NEW MEXICO HEALTH CONNECTIONS, a New Mexico non-profit corporation v. UNITED STATES DEPARTMENT OF HEALTH & HUMAN SERVICES; CENTERS FOR MEDICARE AND MEDICAID SERVICES; ALEX M. AZAR, II, Secretary of the United States Department of Health and Human Services, in his official capacity; SEEMA VERMA, Administrator for the Centers for Medicare and Medicaid Services, in her official capacity
No. 18-2186
United States Court of Appeals for the Tenth Circuit
December 31, 2019
PUBLISH
AMERICA‘S HEALTH INSURANCE PLANS; BLUE CROSS BLUE SHIELD ASSOCIATION, Amicus-Curiae.
Appeal from the United States District Court for the District of New Mexico (D.C. No. 1:16-CV-00878-JB-JHR)
Joshua Revesz, U.S. Department of Justice, Washington, D.C. (Joseph H. Hunt, Assistant Attorney General, John C.
Barak A. Bassman, Pepper Hamilton LLP, Philadelphia, Pennsylvania (Sara B. Richman, Leah Greenberg Katz, Pepper Hamilton LLP, Philadelphia, Pennsylvania; Marc D. Machlin, Pepper Hamilton LLP, Washington, D.C.; Nancy R. Long, Long, Komer & Associates, P.A., Santa Fe, New Mexico, with him on the brief), for Plaintiff - Appellee.
Julie Simon Miller, Thomas M. Palumbo, America‘s Health Insurance Plans, Washington, D.C.; W. Scott Nehs, Blue Cross Blue Shield Association, Chicago, Illinois; Pratik A. Shah, Z.W. Julius Chen, Akin Gump Strauss Hauer & Feld LLP, Washington, D.C., filed an amicus curiae brief on behalf of Amici Curiae.
Before LUCERO, HARTZ, and MATHESON, Circuit Judges.
MATHESON, Circuit Judge.
In 2010, Congress passed the Patient Protection and Affordable Care Act (“ACA“) to “increase the number of Americans covered by health insurance and decrease the cost of health care.” Nat‘l Fed‘n of Indep. Bus. v. Sebelius, 567 U.S. 519, 538 (2012); see ACA, Pub. L. No. 111-148, 124 Stat. 119 (2010) (codified primarily in title 42 of U.S.C.). Among its reforms, the ACA required private health insurers to provide coverage for individuals regardless of their gender or health status, including preexisting conditions. See
Congress anticipated these reforms might hamper the ability of insurers to predict health care costs and to price health insurance premiums as more individuals sought health insurance. See Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 Fed. Reg. 17,220, 17,221 (Mar. 23, 2012) (codified at
To spread the risk of enrolling people who might need more health care than others, Congress established a risk adjustment program for the individual and small group health insurance markets. See
Plaintiff-Appellee New Mexico Health Connections (“NMHC“), an insurer that was required to pay charges under the program, sued the HHS Defendants-Appellants5 under the Administrative Procedure Act (“APA“). NMHC alleged that HHS‘s use of the statewide average premium to calculate charges and payments in New Mexico from 2014 through 2018 was arbitrary and capricious.6
The district court granted summary judgment to NMHC, holding that HHS violated the APA by failing to explain why the agency chose to use the statewide average premium in its program. See N.M. Health Connections v. U.S. Dep‘t of Health & Human Servs. (NMHC I), 312 F. Supp. 3d 1164, 1207-13 (D.N.M. 2018). The court faulted HHS for “erroneously read[ing] the ACA‘s risk adjustment provisions to require” budget neutrality, which “infect[ed] [HHS‘s] analysis of the relative merits of using a state‘s average premium when calculating risk adjustment transfers instead of using a plan‘s own premium.” Id. at 1209. It remanded to the agency and vacated the 2014, 2015, 2016, 2017, and 2018 rules that implemented the program. After the district court denied HHS‘s motion to alter or amend judgment under
Exercising jurisdiction under
- We hold NMHC‘s claims regarding the 2017 and 2018 rules are moot, so we remand to the district court to vacate its judgment on those claims and dismiss them as moot.
- We reverse the district court‘s grant of summary judgment to NMHC as to the 2014, 2015, and 2016 rules. HHS acted reasonably in explaining why it used the statewide average premium in the formula.
Because we reverse the district court on its summary judgment ruling in favor of NMHC, we need not address the denial of HHS‘s Rule 59(e) motion.
I. BACKGROUND
This section describes the ACA‘s risk adjustment program and summarizes the factual and procedural history of the case.
1. Purpose
Congress included the risk adjustment program in the ACA to stabilize health insurance premiums, encourage health insurers to provide plans on the exchanges, and discourage insurers from eluding enrollment of sicker individuals. See 2014 Final Rule, 78 Fed. Reg. 15,410, 15,411 (Mar. 11, 2013), amended by 2014 Final Rule, 78 Fed. Reg. 65,046 (Oct. 20, 2013). The roles of “premiums” and “risk” in the health insurance market inform this purpose.
Enrollees pay premiums to receive health insurance coverage. Insurers set their premiums “based on the anticipated revenue needs for their enrolled population.” Ctr. for Consumer Info. & Ins. Oversight, Risk Adjustment Implementation Issues, 13 (Sept. 12, 2011) (“2011 White Paper“). Premiums differ from one plan to another for various reasons, including different estimated health care needs of each plan‘s enrollees and the potential costs for those needs. See John Kautter et. al., Affordable Care Act Risk Adjustment: Overview, Context, and Challenges, 4 Medicare & Medicaid Res. Rev. 1, 5 (2014) (“Kautter Article“). Premiums also reflect a plan‘s benefits and efficiency. See id. at 3.
