is collected or a higher amount is collected, which is why 

the agency felt the need to put out a public regulation. 

Mr. MULLIN. In the statute, it specifically says that it is to go to 

the Treasury, insurance company, and to cover administrating 

costs, not the insurance companies and then pay only after a certain threshold. That wasn’t specified in it; is that correct? 

Mr. SLAVITT. The rules specified how to handle—— 

Mr. MULLIN. No, no. The statute, not the rule. Not what you 

guys issued, the statute. 

Mr. SLAVITT. I’m speaking of the statute, Congressman. 

Mr. MULLIN. Yes. Well, you mentioned rule. Go ahead. 

Mr. SLAVITT. Yes, so the statute speaks clearly to what happens 

if $12 billion is collected in the first year. What—again, this is before my time—but what the agency needed to do is to put forward, 

and they put forward for public comment 2 years ago—— 

Mr. MULLIN. Has that public comment been made public yet? 

Mr. SLAVITT. Yes. 

Mr. MULLIN. The opinions have been made back, the response 

has been made back to the committee? 

Mr. SLAVITT. Yes. 

Mr. MULLIN. OK. 

35 

Mr. SLAVITT. Yes. It sought public comment on how to address 

situations like the one that arose where less than $12 billion was 

collected. 

Mr. MULLIN. Now what did the public comments suggest? 

Mr. SLAVITT. Public comments suggested that the policy of first 

taking care of reimbursing the claims of the insurers was the proper policy and was legally supportive. 

Mr. MULLIN. By whom, because that wasn’t the intent of the 

original statute and that is I am asking the question. We obviously 

don’t support it going back to the insurance companies. Intention 

was to help pay down the debt. And yet after a rule was issued, 

ten days later you reissued another rule stating basically what you 

guys felt needed to be done. 

Mr. SLAVITT. And I understand that there is a difference of opinion because—— 

Mr. MULLIN. Well, it is not an opinion it is a statute, which is 

why when it is law and when we have a question about it and we 

want clarification on it and we ask a committee, or we ask HHS 

for a response to it, we would like clarification. What we never get 

is clarification. 

Mr. SLAVITT. Well, we believe that there’s a statutory authority. 

That legal reasoning was put forward publicly. 

Mr. MULLIN. So if there was clarification that needed to be clarified why wouldn’t you come back to the committee and seek clarification on it? I mean, because a statute is a statute of what it was, 

and so other than issuing a rule and then ten days later coming 

back and issuing another rule, why wouldn’t you just simply come 

back here? We feel like what happened is that HHS decided to ignore what the statute was, what the intent of Congress was and 

decided to make your own decisions. 

Mr. SLAVITT. I don’t think that’s the case. It was put forward—— 

Mr. MULLIN. Well, then how else do you explain it? Because you 

never came back here, and we were asking questions and clarifications and we weren’t receiving those. 

Mr. SLAVITT. This is 2 years ago. It was put forward for public 

comment for everyone including the committee to opine on the very 

public reasoning that was—— 

Mr. MULLIN. It is my understanding when the committee asked 

for clarification there was none issued. 

Mr. SLAVITT. I’d have to go back and check on that but it’s not 

my recollection. But I wasn’t here, but that’s not what I learned. 

Mr. MULLIN. Well, we were still asking questions. We are here 

today trying to get the questions figured out. 

Mr. SLAVITT. Yes. And we’re doing our best to provide answers 

including the legal and the policy reasons and that’s what I’m here 

today to answer. 

Mr. MULLIN. All right, thank you. I yield back. 

Mr. MURPHY. The gentleman yields back, and I now recognize 

the gentleman from Texas, Mr. Flores, for 5 minutes. 

Mr. FLORES. Thank you, Chairman. And thank you, Mr. Slavitt, 

for joining us today. A couple of preambles I wanted to share with 

you, and I know you have heard a couple of these already, before 

we get into the questions. 

36 

The CRS memo that we have talked about earlier today determined that the statute is not ambiguous and that CMS actions contradict the plain language of the law. And then in February of 

2016, in front of the Health Subcommittee of this committee, Secretary Burwell was asked about the legal basis for diverting the 

funds and she provided no legal justification. 

So it seems to me like we are still struggling to find the legal 

justification under which the funds were diverted. I do have some 

fact based questions to start with. The first one is how much 

money have you collected for the reinsurance program in 2014 from 

all the States? 

Mr. SLAVITT. I’ll get back to you on the precise number. We have 

it here somewhere. 

Mr. FLORES. I mean, I would assume you have got that number 

in preparation for this committee meeting since that is what we are 

talking about. 

Mr. SLAVITT. It’s $9.7 billion. 

Mr. FLORES. 9.7? 

Mr. SLAVITT. Yes. 

Mr. FLORES. OK. And for the Treasury you collected zero, I am 

assuming? 

Mr. SLAVITT. For 2014 that’s correct. 

Mr. FLORES. OK. And how much did you pay the insurance companies that year for calendar 2014? 

Mr. SLAVITT. I think it was 8 billion. 

Mr. FLORES. 8 billion. And the $1.7 billion difference, where did 

that go? 

Mr. SLAVITT. That’s still in a pool to be used against claims that 

come through the reinsurance pool. 

Mr. FLORES. Moving to 2015, how much did you collect for reinsurance? 

Mr. SLAVITT. 6.5 billion. 

Mr. FLORES. 6.5. The law says that it was supposed to be 6, and 

then to the Treasury you were supposed to collect too. I am assuming that was zero? 

Mr. SLAVITT. No, that’ll be $500 million to the Treasury. 

Mr. FLORES. You did give 500 million to the Treasury, oK. 

Mr. SLAVITT. We will. We will, yes. 

Mr. FLORES. You will or you did? 

Mr. SLAVITT. We will, yes. 

Mr. FLORES. OK. And then what were the aggregate insurance 

company payments for that fiscal year, for that calendar year? 

Mr. SLAVITT. Payments in—yes, they have not been made yet. 

Mr. FLORES. No payments, so you are sitting on 6 1⁄2 billion dollars from 2015, and a billion seven for 2014. Now 2016, what do 

you estimate to collect this year? What have you collected and what 

do you estimate full year collections to be? 

Mr. SLAVITT. I don’t have an estimation yet. 

Mr. FLORES. I am sorry? 

Mr. SLAVITT. I don’t have an estimation yet. 

Mr. FLORES. OK. What do you anticipate collecting for the Treasury for this year? 

Mr. SLAVITT. I don’t yet have an estimation. 

37 

Mr. FLORES. OK. Now I understand you have made early payments? CMS has made early payments to the insurance companies 

for 2016? What is that number? 

Mr. SLAVITT. That was 2.7 billion. 

Mr. FLORES. 2.7 billion for early payments to the insurance companies, OK. Moving back to the underlying issue, CMS changed its 

mind between March the 11th and March the 21st. As my colleague from Oklahoma said a few minutes ago, in light of the CRS 

memo, which contradicts the position of CMS with regard to compliance with the statute, will CMS correct its rule to back to the 

original interpretation of March the 11th? 

Mr. SLAVITT. Congressman, we still believe we have the statutory 

authority to issue the rule that was issued. 

Mr. FLORES. OK, so you are not going to change back to the original? 

Mr. SLAVITT. No. We believe the rule of what we’re following is 

supported by the statute. 

Mr. FLORES. I disagree with you, but there we are. 

