Opinion ID: 209692
Heading Depth: 3
Heading Rank: 1

Heading: The Regulation Conflicts With The Statute

Text: The Nonreconciliation Regulation conflicts with 5 U.S.C. § 8902(i). When a regulation directly contradicts a statute, the regulation must yield. Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 86, 122 S.Ct. 1155, 152 L.Ed.2d 167 (1997) (A regulation cannot stand if it is arbitrary, capricious, or manifestly contrary to the statute.); Mead, 533 U.S. at 227, 121 S.Ct. 2164. We first briefly reiterate the broader rate-setting framework that OPM has constructed. Congress' charge vis-à-vis rate-setting was to command that rates shall reasonably and equitably reflect the cost of the benefits provided. 5 U.S.C. § 8902(i). We infer that OPM designed its rate-setting mechanism with Congress' command in mind. The process OPM devised includes the pre-contract year estimate of SSSG rates, and then (in all but the Final Year) the mid-contract year reconciliation. The carriers are not challenging this overarching rate-setting structure. See Appellees Texas Health Choice, L.C. and Scott & White Health Plan's Br. at 18. We need not evaluate the propriety of that larger system here. The sole question before us is whether the Nonreconciliation Regulation is valid. That question cannot be answered without viewing the regulationan exception to the established rulein the context of OPM's overall judgment about how best to set rates consistent with § 8902(i). During oral argument, Counsel for the Government concededwith commendable candorthat reconciled rates are a proxy for costs. [2] Oral Arg., available at http:// oralarguments.cafc.uscourts.gov/mp3/XXXX-XXXX.mp3. In truth, this is an unremarkable admission. If the Government were to contend otherwise, it would admit that the heart of its rate-setting methodology patently ignores the one and only rate-setting directive that Congress handed down: that rates should reasonably and equitably reflect costs. OPM's established rate-setting process for ordinary years was designed to produce rates that reasonably and equitably reflect carriers' costs. OPM endeavors to arrive at such rates by ensuring that the rates carriers charge the government are on par with the rates they charge their non-Federal subscribers. OPM concedes this point. Nancy H. Kichak, the Director of the Actuaries, Retirement and Insurance Service for OPM, submitted a declaration (Kichak Declaration) in the proceedings below. In it, she acknowledged that [w]hen OPM negotiates rates with a community rated carrier, its objective is to receive a rate that is derived in a manner consistent with the rate the carrier charges its other, non-Federal groups of a similar size. Joint Appendix, at 78, ¶ 8. This is one rational way to go about implementing Congress' command. The system presupposes that a competitive marketplace for health care services exists. It further assumes that the competitiveness of the market yields rates that are high enough to permit carriers to recoup their costs plus earn a reasonable profit, [3] but not so high as to be unfair. [4] OPM itself confirms this point. In her declaration, Ms. Kichak stated: Community rated health maintenance organizations are at risk when they determine their rates. If they charge too much, they are at risk of losing enrollees in the competitive open season process. If they charge too little, they may not earn enough premiums to meet the covered heath services of the group.