In setting insurance premiums, health insurers consider the risk of loss they might face from providing coverage to their enrollees. Risk is the probability that an insured event will occur, requiring the insurer to pay for it.7 Among other sources of risk, the ACA reforms have exposed insurers to risk of financial loss due to adverse selection, which occurs when individuals who anticipate high health care needs are more likely to purchase coverage than those who anticipate low health care needs. See Stabilization Rule, 77 Fed. Reg. at 17,221. This can result in “a health plan having higher costs than anticipated.” Id.
Before the ACA, insurers could limit their risk by adjusting premiums based on the age, gender, and health status of their enrollees. See Katherine M. Kehres, Cong. Research Serv., R45334, The Patient Protection and Affordable Care Act‘s Risk Adjustment Program: Frequently Asked Questions ii (Oct. 4, 2018) (“CRS Report“). They also “could deny coverage if an individual represented too much risk.” Id. at 3. The ACA changed that. It forbids insurers from refusing to cover individuals with preexisting conditions and from “set[ting] premiums based on gender or health status.” Id. at 1. An insurer “that enrolls a larger proportion of sicker (i.e., high-risk) enrollees than other plans in the market would [therefore] need to charge” a higher premium to be financially viable. Id. at 7.
The risk adjustment program aims to (1) reduce an insurer‘s incentive to enroll only low-risk individuals, (2) encourage insurers to stay in the market, and (3) enable insurers to set premiums based on plan design and benefits rather than the health risk of enrollees in the plan. See id. at ii, 1, 7. It seeks to mitigate the impact of these reforms by subsidizing certain insurers for covering high-risk individuals without compensating them for other plan differences included in the price of their premiums. See Kautter Article at 3; Purva H. Rawal, The Affordable Care Act 161 (2016). HHS devised a formula that calculates “payment
2. Statutory Basis
Section 1343 of the ACA established the risk adjustment program. See id. at 15,415. Codified at
(a) In general
(1) Low actuarial risk plans
Using the criteria and methods developed under subsection (b), each State shall assess a charge on health plans and health insurance issuers (with respect to health insurance coverage) described in subsection (c) if the actuarial risk of the enrollees of such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year that are not self-insured group health plans (which are subject to the provisions of the Employee Retirement Income Security Act of 1974).
(2) High actuarial risk plans
Using the criteria and methods developed under subsection (b), each State shall provide a payment to health plans and health insurance issuers (with respect to health insurance coverage) described in subsection (c) if the actuarial risk of the enrollees of such plans or coverage for a year is greater than the average actuarial risk of all enrollees in all plans and coverage in such State for such year that are not self-insured group health plans (which are subject to the provisions of the Employee Retirement Income Security Act of 1974).
(b) Criteria and methods
The Secretary, in consultation with States, shall establish criteria and methods to be used in carrying out the risk adjustment activities under this section. The Secretary may utilize criteria and methods similar to the criteria and methods utilized under part C or D of title XVIII of the Social Security Act. Such criteria and methods shall be included in the standards and requirements the Secretary prescribes under section 18041 of this title.
(c) Scope
A health plan or a health insurance issuer is described in this subsection if such health plan or health insurance issuer provides coverage in the individual or small group market within the State. This subsection shall not apply to a grandfathered health plan or the issuer of a grandfathered health plan with respect to that plan.
The ACA directed the Secretary of HHS, in consultation with the states, to “establish criteria and methods” to implement this program.
The statute does not authorize any legislatively appropriated funding for this program. Compare
3. Mechanics
HHS implemented the risk adjustment program on behalf of states through rules promulgated in separate notice-and-comment proceedings for the 2014, 2015, 2016,
To implement the program, HHS took the following steps for each benefit year:
- Published a proposed rule approximately one year before the applicable benefit year and, after a public comment period, published the final rule a few months later so insurers could rely on it to price their plans. See Supp. App. at 330;
45 C.F.R. § 153.100 ;id. § 153.320(b) . - Collected enrollment and claims data from insurers. See
45 C.F.R. § 153.70 ; see also CRS Report at 7. - Calculated a “risk score,” which estimated the cost of each enrollee in each plan based on that person‘s age, sex, and diagnoses. See, e.g., Ctr. for Consumer Info. & Ins. Oversight, HHS-Operated Risk Adjustment Methodology Meeting, 5-6 (Mar. 24, 2016) (“2016 White Paper“);9 CRS Report at 7.
- Averaged the individual risk scores to calculate a “plan liability” risk score, which estimated an insurer‘s costs for each of its plans. See 2016 White Paper at 5-6, 11; see also Kautter Article at 8; CRS Report at 7. HHS applied this step to each plan offered by an insurer.10
- Calculated how much plans would be charged or paid by applying to each plan a payment transfer formula, which included an estimated premium based on the “plan liability” risk score and other plan-specific cost factors (such as benefit design). See 2014 Final Rule, 78 Fed. Reg. at 15,417, 15,431; 2016 White Paper at 6, 11; see also Kautter Article at 8.
- Published the risk adjustment transfers, collected charges from insurers that covered healthier enrollees, and paid insurers who covered sicker enrollees. See
45 C.F.R. § 153.310 ; see also CRS Report at 8.
4. Payment Transfer Formula and Statewide Average Premium
The payment transfer formula referred to in step 5 is the focus of this case.11 The
See id. at 15,431.