Moving to the second question, self-insured private companies, 

basically self-funded companies that are self-funding their employee health plans, are contributing to the traditional reinsurance 

fund even though they continue to cover employees and they 

haven’t dropped employees from coverage, thereby forcing them to 

buy coverage on the exchanges. In other words, they aren’t contributing to the reinsurance issues or to the potential draw on reinsurance, and some of these companies have paid out huge sums, over 

$50 million, to bring into this program that ultimately aids insurance companies. 

How can we justify the payouts to the insurance companies from 

these private companies who have maintained self-insured plans 

for the benefit of their employees and that don’t have any stake in 

the exchanges? How do we justify that? 

Mr. SLAVITT. That’s what the statute contemplated originally, is 

my understanding. 

Mr. FLORES. OK. And then so my question is how do you justify 

the payouts to the insurance companies from the employers that 

have no stake in the exchanges? Why did you change the formula 

and pay them more? 

Mr. SLAVITT. Again this is all before my time, but that appears 

to be what the statute contemplated and exactly what happened. 

Mr. FLORES. Just as an editorial comment, I used to be a CEO 

and I could not blame my predecessor. I could not say it was before 

my time. When my board asked me a question they wanted me to 

provide an answer, not to say, well, that is before my time. So I 

just want you to know my opinion on that. Thank you, I yield back. 

Mr. SLAVITT. Understood, thank you. 

Mr. MURPHY. I believe then that is all the questions we have 

from our members. So I want to thank you, Mr. Slavitt, for being 

here today. I want to ask you one quick question. Can we get a 

commitment from you that the CMS will provide the documents 

pursuant to our March 23rd request in a timely manner? These are 

the ones regarding the reinsurance program. 

Mr. SLAVITT. Yes, Mr. Chairman. 

38 

Mr. MURPHY. Thank you. And because what we have got so far 

are the publicly available documents. Any idea when? Can you 

please tell us when CMS will produce these documents? 

Mr. SLAVITT. We are working hard on it. We’ll follow up with 

your staff. As you know we have schedule on some other documents 

we’re working for you, so we can just put that right on the schedule 

and make sure we get you dates certain. 

Mr. MURPHY. We would like that. 

Mr. SLAVITT. OK. 

Mr. MURPHY. Thank you very much. So in conclusion, thank you 

so much for being with us today. And I want to remind members 

they have ten business days to submit questions for the record, and 

I ask Mr. Slavitt to respond promptly to those requests as well. 

And with that, this hearing is adjourned. 

[Whereupon, at 11:38 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

39 


TO: 

FROM: 

U.S. HOUSE OF REPRESENTATIVES 

COMMITTEE ON ENERGY AND COMMERCE 

Members, Subcommittee on Oversight and Investigations 

Committee Majority Staff 

Aprill3, 2015 

RE: Hearing entitled "Unlawful Reinsurance Payments: CMS Diverting $3.5 Billion 

from Taxpayers to Pay Insurance Companies." 

On April 15, 2016, at 9:30a.m. in 2123 Rayburn House Office Building, the 

Subcommittee on Oversight and Investigations will hold a hearing entitled "Unlawful 

Reinsurance Payments: CMS Diverting $3.5 Billion from Taxpayers to Pay Insurance 

Companies." 

Section 1341 of the Patient Protection and Affordable Care Act (PPACA) established the 

transitional reinsurance program, a risk mitigation program for health insurers. Under this 

program, the Centers for Medicare and Medicaid Services (CMS) collects contributions from 

health insurers, and then uses those contributions to make reinsurance payments to health 

insurers who enroll high-risk individuals. Notably, PPACA also requires that a portion of the 

contributions for the reinsurance program be deposited to the U.S. Treasury. The statute 

specifically states that a portion of the contributions "shall be deposited into the general fund of 

the Treasury of the United States and may not be used for the [reinsurance] program." 1 Despite 

the plain text of the law, CMS has been diverting billions of dollars intended for the U.S. 

Treasury to insurance companies as reinsurance payments. The Subcommittee is conducting 

oversight to understand why CMS is diverting billions to the health insurers. 

I. WITNESS 

• Andy Slavin, Acting Administrator, Centers for Medicare and Medicaid Services 

II. BACKGROUND 

The Patient Protection and Affordable Care Act requires health insurance companies to 

provide coverage to individuals regardless of the individuals' health status, medical history, or 

pre-existing conditions. To mitigate the financial risk caused by this broad requirement, the 

PPACA also created three programs: the permanent risk adjustment program; temporary risk 

corridors program; and the temporary transitional reinsurance program. These programs are 

commonly referred to as the "three Rs." 

I 42 U.S.C § 1806l(b)(4). 
40 


Majority Memorandum for April 15, 2016, Subcommittee Oversight and Investigations Hearing 

Page 2 

Permanent Risk Adjustment Program: 

This program is intended to mitigate the effects of"adverse selection."2 Adverse 

selection occurs when individuals who are in the most need of health care services may be more 

likely to enroll in more generous-and therefore expensive-plans, while individuals who do not 

expect to need as much health care services enroll in less generous-and therefore cheaperplans.3 The permanent risk adjustment program transfers funds from lower risk plans to higher 

risk plans based on average actuarial risk. 4 

Temporary Risk Corridors Program: 

This temporary program is supposed to protect against inaccurate premiums by sharing 

risk in the first three years ofthe PPACA rollout (2014-2016).5 CMS collects funds from 

Qualified Health Plans (QHPs) with lower than expected claims and makes payments to QHPs 

with higher than expected claims.6 

Transitional Reinsurance Program: 

This temporary program is intended to help stabilize individual market premiums during 

the first three years of the ACA rollout (2014-2016).7 CMS collects contributions from health 

insurers for the program.8 CMS regulations control the contribution amounts, and health insurers 

use this infonnalion to help set their premium rates. From the fund created by the contributions, 

CMS makes reinsurance payments to insurers who enroll high-risk individuals. CMS is required 

by law to contribute a portion to the U.S. Treasury and a portion to help cover administrative 

costs. 

III. TRANSITIONAL REINSURANCE PROGRAM 

Under section 1341 of PPACA, a portion of the contributions collected for the 

transitional reinsurance program is supposed to be deposited to the U.S. Treasury. The statute 

provides: 

2 Memorandum to the Committee on Energy and Commerce, "InfOrmation on the ACA Transitional Reinsurance 

Program," (Feb. 23, 2016) (on file with Committee). 3 !d. 

4 Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk Corridors, Jan. 22, 2014, 

http://kff.org/health-reform/issue-brief/explaining-health-care-reform-risk-adjustment-reinsurance-and-riskcorridors/ (last visited AprilS, 2016). 

'fd. 

6 !d. 

7 !d. 

8 The transitional reinsurance program collects contributions from contributing entities to fund reinsurance 

payments. A contributing entity means a health insurance issuer or a self-insured group health plan. "The 

Transitional Reinsurance Program Reinsurance Contributions," Center for Consumer Information & Insurance 

Oversight, Centers for Medicare and Medicaid Services, https://www.cms.gov/CCIIO/Programs-andlnitiatives/Premium-Stabilization-Programs/The-Transitionai-Reinsurance-Program/Reinsurance-Contributions.html 

(last visited April II, 2016). 
41 


Majority Memorandum for April 15,2016, Subcommittee Oversight and Investigations Hearing 

Page 3 

[A]ny contribution amounts described in paragraph (3)(B)(iv) [the U.S. Treasury 

contribution] 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.9 

Initially, the Department of Health and Human Services (HHS) obeyed the statute. According to 

HHS' final rule issued on March 11, 2014, and similar to its 2013 rule, CMS planned to allocate 

contributions to the reinsurance program among the health insurers, the U.S. Treasury, and 

administrative costs. 10 The final rule also contemplated what would happen ifCMS collected 

less than the statutory guidelines. CMS set out in its final rule that if"the total amount of 

contributions collected is less than or equal to $8.025 billion, we will allocate approximately ... 

24.9 percent ofthe reinsurance contributions collected to the U.S. Treasury." 11 

Ten days later on March 21, 2014, however, the Administration issued a different 

proposed rule, completely reversing course. Contrary to its March 11, 2014 final rule, HHS' 

March 21, 2014 proposed rule prioritized contributions to the health insurers. 12 The proposed 

rule stated: 

Due to the uncertainty in our estimates of reinsurance contributions to be 

collected, and to help assure that the reinsurance payment pool is sufficient to 

provide the premium stabilization intended by the statute, we propose to revise 

our allocation of reinsurance contributions collected and adopt a similar 

prioritization in the event that reinsurance collections fall short of our estimates. 

Specifically, if 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 mct. 13 

CMS further stated that it would allocate the first $10 billion received in 2014 to insurers before 

allocating any funds to the U.S. Treasury or for administrative costs. CMS finalized this rule on 

May 27,2014, confirming its proposed rule. 14 The timeline below highlights how CMS changed 

its policy from allocating contributions to prioritizing contributions to health insurers: 

9 42 u.s.c. § 1806l(b)(4). 10 Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters lor 2015; Final Rule, 

79 Fed. Reg. 13744, 1376-77 (Mar. l 1, 2014). 11 /d. at 13777 (emphasis added). 12 Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards lor 2015 and Beyond; 

Proposed Rule, 79 Fed. Reg. 15808, 15820-21 (Mar. 21, 2014). 13 /d. 14 Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond; 

Fmal Rule, 79 Fed. Reg. 30240, 30252 (May 27, 2014). 
42 


Majority Memorandum for April 15, 2016, Subcommittee Oversight and Investigations Hearing 

Page 4 

Transitional Reinsurance Program Rulemaking Timeline 

March 23,2011: 

March II, 2013: 

Dec. 2, 2013: 

March 11, 2014: 

March 21, 2014: 

May 27, 2014: 

The Patient Protection and Affordable Care Act passed. Section 1341 

established the transitional reinsurance program. The law stated, in part, 

that a portion of the reinsurance contributions from the health insurers 

shall be deposited into the U.S. Treasury. 15 

HHS issued a final rule, entitled "HHS Notice of Benefits and Payment 

Parameters for 2014." This rule allocated contributions to the reinsurance 

program among the health insurers, the U.S. Treasury, and administrative 

costs. 16 

HHS released its proposed rule, entitled "HHS Notice of Benefits and 

Payment Parameters for 2015." In this rule, HHS allocated contributions 

to the reinsurance program among health insurers, the U.S. Treasury, and 

administrative costs. 17 

HHS issued its final rule, entitled "HHS Notice of Benefits and Payment 

Parameters for 2015." This rule allocated contributions to the reinsurance 

program among the health insurers, the U.S. Treasury, and administrative 

costs. The final rule also stated that the U.S. Treasury would be allocated 

funds proportionally even if actual contribution collections were below 

$8.025 billion (the targeted amount plus administrative costs in statute ). 18 

HHS issued its proposed rule, entitled "Exchange and Insurance Market 

Standards for 2015 and Beyond." In this rule, HHS reversed course on 

how contributions to the reinsurance program are allocated. In this 

proposed rule, HHS stated it would allocate the first $10 billion received 

in 2014 for reinsurance payments to insurers. 19 

HHS issued its final rule, entitled "Exchange and Insurance Market 

Standards for 2015 and Beyond." l!HS affirmed its reversal in its March 

21 proposal, stating "we finalize our allocation proposal, with one 

modification, so that, in the event of a shortfall in our collections, 

reinsurance contributions will first be allocated to the reinsurance payment 

pool, and second to administrative expenses and the U.S. Treasury."20 

15 42 u.s.c. § 1806l(b)(4). 16 Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014; Final Rule, 

78 Fed. Reg. 15459-15460 (Mar. II, 2013). 17 Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 20 15; Proposed 

Rule. 78 Fed. Reg. 72322, 72342-43 (Dec. 2, 2013). 18 Patient Protection and Affordable Care Act; HHS ~otice of Benefit and Payment Parameters for 2015; Final Rule, 

79 Fed. Reg. 13744, 13776-77 (Mar. 11, 2014). 19 

Patient Protection and AfTordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond; 

Proposed Rule, 79 Fed. Reg. 15808, 15820-21 (Mar. 21, 2014). 20 Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond; 

Final Rule, 79 Fed. Reg. 30240, 30252 (May 27, 2014). 
43 


Majority Memorandum for April 15,2016, Subcommittee Oversight and Investigations Hearing 

Page 5 

CMS issued payments in 2015 for the 2014 benefit year based on the methodology in the 

"Exchange and Insurance Market Standard for 2015 and Beyond" final rule. Further, CMS has 

already issued early partial reinsurance payments this year for the 2015 benefit year. The U.S. 

Treasury has not received any reinsurance payments to date. 

IV. CRS MEMORANDUM 

In February 2016, the non-partisan Congressional Research Service (CRS) issued a 

memorandum, which addressed, in part, whether CMS has the authority to prioritize reinsurance 

payments to health insurers over the U.S. Treasury.21 First, CRS wrote, although the statute does 

not speak to the timing of the deposits to the U.S. Treasury, the "miscellaneous receipts statute" 

requires the federal government to deposit money it receives "as soon as practicable" into the 

U.S. Treasury.22 CRS did find that the CMS had the statutory authority to retain certain 

contributions as an exception to the "miscellaneous receipts statute."23 CRS determined, 

however, that CMS' authority to retain and use these contributions is significantly qualified.24 

CRS pointed to the following provision: 

[A]ny contribution amounts described in paragraph (3)(B)(iv) [the U.S. Treasury 

contribution] 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?5 

Based on the language of the statute, CRS determined that CMS is only permitted to retain and 

use that part of each insurer's contribution that is attributable to ( l) the reinsurance program, and 

(2) administrative expenses, but not the portion that is attributable to (3) the U.S. Treasury.26 

CRS then examined what portion of each insurer's contribution is attributable to which 

category. Under CMS' current interpretation, no portion of an insurer's contribution is 

"attributable to the U.S. Treasury contribution until the aggregate amount collected meets the 

aggregate target for reinsurance payments."27 CRS found, however, that the "statute appears to 

speak directly to the question of whether the U.S. Treasury contribution must be taken from each 

issuer's contribution." CRS concluded: 

[l]nsofar as CMS' interpretation allows the entire contribution of an issuer in any 

given year to be used only for reinsurance payments, such that no part of it is 

allocated for the U.S. Treasury contribution, then that would appear to be in 

conflict with a plain reading of§ 134l(b)(4). Because the statute unambiguously 

21 Memorandum to the Committee on Energy and Commerce, "Information on the ACA Transitional Reinsurance 

Program," (Feb. 23, 2016) (on tile with Committee). 22 /d. See also. 31 U.S.C. § 3302(b). 