If the transfer number is positive, a plan receives a payment. See 2016 White Paper at 11. If it is negative, a plan is charged. See id. “Transfers are intended to bridge the gap between these two premium estimates.” 2014 Final Rule, 78 Fed. Reg. at 15,430. The transfers compensate health insurance plans for covering less healthy enrollees while preserving permissible premium differences. 2016 White Paper at 11.
The risk adjustment rules made modest changes over the years. See 2016 White Paper at 31-34. For the purposes of the APA challenge here, the program did not materially change from 2014 to 2018. We therefore rely on the description of the program stated in the 2014 Final Rule. HHS performed these calculations for every plan offered by every insurer in the state and then used the results to determine which insurers would be charged and how much, and which insurers would be paid and how much. See 2014 Final Rule, 78 Fed. Reg. at 15,431-32. The total amount charged minus the total paid by HHS “net[ted] to zero.” Id. at 15,516.
NMHC challenged only one aspect of this program: HHS‘s use of the statewide average premium rather than each plan‘s own premium in its payment transfer formula. See Aplee. Br. at 19. The former is an average of all the applicable health insurance premiums in a state. See 2014
B. Agency and District Court Proceedings
We present in chronological order the agency and district court proceedings leading to this appeal. As this presentation shows, the agency and court proceedings overlapped towards the end.
We describe:
- HHS‘s preparation for and its conduct of the notice-and-comment proceedings that led to the 2014 risk adjustment rule;
- the agency‘s notice-and-comment proceedings that led to the 2015, 2016, and 2017 rules;
- NMHC‘s 2016 district court complaint;
- the agency‘s proceedings that led to the 2018 rule;
- NMHC and HHS‘s cross-motions for summary judgment and the district court‘s ruling on those motions;
- HHS‘s Rule 59(e) motion challenging the district court‘s summary judgment order;
- the agency‘s proceedings, in response to the district court‘s summary judgment order, that led to modifications to the 2017 and 2018 rules; and
- the district court‘s denial of HHS‘s Rule 59(e) motion.
1. Notice-and-Comment Proceedings for the 2014 Rule
HHS began its work on the risk adjustment program shortly after the ACA‘s enactment. Before developing the details of the program, HHS promulgated a rule establishing general standards for the stabilization programs, including the risk adjustment program.12 See Stabilization Rule, 77 Fed. Reg. at 17,220-52.
In late 2011, the Center for Consumer Information and Insurance Oversight (“CCIIO“), an agency within HHS charged with helping to implement ACA reforms, published a white paper on risk adjustment concepts to “begin the consultation process around the development of the [f]ederally-certified risk adjustment methodology developed by HHS and provide context for individuals to submit comments.” 2011 White Paper at 3; see 2014 Proposed Rule, 77 Fed. Reg. at 73,122. In a bulletin published in early 2012 (“2012 Bulletin“), HHS outlined its plan for implementing the program on behalf of a state. See 2014 Proposed Rule, 77 Fed. Reg. at 73,122. In mid-2012, HHS also hosted a public meeting to discuss the plan. See id.
On December 7, 2012, HHS proposed the first risk adjustment rule for benefit year 2014. 2014 Proposed Rule, 77 Fed. Reg. at 73,118-218. It solicited and received comments for the rule and published the final rule on March 11, 2013 (“the
We describe the foregoing in greater depth below, focusing on HHS‘s decision to use the statewide average premium in a risk adjustment program where total charges would equal total payments—that is, budget neutrality.
a. 2011 White Paper
In the 2011 White Paper, CCIIO considered four alternatives to establish a “baseline premium” for the payment transfer formula: “weighted state average premiums,” “weighted rating area average premiums,” “actuarial value-adjusted weighted average premiums,” and “plans’ own premiums.” 2011 White Paper at 14.13 Because NMHC argued only in favor of using the plans’ own premiums, we focus on HHS‘s choice to use the statewide average premium over the plans’ own premiums.
CCIIO noted in the 2011 White Paper that using the statewide average premium “would result in balanced payments and charges” and “could be calculated with or without adjustment.” Id. It expressed concern that using the plans’ own premiums would “create disincentives” for some plans because “the amount of charges and payments would be affected by each plan‘s premiums.” Id. It explained that “[f]or plans with a sicker than average risk mix, a lower premium plan would receive less in payments than a higher premium plan, even if the two plans have the same risk level.” Id. CCIIO feared this “could create disincentives for high-risk plans to operate efficiently or set lower prices.” Id. It also noted additional calculations would be needed for all options “except for the [s]tate average,” id. at 15, meaning that using the statewide average premium would automatically make transfers net to zero whereas using plans’ own premiums would require additional adjustments.
CCIIO sought comments on each of the four alternatives and whether it should consider other alternatives. See id. at 16-17. It also provided an appendix with “examples to examine implications of the approaches to calculate and balance payments and charges in greater detail.” Id. at 16, 29-56.
b. 2012 Bulletin
HHS described its key findings about operating the risk adjustment program in a 2012 bulletin—an informational guidance document. U.S. Dep‘t of Health & Human Servs., Bulletin on the Risk Adjustment Program: Proposed Operations by the Department of Health and Human Services, 3-5 (May 1, 2012). It emphasized how permissible plan differences affect plan premiums. Id. HHS said it would need to control these different factors to ensure “payment transfers compensate for liability differences due to health status” not for other permissible differences. Id. at 5. HHS also noted its payment methodology “need[ed] to be balanced” and acknowledged this budget-neutral design “has significant implications for the equation that is used for calculating payments.” Id.