23 !d. 

24 !d. 25 42 U.S. C. § 18061 (b)(4) (emphasis added). 26 Memorandum to the Committee on Energy and Commerce, "Information on the ACA Transitional Reinsurance 

Program," (Feb. 23, 2016) (on tile with Committee). 

27 !d. 
44 


Majority Memorandum for April IS, 2016, Subcommittee Oversight and Investigations Hearing 

Page 6 

states that 'each issuer's contribution' contain an amount that reflects 'its 

proportionate share' of the U.S. Treasury contribution, and that these amounts 

should be deposited in the General Fund of the U.S. Treasury, a contrary agency 

interpretation would not be entitled to deference under Chevron. 28 

CRS determined that, because the statute is not ambiguous, it appears that CMS' actions 

contradict the plain language of the law, suggesting that the Agency's action would not receive 

deference if it were challenged in court. 

V. ISSUES 

The following issues are expected to be examined at the hearing: 

• What is CMS' legal position on whether or not the law requires a portion of the 

reinsurance contributions be allocated to the U.S. Treasury? 

• Why did CMS change its position from allocating reinsurance contributions between the 

health insurers, the U.S. Treasury, and administrative costs to prioritizing reinsurance 

contributions to the health insurers? 

• What is CMS' position on CRS' memorandum discussing the legality of prioritizing 

reinsurance payments to health insurers? 

VI. STAFF CONTACTS 

If you have any questions regarding this hearing, please contact Jessica Donlon, Emily 

Felder, or Brittany Havens of the Committee staff at (202) 225-2927. 

28 !d. 
45 


4121/2016 tetterstopresidentobama.tumblr.comlpost/140398509929/meet-brent-brfMitr-from-mosinee-wisconsin-hewnever 

Submit Archive RSS Visit WhiteHouse.gov 

Meet Brent Brown from Mosinee, Wsconsin. He never voted for President Obama, but in June, he 

wrote to the President thankmg him for saving his life. 

President Obama is travehng to Vl/isconsin to<:lay to talk with Americans like Brent who were able to 

sign up for health coverage thanks to the Affordable care Act The city of Milwaukee won the 

President's Healthy CommunitieS Challenge by signing up 89,000 people for health coverage. 

Check out Brent's letter to the President, and follow along today as President Obama visits VVisconsin 

To My President, 

I sincerely hope that this reaches you, as far too often praise is hard to come by. Apologies to people 

who deserve it perhaps even less so 

I did not vote for you Either time. 1 have voted Republican for the entirety of my life. 

I proudly wore pins and planted banners displaying my Republican loyalty. I was very vocal rn my 

opposdkm to you-particularly the ACA 

Before I briefly explain my story allow me to first say this: I am so vety sony. I understand written 

content cannot convey emotions very wefl-but my level of conviction has me In tears as 1 write this. 

I w<:~s so very wrong_ So very very wrong 

You savf!Jd my fife. I want that to sink into your ears and mind. My President. you saved my life, and 

f am etemalfy grateful 

I have a '~xisting condition' and so could never purchase health insurance. Only after the ACA 

came into being could I be covered. Put simply to no/ take up too much of your time if you are in fact 

taking the time to read this: I would not be alive without access to care I received due to your law. 

So thank you from a dumb young man who thought he knew it all and who said things about you that 

he now regrets. Thank you for serving me even when I didn't vote for you. 

Thank you for being my President 

Honored to have lived under your leadership and guidance, 

Brent Nathan Brown 

http:llletterstopresidentobama.tumblr.comtpost/140398509929/meet-bren!~brOV;fn-ftom-mostnee-wisconsin-he-never 

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l 

~ 

~ Congressional 

'~ Research Service Informing the legislative debate sinco 1914 

MEMORANDUM 

To: House Committee on Ways and Means 

From: 

House Committee on Energy and Commerce 

Paulette C. Morgan, Specialist in Health Care Finance,_. 

Edward C. Liu, Legislative Attorney,~ 

Subject: Information on the ACA Transitional Reinsurance Program 

Febmary 23, 2016 

You requested background information on the Transitional Reinsurance Program, one of three risk 

mitigation programs included in the Patient Protection and Affordable Care Act (ACA, P.L 111-148, as 

amended). Specifically, you also requested answers to three questions: 

1. What were the amounts required to be collected? 

2. Docs CMS have the authority to prioritize Reinsurance claimants over payments to the 

Treasury? If so what are the limits? 

3. Does CMS have the authority to delay payments to the Treasury in one year and make it 

up in subsequent years? 

This memorandum provides a brief description of the context for the three risk mitigation programs, and 

then provides a description of the transitional reinsurance program. It addresses each of your questions in 

order. 

Because the issues addressed in this memorandum are of general interest to Congress, infonnation 

included in this memorandum may be provided by the Congressional Research Service (CRS) to other 

congressional requesters or incorpomted into a CRS report. Your identity as a requester would not be disclosed in either case. 

ACA and Risk Mitigation Background 

The private health insurance provisions in the ACA include market reforms that impose requirements on 

private healtl1 insurance plans. 1 Such reforms relate to the offer, issuance, generosity, and pricing of health 

plans, among other requirements, and are designed to increase the number of people who are able to 

purchase insurance. As pm1 of a larger set of private health insurance market reforms, 2 the ACA requires 

1 For infom1ution, pkase sec CRS Report R42069, Pl'l\'Gte Health Insurance lvlarkct Reforms /11 the f<Jtie!U Proteclion and Affordable Care tier (ACA). 

2 For more infonnation, sec CRS Report R43048, Overview ofPrivute lfealrh Insurance Provisions in the Patient Proiection am/ Affordable Care Act (ACA). 

Congress tonal Research Service 7~5700 I www ers.gov 
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CongreSS1onal Research Service 

private health insurance issuers to provide coverage to individuals regardless ofhe<Jith status, medical 

history, and pre-existing conditions. Some individuals are eligible to receive premium tax credits and 

cost-sharing subsidies through a health insurance exchange {marketplace), which will increase the 

attractiveness of coverage by reducing its cost. Also, the individual mandate is in effect, which requires 

most individuals to maintain coverage or otherwise pay a penalty. All ofthe new health insurance market 

reforms and the expanded market of individuals seeking to purchase insurance, some of whom were 

previously uninsured and may have delayed receiving health care, contribute to the uncertainty insurers 

face in the early years of ACA implementation. 

The transitional reinsurance program is one of three programs included in the ACA to mitigate the 

tinanciall"isk that insurers face. The thr!le Qt9.&[~e designed to mitigate the effects of different types 

of risk as in~pond to tne ri'~w ina\'!t!'t~iiles: -

The fi!·~~~?.ij!fTI,j:;.,n.tnmsilionalreinsurance program (2014-2016) which is designed to 

compensate msurers for a portion of the cost of particularly high-cost enrollees with 

individual insurance coverage inside and outside of the ex~ges. Prior to ACA 

implenJentation, there was little informatiqn nwi!al?le on the health spending or demand 

of individuals who were previously uninsured, .and the degree to which they had delayed 

health care due to their lack of insurance. Insurers in the early years of the ACA would 

likely raise premiums to the extent possible to protect themselves against the high cost of 

this delayed care. However, some of the new marketplace rules limit the degree to which 

insurers could vary premiums. The transitional reinsurance program is designed to 

mitigate the financial risk associated with individuals who had delayed needed health 

care while they were uninsured. If an enrollee's total claims exceed a specified level 

(referred to as the attachment point}, the insurer is paid a prop011ion of claims costs 

(referred to as the coinsurance rate) beyond the attachment point until total claims costs 

reach the insurance cap. The attachment point, coinsurance rate, and reinsurance cap 

together are the payment paramete1·s that the Secretary of Health and Human Services 

(Secretary) must specify each year. This is a temporary program under the assumption 

that any care that was delayed due to a lack of insurance would be provided in the early 

years of the program. This program is addressed below. 