c. 2014 Rule
In its proposed 2014 rule, HHS explained its decision to use the statewide average premium in the formula in a section titled “Rationales for a Transfer Methodology Based on State Average Premiums.” See 2014 Proposed Rule, 77 Fed. Reg. at 73,139. It said the statewide average premium “provides a straightforward
No commenter challenged HHS‘s decision to use the statewide average premium for the 2014 rule. See 2014 Final Rule, 78 Fed. Reg. at 15,430-32. Some comments supported HHS‘s choice to do so. See 2014 Final Rule, 78 Fed. Reg. at 15,432. For example, HHS noted, “We received a number of comments in support of our proposal to use the [s]tate average premium as the basis for risk adjustment transfers. One commenter suggested that use of a plan‘s own premium may cause unintended distortions in the transfer formula.” Id. In its responses to those comments, HHS said
The goal of the payment transfer formula is, to the extent possible, to promote risk-neutral premiums. We agree with commenters that use of a plan‘s own premium may cause unintended distortions in transfers. . . . We are finalizing our proposal to base the payment transfer formula on the [s]tate average premium.
Id. No commenter challenged HHS‘s decision to design its program as budget neutral such that transfer payments “net to zero.” See 2014 Proposed Rule, 77 Fed. Reg. at 73,139; 2014 Final Rule, 78 Fed. Reg. at 15,417-36.
The risk adjustment program in the 2014 rule thus used the statewide average premium as the baseline in the formula. The rule provided that transfer payments and charges would be budget neutral, meaning HHS would not provide any additional funds to pay for the transfers. The program developed in the 2014 rule became the blueprint HHS followed in promulgating the rules for the ensuing benefit years.
2. Notice-and-Comment Proceedings for the 2015, 2016, and 2017 Rules
HHS adopted a similar risk adjustment program in its 2015, 2016, and 2017 rules. Because the rules used the statewide average premium in the payment transfer formula and built upon prior proceedings, the 2015, 2016, and 2017 rules relied on the same reasoning as the 2014 rule. See 2015 Final Rule, 79 Fed. Reg. at 13,753 (“We proposed to use the [2014] methodology in 2015 . . . .“); 2016 Final Rule, 80 Fed. Reg. at 10,760 (“We proposed to continue to use the same risk adjustment methodology finalized in the 2014 [rule] . . . .“); 2017 Final Rule, 81 Fed. Reg. at 12,217 (same).
a. 2015 Rule
On December 2, 2013, HHS published a proposed rule for the 2015 benefit year. 2015 Proposed Rule, 78 Fed. Reg. 72,322, 72,322-92 (Dec. 2, 2013). On March 11, 2014, it published the final rule for 2015 (“the 2015 rule“). 2015 Final Rule, 79 Fed. Reg. at 13,744-843. HHS included no additional reasoning about its decision to use the statewide average premium or its budget-neutral design, see 2015 Proposed Rule, 78 Fed. Reg. at 72,322-92; 2015 Final Rule, 79 Fed. Reg. at 13,744-843, and no commenter challenged either, see 2015 Final Rule, 79 Fed. Reg. at 13,744-843.
b. 2016 Rule
On November 26, 2014, HHS published a proposed rule for the 2016 benefit year. 2016 Proposed Rule,
c. 2017 Rule
On December 2, 2015, HHS published a proposed rule for the 2017 benefit year. 2017 Proposed Rule,
Some commenters opposed the use of the statewide average premium because it disadvantages issuers with below average premiums. Commenters requested that 2014 and later risk adjustment transfers for all plans with below average premiums in a [s]tate be calculated using the plans’ own average premium amount or average claims cost, so that efficient plans are not penalized using the [s]tatewide average premium.
Id. at 12,230. HHS responded
We did not propose changes to the transfer formula, and therefore, are not addressing comments that are outside the scope of this rulemaking. We may be able to evaluate geographic differences in the future if we obtain enrollee-level data for future recalibrations—a topic that we also intend to discuss in the White Paper and at the March 31, 2016 risk adjustment conference.
On March 24, 2016, HHS circulated the aforementioned white paper, which assessed the formula. See 2016 White Paper at 79-101. In it, CCIIO noted it used the statewide average premium both as “a premium and a cost scaling factor.” Id. at 83. It explained
Over the long run, the [s]tatewide average premium is expected to equal the [s]tatewide average cost (including allowable loading for administrative costs, surplus, and profit). The [s]tatewide premium is therefore simultaneously a premium and cost scaling factor. The [s]tatewide average premium embeds an average level of efficiency. All plans receive a risk adjustment payment or charge sufficient for a plan with average efficiency.
Two other reasons that transfers are scaled by the [s]tatewide average premium, as opposed to, for example, the plan‘s own premium, are:
- Using the [s]tatewide average premium minimizes issuers’ ability to manipulate their transfers by adjusting their own plan premiums.
- Scaling all transfers to the same premium, combined with the assumption that the factors affecting premium requirements and allowable revenue have a multiplicative relationship, obviates any further adjustment of payments and charges to ensure that risk adjustment transfers for the entire market sum to zero.
3. NMHC‘s District Court Complaint
On July 29, 2016, NMHC sued HHS, alleging that the agency violated
4. Notice-and-Comment Proceedings for the 2018 Rule
On September 6, 2016, HHS published a proposed rule for the 2018 benefit year. 2018 Proposed Rule,
On December 22, 2016, HHS published the final rule for 2018 (“the 2018 rule“). Id. at 94,058-183. HHS noted “[a] few commenters requested that HHS use a plan‘s own actual average premium instead of the [s]tatewide average premium in the transfer formula.” Id. at 94,100. HHS responded
We have considered the use of a plan‘s own premium instead of the [s]tatewide average premium. However, our analysis determined that this approach is likely to lead to substantial volatility in transfer results and even higher transfer charges for low-risk low-premium plans. Under such an approach, high-risk, high-premium plans would require even greater transfer payments; thus, low-risk, low-premium plans would be required to pay in an even higher percentage of their plan-specific premiums in risk adjustment transfer charges. In other words, the use of a plan‘s own premium does not reduce risk adjustment charges for low-cost and low-risk issuers, given the budget neutrality of the risk adjustment program.
For the first time, HHS received comments challenging the budget-neutral design of the program. HHS reported
A few commenters noted that the budget neutrality of the risk adjustment program leads to inadequate compensation for enrollees’ risk and recommended a non-budget neutral risk adjustment program as with Medicare Advantage.
Id. at 94,101. It responded
In the absence of additional funding for the HHS-operated risk adjustment program, we continue to calculate risk adjustment transfers in a budget neutral manner and note that Medicare Part D risk adjustment transfers are also calculated in a budget neutral manner.
5. Cross-Motions for Summary Judgment and District Court Order
In mid-2017, both NMHC and HHS moved for summary judgment. In its motion, NMHC made several arguments, including that HHS‘s use of the statewide average premium to calculate risk adjustment transfer payments was arbitrary and capricious. It asserted it was charged $6,666,798 in transfer charges for the 2014 benefit year, representing 21.5 percent of its premiums. NMHC further asserted it was charged $14,569,495.74 for the 2015
In its cross motion for summary judgment, HHS contended its methodology was “eminently reasonable” and “easily satisfie[d] the APA‘s standard of review.” Id. at 335.
The district court granted summary judgment for NMHC, finding that HHS‘s use of the statewide average premium was arbitrary and capricious. NMHC I, 312 F. Supp. 3d at 1170-72.15 It noted that, “even though both [NMHC] and HHS ostensibly filed motions for summary judgment,” “district courts reviewing agency action do not determine whether a genuine dispute as to any material fact exists, and instead engage in a substantive review of the record to determine if the agency considered relevant factors or articulated a reasoned basis for its conclusions.” Id. at 1171 (quotations and citations omitted).
In reviewing the APA challenge, the district court stated the issue was “whether incorporating statewide average premiums in . . . [the] risk[]adjustment [program] is contrary to law or arbitrary and capricious.” Id. at 1170. It held that “HHS‘[s] use of statewide average premiums in its risk adjustment [program] is not contrary to law, but is arbitrary and capricious.” Id. The court said, “HHS assumed, erroneously, that the ACA requires risk adjustment to be budget neutral, and all of HHS‘[s] reasons for using the statewide average premium rely on that budget neutrality assumption.” Id. at 1202. It noted HHS had justified using the statewide average premium to achieve “budget neutrality and predictability.” Id. at 1209. The court said that this assumption “infect[ed]” HHS‘s “analysis of the relative merits of using a state‘s average premium . . . instead of a plan‘s own premium,” including HHS‘s explanation that the statewide average premium was more predictable. Id.
The district court vacated HHS‘s 2014, 2015, 2016, 2017, and 2018 rules. Id. at 1170-71. It entered judgment and remanded the case to the agency for further proceedings. Id.
6. HHS‘s Rule 59(e) Motion
HHS moved to alter or amend the judgment under
While this
On July 25, 2018, HHS sent a letter to the district court announcing it had issued a new final rule on the risk adjustment methodology for the 2017 benefit year (“the new 2017 rule“). Dist. Ct. Doc. 81 at 1. Although the new rule adopted the same methodology as prior rules, HHS “provide[d] additional explanation of the agency‘s use of [the] statewide average premium in the risk adjustment payment transfer formula, as well as the risk adjustment program‘s budget neutral design.” Id. at 1.
In the new 2017 rule, HHS explained it chose to use the statewide average premium to “support[] the overall goal of the risk adjustment program to encourage issuers to” set premium rates “for the average risk in the applicable state market risk pool.” New 2017 Final Rule,
HHS also explained that it chose to use a budget-neutral design for the program for several reasons. First, “Congress designed the risk adjustment program to be implemented and operated by states if they choose to do so,” and HHS could not require the states to provide funding. Id. at 36,458. Second, it noted the ACA “neither authorized nor appropriated additional funding for risk adjustment payments beyond the amount of charges paid in.” Id. “Thus, as a practical matter, Congress did not give HHS discretion to implement a program that was not budget neutral.” Id. Third, “if HHS had elected to adopt a . . . methodology that was contingent on appropriations from Congress . . . that would have created uncertainty for issuers in the amount of risk adjustment payments they could expect.” Id. After issuing the new rule, HHS implemented transfer payments for the 2017 benefit year. Id. at 36,459.
On August 8, 2018, HHS sent a letter to the district court announcing it had issued a new proposed rule for the 2018 benefit year. Dist. Ct. Doc. 84 at 1; see New 2018 Proposed Rule,
8. Denial of Rule 59(e) Motion
The district court denied HHS‘s
II. JURISDICTION
We address two jurisdictional issues. We conclude (A) we have appellate jurisdiction because the administrative remand rule does not apply, and (B) NMHC‘s challenges to the 2017 and 2018 rules are moot.