The second program is a permane/11 risk adjustmenr program intended to mitigate the 

effects of adverse selection in the individual and small group markets, both inside and 

outside of the new exchanges. Adverse selection is a phenomenon wherein individuals 

who expect or plan for high u;;e of health services tend to enroll in more generous (and 

consequently more expen;;ive) plans, whereas individuals who do not expect to use many 

or any health services tend to enroll in less generous (and less expensive) plans. The 

relative generosity of the insurance plan wiil thus attract higher or lower spending 

enrollees. Risk adjustment more accurately compensates insurers for the higher cost of 

sicker enrollees who tend to enroll in more generous plans, as well as more accurately 

compensating insurers for the lower cost of healthier enrollees who tend to enroll in less 

generous plans. As adverse selection is a phenomenon that is always present, risk 

adjustment is a permanent mitigation program. 

The third program is the 1empora1y risk corridors program (20 14·20 I 6). This program is 

designed to mitigate the effects of mistakes the insurers may make when trying to predict 

the appropriate amount of premium to charge for individual and small group Qualified 

Health Plans offered inside and outside exchanges.3 lnsurers were f<Jced with many 

'Qualified health plans a~·c plans that provide a comprehensive set of health benefits and comply with aU applicable ACA market 

rc:fon~1s. Plans offered on the health insurance exchanges, where individu.uls nnd smnH businesses can shop for and purchase 

(cm:tmued ... ) 
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Congressional Research Service 

questions at the start of health reform, such as whether young healthy individuals would 

sign up for insurance, or whether employers would choose to have their eru·ollees find 

insurance on the new marketplaces, or not. TI1e insurers' assumptions about the answers 

to those questions can have an impact on the premiums they charge. But if their 

assumptions are wrong, they may end up underestimating or overestimating the 

premiums necessary to pay for their enrollees' claims. The risk corridors program is 

temporary under the assumption that insru·ers will be better able to estimate premiums 

under the new health reform rules after three years. 

Description of the Transitional Reinsurance Program 

The ACA'1 requires that a transitional reinsurance program be established in each state for 2014 through 

2016. 5 Under the program, the Secretary collects reinsurance contributions from health insurance issuers 

and third party administrators on behalf of group health plans;' the Secretary then uses those 

contributions to make reinsurance payments to health insurance issuers' who enroll high-risk individuals 

i11 their individual market plans both inside and outside of the exchanges. 

How much was required to be collected under the transitional reinsurance program? 

The statutes specify that the aggregate collection for all states for the transitional reinsurance program 

equal $10 billion for plan year beginning 2014, $6 billion for plan year beginning in 2015, and $4 bi!lion 

for plan year beginning in 2016. The statutes also specify that an additional contribution be collected; this 

amount is not part of the transitional reinsurdnce program, but rather a contribution to the United States 

Treasury. In addition, the statutes allow for the collection of additional amounts for administration. Table 

l includes the amounts that are required to be collected, as well as the amounts estimated by the Secretary 

for administration of the program for 2014, 2015, and 2016. 

Table I. Contribution Amounts related to the Transitional Reinsurance Prog..am 

Aggreg.ate contribution for reinsurance programs for all states 

Additional contribution to U.S. T reasuty 

( ... continued) 

2014 

$10 billion 

$2 billion 

2015 

$6 billion 

$2 billion 

2016 

$4 billion 

$!billion 

privalc heulth insurance coverage, must be QHPs. wit~1 limited c:x-ceptiuns; QHPs may also be otTcred in Ute private market 

oulsic!c of exchanges. The risk corridors program nppHes to QHPs, 1md pltms that are the same as or substantiaJly the same as 

QHPs. that at-e available both on the exchanges. as welt as ouL'iidc of the exchanges. For intbm1nlion on prlva.tc health plans in gencml and qualified healtlt plans specifically, please see CRS Report R43233, Private Health Plans Under rhe ACt!: In Brief 

·> ACA, Section 1341. 

~Though S(atcs nrc nllowcd lo estabLiHh their owa tnlnsitionnl reinsurance programs, only Connecticut chose tO do so. For all 

other sUites. the Secretilry is implementing the tnulSitional reinsurance programs. Under lhe reguh:ttions goveming the 

establishment of the tra11sitionnl reinsurance programs. states have discretion in certain as peels of program implementation. 

How~vcr, Crmnccticut has dlosen ro follow the federal benefit and payment parometcrs for 2014 and 2015, For more 

lnfonnalion, sec [hltp:i/ct,gov/hix/c\\Piview.nsp?u=4295&g-=532J46]. 

()A tl'ansltional reinsurance contributing enlity is either (a) a health insurance issuer, or (b) tOr 2014 u self~insured group health 

pla1~ regardless of whether il uses n third JHU'ty udtninistrator (TPA}; for 20 J 5 ilnd 2016, a sclf~insurcd group health plan that uses 

a TPA for specified activities and specified degrees. See 45 CFR § 153.20. In 2015 and 2016, u soil~ insured group health plan 

that docs not use a TPA is not considered a contribuliag entity. 7 A health insunmce issuer is eligible to receive transitional rcinsuran<:e payments fur enrollees in a plan (i.e .• a rdn.surancc~ 

eligible plnu) if the hca.1th insurnnce plan is offered in tbe individual market. except for grondfathcn;:d plans and health insurance 

coverage JlQt required to submit reinsurance conlributions under 45 CFR § I 53.400(a}. See 45 CPR§ 153.20. 
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Congressional Research Service 

Administration 

Toul Contribution Amounts 

2014 

$20.3 million 

$12.02 billion 

lOIS 

$25.4 million 

$8.03 billion 

l016 

$32mlllion 

$5.03 billion 

Source: Table created by CRS based on Information in Section 1341 of the ACA; Department of Health and Human 

s~rvices., "Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 20 l•h final 

Rulc,u 78 Fe-deral Register 15460~ March ll, 20 13; Department of He-illth and Human Services, "Patient Protection and 

Affordable Care Act; HHS Notice of Benefit and Payment Parameter• for 20 IS, Final Rule,' 79 Federal Register 13775, 

March J l, 20 14; and Department of Health and Human Services, 11 Patient Prote<:tion and Affordable Care Act: HHS 

Notice of Benefit and Payment Parameters for 2016, Final Rule.'' 80 Federal Register 10775, February 27, 20 15. 

Though the statutes specilled certain aggregate amounts to be collected and allowed the collection of 

amounls for administration, the statutes require the Secretary to establish a methodology for determining 

how much each health insurance issuer or group health plan {Le., contributing entity) must contribute. 