A. Appellate Jurisdiction
We must determine whether the administrative remand rule precludes our appellate jurisdiction. Under that rule, “[a] remand by a district court to an administrative agency for further proceedings is ordinarily not appealable because it is not a final decision.” W. Energy All. v. Salazar, 709 F.3d 1040, 1047 (10th Cir. 2013) (quotations omitted). Here, the district court‘s summary judgment order determined HHS had violated the APA because its implementation of the risk adjustment program was arbitrary and capricious. It remanded that issue to HHS. This court ordered the parties to address whether we lack jurisdiction under the administrative remand rule in their briefs. Although neither party contests our appellate jurisdiction, “federal courts are under an independent obligation to examine their own jurisdiction.” United States v. Hays, 515 U.S. 737, 742 (1995).
“[W]e exercise jurisdiction over final decisions of the federal district courts pursuant to
As to the nature of the agency action, we consider whether it was “essentially adjudicatory, essentially legislative, or some nonadversarial action such as grant of a license.” Am. Wild Horse Pres. Campaign, 847 F.3d at 1184 (quotations omitted). Adjudicatory action affects individuals in their individual capacity. W. Energy All., 709 F.3d at 1048. Legislative action “affects the rights of individuals in the abstract and must be applied in a further proceeding before the legal position of any particular individual will be definitively” affected. Id. (quotations omitted). “[O]ur precedent indicates that we view the remand rule as most appropriate in adjudicative contexts.” Am. Wild Horse Pres. Campaign, 847 F.3d at 1184 (quotations omitted).
As to the district court‘s order, we consider its character, “including whether it returns an action to . . . the agency for further proceedings.” Id. (alterations and citations omitted). If the district court‘s order is not a “remand in the typical sense,” the administrative remand rule is inapplicable. W. Energy All., 709 F.3d at 1047 (quotations omitted).
We conclude the district court‘s summary judgment order was a final, appealable decision and the administrative remand rule does not apply. First, HHS acted in a legislative capacity in promulgating the rules. See N.M. ex rel. Richardson v. Bureau of Land Mgmt., 565 F.3d 683, 698 (10th Cir. 2009) (holding agency action was final decision where agency proceeding was “quasi-legislative“). Second, although the district court‘s order remanded to HHS to correct deficiencies, the 2014, 2015, and 2016 transfer payments have already occurred, so the order “does not share the features of a typical remand.” Am. Wild Horse Pres. Campaign, 847 F.3d at 1184 (holding agency action was final decision where action based on the challenged rule had already taken place and remand was to “correct procedural deficiencies” in rule analysis). And, as discussed below, NMHC‘s challenges to the 2017 and 2018 rules are moot.
The district court‘s disposition was not an administrative remand but a final order. We have jurisdiction under
B. NMHC‘s Challenges to the 2017 and 2018 Rules Are Moot
NMHC asserts its “challenges to the old 2017 and 2018 [rules] are moot.” Aplee. Br. at 45.18 We agree. “We have no subject-matter jurisdiction if a case is moot.” Rio Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d 1096, 1109 (10th Cir. 2010). We review questions of mootness de novo as “squarely a legal determination.” Brown v. Buhman, 822 F.3d 1151, 1168 (10th Cir. 2016) (quotations omitted).
Article III of the Constitution permits federal courts to decide only “Cases” or “Controversies.”
“A case becomes moot—and therefore no longer a ‘Case’ or ‘Controversy’ for purposes of Article III—when the issues presented are no longer live or the parties lack a legally cognizable interest in the outcome.” Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013) (quotations omitted). “If an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during litigation, the action can no longer proceed and must be dismissed as moot.” Brown, 822 F.3d at 1165 (quoting Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 669 (2016)). “Corrective action by an agency is one type of subsequent development that can moot a previously justiciable issue.” Nat. Res. Def. Council, Inc. v. U.S. Nuclear Reg. Comm‘n, 680 F.2d 810, 814 (D.C. Cir. 1982). An agency‘s action moots an appeal “[b]y eliminating the issues upon which this case is based.” Hayes v. Osage Mins. Council, 699 F. App‘x 799, 803 (10th Cir. 2017) (quoting Wyoming v. U.S. Dep‘t of Agric., 414 F.3d 1207, 1212 (10th Cir. 2005)).19
Courts recognize two exceptions to mootness. First, a case or controversy is not moot if the dispute is “capable of repetition, yet evading review.” Brown, 822 F.3d at 1166 (quotations omitted). This exception “applies where (1) the challenged action is in its duration too short to be fully litigated prior to cessation or expiration, and (2) there is a reasonable expectation that the same complaining party will be subject to the same action again.” Id. (quoting Fed. Election Comm‘n v. Wis. Right to Life, Inc., 551 U.S. 449, 462 (2007)).
Second, “voluntary cessation of challenged conduct does not ordinarily render a case moot because a dismissal for mootness would permit a resumption of the challenged conduct as soon as the case is dismissed.” Id. (quoting Knox v. Serv. Emps. Int‘l Union, Local 1000, 567 U.S. 298, 307 (2012)). This exception is designed to counteract gamesmanship, such as “a defendant ceasing illegal action long enough to render a lawsuit moot” before “resuming the illegal conduct.” Ind v. Colo. Dep‘t of Corrs., 801 F.3d 1209, 1214 (10th Cir. 2015) (quotations omitted). It does not apply, however, if it is “absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.” Brown, 822 F.3d at 1166 (quotations omitted). Government “self-correction . . . provides a secure foundation for mootness so long as it seems genuine.” 13C Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Fed. Prac. & Proc. Juris. § 3533.7 (3rd ed. 2008); see also Rio Grande Silvery Minnow, 601 F.3d at 1117-18 (holding “withdrawal or alteration of administrative policies” satisfies concerns regarding voluntary cessation (quotations omitted)).