The Secretary established a methodology where cont1ibuting entities pay a per person amount based on 

their CI11"0tlment8 The per person Contribution (i.e., the per capita national contribution) was calculated as 

the sum of (a) the aggregate contribution for the reinsurance program, (b) the additional contribution to 

the U.S. Treasury, and (c) the cost of administration divided by the estimated number of enrollees in plans 

required to make reinsurance contributions. In other words: 

Nationttl Per Capitu Reinsurance Contrihulioo = 

(Reinsurance Contribution+ Trca.o;;;ury Contribution+ 1\dminislr.ative Cost)/HHS's estimate ofenrolhncnl in contributing entitic-s.Y 

The national per capita reinsurance contribution was set at $63 in 2014, $44 for 2015, and $27 for 2016. 

for example, for 2014, each reinsurance contributing entity must pay $63 for each of their covered 

enrollees. For benefit year 2014, this resulted in collected contributions of approximately $8.7 billion as 

of June 2015, and the Secretary was estimated to collect an additional $1 billion on or before November 

15,2015. 10 

11 Enrot!mct1t is to be based on the contributing L"11tity'.s fully insured cmnmcrcial book of business for uH major medical products. 

Sec 45 CFR * 153.400. Contributing entities must submit an annual enrollment count to !he Secretary by November 15 of20l4, 

2015, and 2016. The regulations specify acceptable methods for c.1lculating tl1c annual cnrnlhncnt of reinsurance contribution cnmlleos. Sec 45 CFR § t53.405. 

'

1 Jn mrlct' to estimate cnroUmcnt in entities required to make reinsurance contributjous, M well as to estimnt.c rcjnsurance 

payment parumetcrs displayed ill Table 2 of this memorandum. the Secretary de-veloped a model, (!he Allbrdable Care Act Health 1nsun.mcc Model {ACAHIM)). TI1is model is described in ··Department of HcaJth .and Human Services~ "Patient 

Protection rmd Affordable Car~ Act; Ill!S Not lee ofBcnofil and Payment Parameters, Prop()~ed Rule," 77 Federal Registe,- 73t60. December 7, 2012.n 

w Department ofHenhh and l Iunlun Services, Summary Reporr Qn 1Tansitional Reinsurance Pawmmts and Permanent Ri:;k 

,1</justment Tr(ln.ifersfur the 2014 Benefit Yem·, Seplcmber !7, 20!5, p. 4, hltps:ll'""''·cms.gov/CCHO/Progrruru;.andlnitiativcs/Prcmium-Stabilizarion-Programs/Downloads/Rl-RA·Rcport· REV!SED-9-!7-1 S.pdf. This report was first published 

June 30, 20l5) and then updated in September 2015. Tbe Centers for Medicare & Medicaid Services confinned in a January 8) 

2016 phone conversation wilh CRS tlmt, because the total oontributions collected were less titan $10 billion lor 2014, U1atcntirc 

amount wu~ aUocated to the reinsurance progrJm and nothing \vas allocated for administrative expenses ot' the U.s. Treasury. 

consistent with regulations. For benefit year 2015, CMS has collected $5.5 billion and expect.' to o'OIIect approximately $1 billion 

more by November IS, 2016. Departnicnt of Health and Human Serviccs1 The li·ansitioncrl Reimtlrance Program's Contribution 

Collections for the 2015 Benejil Year, Feb mary 12,2016, hups:II\V\\'W.cms.gov/CcrJOIRcsources/Regulations•and· 

Guidnncc/Downloads/RJC _20 l5ContributiunsGuidancc.pdf. CMS indicates that the $5.5 billion already collected will be used 

entindy for reinsurance payments. Hn)f of the projected $ J billion collection will also be used for reinsurance payments; th:e \lther 

half ul!ocated on a pro rata basis lOr administrative cxpc11Ses nnd the contribution to the U.S. Treasury. 
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CongressJona! Research Serv1ce 

In the event that total reinsurance contributions collected fall short or exceed the amounts specified in 

Table I, the regulations specifY allocation of funding. For 2014, the May 27, 2014 final rule specified 

that iftotal contributions collected were less than $1 0 billion, the entire amount of the collection would be 

allocated to the reinsurance program and none to the U.S. Treasury or administration; 11 if the collections 

were greater than or equal to $10 billion, but less than$ 12.02 billion, then $10 billion would be allocated 

to the reinsurance program, and 99% of the remaining collections ($2 billion/$2.02 billion) would be 

ullocated to the U.S. Treasury, and l% ($20.3 mi!lion/$2.02 billion) would be allocated to administrative 

expenses. For 2014, if total reinsurance contributions were to exceed $12.02 billion, $2 billion would be 

allocated to the U.S. Treasury, $20.3 million would be allocated to administrative expenses, and the 

balance would be allocated to the reinsurance program. A comparable allocation methodology would 

apply for 2015 and 2016. 

Does CMS have the authoritt; to prioritize reinsurance claimants over payments to the 

Treasunj? If so what are the limits? 

In the preamble to its May 27,2014 final rule, CMS "sought comment on this proposal, including our 

legal autMdty to implement a prioritization of reinsurance contributions to reinsurance payments over 

payments to the U.S. Treasury."" These comments and CMS' responses to them noted that§ 1341 

"provides 1-IHS with the discretion ... to determine the priority, method, and timing for the allocation of 

reinsurance contributions collected." 13 

One commenter observed that§ 1341 «imposes tcw requirements on the expenditure of reinsurance 

contributions, stating that the statute does not specify that payments must be made to issuers and to the 

U.S. Treasmy simultaneously, or that the U.S. Treasury must receive its full funding before reinsurance 

pool payments are made." 14 While it appears correct that § 1341 does not speak to the timing of deposits 

to the General Fund of the Treasury, the "miscellaneous receipts statute" states that money received by the 

federal.government must generally be deposited in the Treasury as miscellaneous receipts "as soon as 

practicable." 15 An agency is permitted to retain money as an exception to the "miscellaneous receipts 

statute" if it has statutory authority to do so. 16 Section 1341 contains several such statements. First,§ 

l34l(b)(l)(B) states thut the reinsurance program shall collect payments from issuers and "use[] amounts 

so collected to make reinsurance payments." 17 Further, § 1341 (b X 4) provides that: 

(A) the contribution amounts collected for any calendar year may be allocated and used in any of 

the three calendar ycurs for which amounts arc collected based on the reinsurance needs of a pm1iculm period or to rellect experience in a prior period; and 

11 Department of Health and Human Services, "Patient Protection Md Affordable Care Act; Exchange and !nsurance Market Standards lor 2015 and Beyond," 79 Federal Regislcr 30258-30259, May 27, 20 !4. 

"79 Fed. Reg. 30240, 30257 (May 27. 2014). 

"/d. at30258. 

H Jd. 

" 31 U.S.C. ~ 3302(b). See also Govommcnt Accountability Office, l l'rinoiplcs of federal Appropriations Law 6-167 ( ("This 

means deposited inlo the gem:ml tUnd ("miscellaneous receipts') ofthc Trensury, not inlo the agency's O\m appropriutions, even 

though the agency's appropriations may be technically still 'in the Treasury' until the agency actually spends them."); and 10 

Comp. Gen. 382. 384 (1931) ("ll is difficult lo sec how a legislative prohibition could be more clearly expressed."), 

"' F..g. 72 Comp. Gen. 164, 165-66 (1993). 

"42 u.s.c. § l806l(b)(l)(!l). 
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Congressional Research Service 

(B) amounts remaining unexpended as ofDecembe1', 2016, may be used to make payments under 

any reinsurance program of a State in the individual market in ctTcct in the 2·ycar period 

beginning on January I. 2017." 

However, this authority to retain and use amounts collected under the reinsurance program is significantly 

qualified. Section l341(bX4) goes on to state that: 

Notwithstanding the preceding sentence [subparagraphs (A) and (B) abovej, any contribution 

amounts described in paragraph (3)(B)(iv) [the U.S. Treasury contribution! shalf be deposited into 

the general fund of the Tt'C'JSury of the United States and may no/ be used Jbr the prog1·am 

established under this section. 19 

This last statutory provision would appear to be a reaffirmation of the default rule under the 

"miscellaneous receipts statute," requiring that amounts received pursuant to (3)(B)(iv) be deposited in 

the Treasury "as soon as practicable.''20 Consequently, it appears that the agency is permitted to retain and 

use that pmt of each issuer's contribution that is anributable to the reinsurance program and any 

administrative expenses, but not that portion ofthe issuer's contribution that is attributable to the U.S. 

Treaswy contribution. 

Because the statute makes such a distinction, it raises the question of what portion of each issuer's 

contribution is attributable to which category. Section l34l{b)(3)(B)(iv), which defines the U.S. Treasury 

contrilmtion, states that the reinsurance program "shall be designed so that ... each issuer's contribution 

for any calendar year ... reflects its proportionate share of' the U.S. Treasury contribution. 21 One reading 

of this clause is that the amount required to be paid by an issuer under the reinsurance program includes 

some share attributable to the U.S. Treasury contribution. ln contrast, CMS' current position appears to be 

that no portion of an issuer's contribution is attributable to the U.S. Treasury contribution until the 

aggregate amount collected meets the aggregate target for reinsurance payments.12 

Courts addressing the legitimacy of an agency's interpretation of a statute typically look to the Supreme 

Court's decision in Chevron v. Natural Resources Defense Council, which sets forth a widely accepted 

two-part test. 23 First, if Congress has spoken directly on the issue, then that statutory language or history 

must control. However, "if ... Congress has not directly addressed the precise question at issue," tl1e 

agency's interpretation will stand so long as it is a reasonable one.24 In other words, where a statutory 

provision is ambiguous and constitutes an implicit delegation to the agency to "elucidate" the provision, 

courts will generally give an agency significant discretion to fill in the gaps created by that ambiguity. 25 

"42U.S.C.A. § IS06l(b)(4) (emphasis ~dded). 

111 /d {emphasis added). 

'" 3 I U.S.C § :i302(b). 

".J2 U.S.C. § !8061 (h)(3)(B)(iv). The amount described in (h)(3)(iv) is in addition to the nmount col!cctcd for reinsurance payments. !d. 

22 CMS hul'i aUmved contribuling entities to make bifurcntcd payme.nts in which an initial collection will occur on or around 

January 15. nnd a second coJJcction on or uround November 15 of a given year. At one pO"int1 the firSt collection was allocated 

towards reinsurance payments and administrative expcn>es, while the second coitcction was aHoc11ted only to the U.S. Treasury. 

45 C.F.R. § l53.40~(c); 78 Fed. Reg. 65046, 6505 I (Oct 30, 2013); 79 Fed. R~-g. 13744, 13775-76 (Mar. I!, 2014). 

Sub.<iequently, CMS issued a final rule rcvi!l'ing this atlocution fonnula such that the second collection would also be allocated to 

reinsumncc payments to tile cxlentlhat the li.st col!cction was insufficient to meet the slatulory target amount. 79 fed. Reg. ut 30259. 

"Chcvt0!1 v. Nat'] Resources De f. Council, 467 U.S. 837,842-845 (1984). 14 !d. 

"/d. 
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Congressional Research SeNJCe 

Under CMS' interpretation, some issuers' contributions for a given year would not include any amount 

allocated to the U.S. Treasury contribution. Specifically, all contributions would go towards reinsurance 

payments until the statutory target for reinsurance payments was reached. After that point, contributions 

would be allocated to the U.S. Treasury. However, the statute appears to speak directly to the question of 

whether the U.S. Treasllly contribution must be taken from each issuer's contribution. Section 1341(b)(4) 

requires contribution amounts described in (3)(B)(iv) to be deposited in the U.S. Treasury, and (3)(B)(iv) 

describes a proportionate share of the aggregate U.S. Treasury contribution, reflected in "each issqer's 

contribution." Insofar as CMS' interpretation allows the entire contribution of an issuer to be used only 

for reinsurance payments, such that no part of it is used for the U.S. Treasury contribution, then that 

would appear to be in conflict with the plain text of§ 1341 (b)(4). 

The statute explicitly provides CMS with some flexibility in how the payments of the contribution 

amounts will be implemented. Specifically, the statute permits the contribution amount to "be paid in 

advance or periodically throughout the plan year."26 What is meant by a "periodic payment" is not defined 

in the statute, but Black's Law Dictionary defines it as "(o]ne of a series of payments made over time 

instead of a one-time payment for the fi.1ll amoLtnt."27 This would appear to give CMS the authority to 

spread payments of the contribution amount across a plan year. However, the combination of all periodic 

payments for an issuer ultimately comprises the "full amount .. " As discussed above, each Issuers 

contribution for any given year appears to be required to reflect the additional U.S.. Treasury contribution. 

Therefore, even if the payments could be bifurcated in purpose and amount within a year, the total 

contribution for each issuer in a given year "shall" reflect "ils proportionate share of' the U.S. Treasury 

contribution. 

CMS noted in the preamble to its May 27, 20 !4 final rule that§ 1341 is silent on how the agency should 

approach !he distribution of reinsurance contributions if insufficient amounts are collected to fully fund 

all three components of the program (that is, reinsunmce payments, administrative expenses, and 

payments to the U.S. Treasury).28 While that may be true, the statute is clear that amounts from "each 

issuer's contribution" must reflect the U.S. Treasury contribution, and that this reflected amount from 

"each issuer's contribution" must be deposited in the U.S. Treasury. 

CMS also asserts that§ l34l(b)(3)(B)(iii) uses "mandatory language with respect to the collection of 

amounts for the reinsurance payment pool" by stating that the aggregate issuer contributions "shall ... 

equal" specific, statutory amounts for plan years 2014, 2015, and 2016. 2"1n contrast, CMS argues that 

"more permissive language" is used with respect to the contributions for administrative expenses or the 

U.S. Treasury. JQ Section 1341 (b)(3)(B)(ii) states that the contribution amount "can" include an amount to 

fund administrative expenses." The use of the permissive "can" would appear to clearly establish that 

inclusion of administrative expenses in an issuer's contribution amount is optionaL However, 

§ l34l(b)(3)(B)(iv) states that the reinsurance program "shall be designed so that ... each issuer's 

contribution for any calendar year ... reflects its proportionate share or' the U.S. Treasury contribution.32 

CMS argues that the tetm "reflects" indicate.s a similar degree of permissiveness regarding the U.S. 

T1·easury contribution." A dictionary definition of"reflect" states that it can mean "to make manifest or 

"' 42 U.S. C.§ 1806l(b)(3)(A). 

"lll.ACK's LAW DICTIONARY (10tll cd. 2014). 