2. Analysis
Although HHS appealed the district court‘s summary judgment order as to the 2014, 2015, 2016, 2017, and 2018 risk adjustment rules, NMHC‘s challenges to the 2017 and 2018 rules became moot when HHS modified them. NMHC has not challenged the modified rules.
While its
These actions cured the defects identified in the district court‘s order for the original 2017 and 2018 rules. Because the new 2017 and 2018 rules supersede the old ones,20 any decision by this court regarding the original 2017 and 2018 rules “would be wholly without effect in the real world.” Rio Grande Silvery Minnow, 601 F.3d at 1112; see also Wyoming, 414 F.3d at 1212 (noting “the alleged procedural deficiencies of the . . . [r]ule are now irrelevant because the replacement rule was promulgated in a new and separate rulemaking process“). NMHC‘s challenges to the original 2017 and 2018 rules are therefore moot.21
Neither exception to the mootness doctrine applies here. Mooting this case would not run afoul of the “capable of repetition” exception because any future failure to explain the agency rulemaking would allow NMHC ample time and opportunity to challenge HHS‘s action. HHS is also unlikely to subject NMHC to a purportedly unexplained decision to use the statewide average premium or budget neutrality in future rules given the agency‘s extensive explanation on those matters in the new 2017 and 2018 rules and the agency‘s practice on each successive risk adjustment rule to build on and incorporate prior ones. The additional explanations provided in the new 2017 and 2018 rules
Nor does the “voluntary cessation” exception apply. Mooting NMHC‘s challenges to the 2017 and 2018 rules would not offer HHS an opportunity to resume “the challenged conduct.” Brown, 822 F.3d at 1166. HHS already has replaced the original rules with these new ones and has added explanation to satisfy the district court. It cannot revert to the original rules without a new proceeding, see
Because NMHC‘s challenges to the 2017 and 2018 rules are moot, we do not address them in our following merits discussion. We remand NMHC‘s challenges to the 2017 and 2018 rules to the district court with instructions to vacate its judgment as to those rules for lack of jurisdiction.
III. NMHC‘S CHALLENGE TO THE 2014, 2015, AND 2016 RULES
The district court vacated and remanded HHS‘s 2014, 2015, 2016, 2017, and 2018 risk adjustment rules. Due to our mootness determination, we limit our review to the 2014, 2015, and 2016 rules. We reverse the district court‘s summary judgment ruling in favor of NMHC regarding these rules. As a result, we need not address whether the district court erred in ordering vacatur or in denying HHS‘s
A. Legal Background
Under the APA, a reviewing court shall “hold unlawful and set aside agency action . . . found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
In reviewing an APA challenge to agency action, a district court acts as an appellate court. See S. Utah Wilderness All. v. Dabney, 222 F.3d 819, 823 n.4 (10th Cir. 2000). The court employs summary judgment to “decid[e], as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.” Calloway v. Harvey, 590 F. Supp. 2d 29, 36 (D.D.C. 2008) (quotations omitted); see Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1576 (10th Cir. 1994) (“[T]he district court itself must examine the administrative record and itself must find and identify facts that support the agency‘s action.“).22
On appeal to this court, we review “de novo a district court‘s decision in an APA case,” Biodiversity Conservation All. v. Jiron, 762 F.3d 1036, 1059 (10th Cir. 2014), and consider “the administrative record directly,” Stand Up for California! v. U.S. Dep‘t of Interior, 879 F.3d 1177, 1181 (D.C. Cir. 2018). “In reviewing the agency‘s action, we must render an independent decision using the same standard of review applicable to the [d]istrict [c]ourt[‘s]” review. Olenhouse, 42 F.3d at 1580; see City of Colo. Springs v. Solis, 589 F.3d 1121, 1131 n.2 (10th Cir. 2009) (focusing on Department of Labor decision rather than district court framing in APA challenge on appeal). Our review is limited to the administrative record, including “all materials compiled by the
Although we afford no deference to the district court‘s decision, we must do so as to HHS‘s actions. See W. Watersheds Project v. Bureau of Land Mgmt., 721 F.3d 1264
1264, 1273 (10th Cir. 2013). “Our inquiry under the APA must be thorough, but the standard of review is very deferential to the agency.” Id. (quotations omitted). This deference means we may set aside an agency action only if it violates the APA. See id. HHS‘s actions are entitled to a presumption of regularity, and NMHC bears the burden of persuasion to show HHS acted arbitrarily and capriciously. See Biodiversity Conservation All., 762 F.3d at 1060.
An agency‘s action is arbitrary and capricious where the agency
(1) entirely fail[s] to consider an important aspect of the problem, (2) offer[s] an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view of the product of agency expertise, (3) fail[s] to base its decision on consideration of the relevant factors, or (4) ma[kes] a clear error of judgment.
W. Watersheds Project, 721 F.3d at 1273 (quotations omitted).
“One of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its decisions.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016). “Our scope of review is ‘narrow‘: we determine only whether the [agency] examined ‘the relevant data’ and articulated ‘a satisfactory explanation’ for [its] decision, ‘including a rational connection between the facts found and the choice made.‘” Dep‘t of Commerce v. New York, 139 S. Ct. 2551, 2569 (2019) (quoting Motor Vehicle Mfrs. Ass‘n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). We “must confine ourselves to ensuring that [the agency] remained within the bounds of reasoned decisionmaking.” Id. (quotations omitted). “But where the agency has failed to provide even that minimal level of analysis, its action is arbitrary and capricious . . . .” Encino Motorcars, 136 S. Ct. at 2125.