Jll. 79 Pe-el, Reg, 1:11 30258. 

'"·U U.S.C. § 18061(b)(3)(Il)(iii). 

" 79 Fed. Reg. at 30258. 

"112 U.S.C. § !8061(b)(3)(B)(ii). 

"42 U.S.C. § 1806l(b)(3)(El)(iv). 

ll 79 Fed. Reg. al30258. 
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Congressional Research Service 

apparent."3

'

1 It is not clear that the term admits of any significant discretion, particularly where the 

surrounding language of the clause includes a~regate statutory amounts of the same specificity as in 

clauses that CMS considers to be mandatory,' and further assigns to "each issuer's contribution ... its 

proporlionate share" ofthose aggregate arnounts.36 

!n conclusion, insofar as CMS' interpretation allows the entire contribution of an issuer in any given year 

to be used only for reinsurance payments, such that no part of it is allocated for the U.S. Treasury 

contribution, then that would appear to be in conflict with a plain reading of§ l34l(b)(4). Because the 

statute unambiguously states that "each issuer's contribution" contain an amount that reflects "its 

proportionate share" of the U.S. Treasury contribution, and that these amounts should be deposited in the 

General Fund of the U.S. Treasury, a contrary agency interpretation would not be entitled to deference 

under Chevron. 

Does CMS have tlte authority to delay payments to tlte U.S. Treasury in one year and 

make it up in subsequent years? 

As described above, § 134! requires the reinsurance program to be designed such that the contribution of 

an issuer for any given year reflects "its proportionate share" of the U.S. Treasury contribution. 

Additionally, these reflected amounts are required to be deposited in the Genera! Fund of the Treasury, as 

soon as practicable.37 If contributions to the U.S. Treasury were delayed for one year, that would appear 

to be inconsistent with this clear statutory mandate. 

CMS has interpreted the statute in a similar manner. In its preamble to the May 27,2014 final rule, it 

considered comments about deferring payments to the U.S. Treasury, but "concluded that we [CMSJ have 

no authol'i~y to defer the collection of reinsurance contributions for those payments to the end ofthe 

program."'~ 

H WEBSTER'S 9TH NEW COLLEOIATE D!CTJON,\RY 989 (!983). 

" 79 fed. Reg. at 3025K 

"42 U.S.C. ~ !8061(h)(3)(1l)(iv) (emphasis added). 

"31 u.s.c. * 3302(b). 

"79 Fed. Reg. at 30259~ 
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FRED UPTON, MICHIGAN 

CHAIRMAN 

ONE HUNDRED FOURTEENTH CONGRESS 

f HANK PALLONE, JR., NEW JERSEY 

RANKING MEMBER 

cteongreS'S' of tbe mniteb $tate5' :J!)ou~e of i~cpre~wtatibe~ 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN HousE OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 M<i)Dnty 1201)?25 :?9?7 

M1nonty (202)220 3641 

May 9, 2016 

Mr. Andy Slavitt 

Acting Administrator 

Centers for Medicare and Medicaid Services 

7500 Security Boulevard 

Baltimore, MD 2 l 244 

Dear Mr. Slavitt: 

Thank you for appearing before the Subcommittee on Oversight and Investigations on Friday, 

April l 5, 20 l 6, to testify at the hearing entitled "Unlawful Reinsurance Payments: CMS Diverting $3.5 

Billion from Taxpayers to Pay Insurance Companies." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record, which are 

attached. The format of your responses to these questions should be as follows: (l) the name of the 

Member whose question you are addressing, (2) the complete text of the question you are addressing in 

bold, and (3) your answer to that question in plain text. 

Also attached are Member requests made during the hearing. The format of your responses to 

these requests should follow the same format as your responses to the additional questions for the record. 

To facilitate the printing of the hearing record, please respond to these questions and requests 

with a transmittal letter by the close of business on Monday, May l 6, 2016. Your responses should be 

mailed to Jay Gu!shen, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Oftice Building, Washington, DC 20515 and e-mailed in Word fonnat to Jay.Gulshen@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

"""Jinc~~n ' 

Chairman 

TimMurphy ~ Subcommittee on Oversight and Investigations 

cc: Diana DeGette, Ranking Member, Subcommittee on Oversight and Investigations 

Attachments 
55 


Attachment !-Additional Questions for the Record 

The Honorable Susan Brooks 

In February 2016, the non-partisan Congressional Research Service (CRS) issued a 

memorandum, which addressed, in part, whether CMS has the authority to prioritize reinsurance 

payments to health insurers over the U.S. Treasury. CRS determined that the statute is not 

ambiguous and CMS' actions contradict the plain language ofthe law. 

I. When was CMS made aware of the February 2016 CRS memorandum? 

2. CRS found that "the statute unambiguously states" each reinsurance contribution 

must contain an amount that reflects its "proportionate share" of the Treasury 

contribution. CRS further found that CMS' interpretation appears to be "in conflict 

with a plain reading" of the statute. Do you agree? Why or why not? 

a. What is CMS' position on CRS' memorandum? 

3. Have there been internal discussions about the CRS memorandum? 

a. Has CMS or HHS created a memo or document in response to the CRS 

memorandum? If so, please provide that to the committee. 

4. Since the CRS memorandum was issued, have there been discussions about reversing 

CMS' position to prioritize payments to insurance companies? 

a. Who has been involved in these discussions? 

b. When did these conversations occur? 

5. CMS has already changed its mind once on how to allocate reinsurance payments. In 

light of the CRS memo, will CMS change its mind again- and go back to the original 

interpretation? Why or why not? 

a. Will CMS consider using the original methodology going forward, for the rest 

of the payments this year and in 2017? 

b. CMS changed its policy position once before through the rulemaking process. 

In other words, the rule isn't always the rule. So why can't CMS change its 

position back and actually follow the letter of the law? 
56 

Æ 


Attachment 2-Member Requests for the Record 

During the hearing, Members asked you to provide additional information for the record, and 

you indicated that you would provide that information. For your convenience, descriptions of 

the requested information are provided below. 

The Honorable Tim Murphy 

1. Before concluding the hearing, you committed that CMS would provide the documents 

pursuant to our March 23rd request in a timely marmer. Please submit these documents to 

committee staff. 

The Honorable Marsha Blackburn 

1. During the hearing, you agreed to provide the Committee with the memo breaking down the 

legal justifications of this reinterpretation of the law. Please provide that memo, the full legal 

reasoning, and entire paper trail of behind that reasoning. 

2. Which insurance company has received the most money from the reinsurance program? 

The Honorable David McKinley 

1. As discussed during the hearing, West Virginia's Health and Human Resources recently 

wrote a letter to CMS regarding rural hospitals and these reinsurance payments, and you 

agreed to take a good look at that letter. You further committed to continue working with my 

staff on this issue, and offered to have a rural health task force look into these concerns. 

2. Additionally, you committed to working with the state of West Virginia to provide some 

technical assistance in drafting a Medicaid state plan amendment that would recognize the 

important roe that these care services and consequently clarify their eligibility for continued 

Medicaid DSH payments. 

The Honorable Michael C. Burgess, M.D. 

1. Who specifically within CMS was responsible for interacting with HHS leadership and with 

the White House on reinsurance payments in 2014? Was there a single individual or office? 

2. Outside of the formal rulemaking process did anyone outside the executive branch 

communicate with HHS leadership or CMS about prioritizing reinsurance payments?