B. NMHC‘s Challenge to the Statewide Average Premium
The district court decided HHS was arbitrary and capricious because it did not explain why the risk adjustment program would be budget neutral. On appeal, as in its complaint, NMHC more broadly attacks HHS‘s rationale for the statewide average premium, which, if meritorious, would be an alternative ground to affirm. In the following discussion, we therefore determine that HHS did not act arbitrarily and capriciously in using the statewide average premium in its formula for the 2014, 2015, and 2016 rules. We further address why HHS was not arbitrary and capricious for failing to explain why it chose a budget-neutral design.
1. Statewide Average Premium
NMHC challenged “HHS‘s decision to use the statewide average premium, as opposed to an insurer‘s own premium,” in the risk adjustment program. Aplee. Br. at 20-21. The district court concluded that “HHS‘[s] risk adjustment regulations—specifically their use of the statewide average premium—are arbitrary and capricious.” NMHC I, 312 F. Supp. 3d at 1205; see also NMHC II, 340 F. Supp. 3d at 1166 (noting district court “concluded that HHS did not adequately explain its decision to employ state average premiums“). NMHC contends that “HHS points to nothing in the administrative record to
As discussed above, HHS researched how to implement the risk adjustment program before promulgating the 2014 rule. In its 2011 White Paper, CCIIO identified four alternatives for the formula, including the statewide average premium and the plans’ own premiums. 2011 White Paper at 14.23 It described the benefits and drawbacks of each alternative and invited the public to comment on them. Id. For example, CCIIO noted:
Option 1a: Weighted [s]tate average premiums. This approach would calculate the baseline premium according to the enrollment-weighted average premium in the [s]tate. The [s]tate average could be calculated with or without adjustment for actuarial value of plans. Using a [s]tate average (without actuarial value adjustment) would result in balanced payments and charges, because the [s]tate average is a single dollar amount for all plans, and plan risk scores average to 1.0.
. . .
Option 2: Plan‘s own premiums. This approach would use each plan‘s own premiums as the baseline premium. Relative to the prior options, charges would be lowest for low premium, low-risk plans under this approach, and payments would be highest for high risk, high premium plans. In this approach, the amount of charges and payments would be affected by each plan‘s premium. For plans with a sicker than average risk mix, a lower premium plan would receive less in payments than a higher premium plan, even if the two plans have the same risk level. This could create disincentives for high-risk plans to operate efficiently or set lower prices. Conversely, among two plans with the same healthier than average risk mix, a lower premium plan would have lower charges, potentially creating incentives for low-risk plans to operate more efficiently and/or set lower premiums.
Id. at 14-15. It further noted:
When payments are greater than charges, a low risk plan with low premiums would be charged less if the baseline premium is the plan‘s own premiums and payments are reduced to charges, as compared to what the plan would be charged if the baseline premium is the [s]tate average premium or the baseline premium is the plan‘s own premiums with charges increased to payments.
Conversely, a high risk plan with high premiums would receive higher payments if the baseline premium is the plan‘s own premium and charges are increased to payments, as compared to the payments the plan would receive if the baseline premium is the [s]tate average premium, or the baseline premium is the plan‘s own premiums with payments decreased to charges.
When HHS proposed using the statewide average premium in its 2014 proposed rule, it relied on research from the 2011 White Paper. See 2014 Proposed Rule,
Risk adjustment transfers are intended to reduce the impact of risk selection
on premiums while preserving premium differences related to other cost factors, such as the actuarial value, local patterns of utilization and care delivery, local differences in the cost of doing business, and, within limits established by the Affordable Care Act, the age of the enrollee. Risk adjustment payments would be fully funded by the charges that are collected from plans with lower risk enrollees (that is, transfers within a [s]tate would net to zero). In the [2011] Risk Adjustment White Paper, we presented several approaches for calculating risk adjustment transfers using the [s]tate average premium and plans’ own premiums. The approaches that used plans’ own premiums resulted in unbalanced payment transfers, requiring a balancing adjustment to yield transfers that net to zero. These examples also demonstrated that the balancing adjustments could introduce differences in premiums across plans that were not consistent with features of the plan (for example, AV or differences in costs and utilization patterns across rating areas). A balancing adjustment would likely vary from year to year, and could add uncertainty to the rate development process (that is, plan actuaries would need to factor the uncertainty of the balancing adjustment into their transfer estimates).
Therefore, we propose a payment transfer formula that is based on the [s]tate average premium for the applicable market, as described in section III.B.3.a. of this proposed rule. The [s]tate average premium provides a straightforward and predictable benchmark for estimating transfers. As shown in the examples in the [2011] Risk Adjustment White Paper, transfers net to zero when the [s]tate average premium is used as the basis for calculating transfers.
Plan premiums differ from the [s]tate average premium due to a variety of factors, such as differences in cost-sharing structure or regional differences in utilization and unit costs. The proposed payment transfer formula applies a set of cost factor adjustments to the [s]tate average premium so that it will better reflect plan liability. These adjustments to the [s]tate average premium result in transfers that compensate plans for liability differences associated with risk selection, while preserving premium differences related to the other cost factors described above.
In the 2014 final rule, HHS noted it received comments in support of its decision to use the statewide average premium. It said:
Comment: We received a number of comments in support of our proposal to use the [s]tate average premium as the basis for risk adjustment transfers. One commenter suggested that use of a plan‘s own premium may cause unintended distortions in the transfer formula. One commenter suggested that we use net claims, or approximate net claims by using 90 percent of the [s]tate average premium, as the basis for risk adjustment transfers.
Response: The goal of the payment transfer formula is, to the extent possible, to promote risk-neutral premiums. We agree with commenters that use of a plan‘s own premium may cause unintended distortions in transfers. We also believe that both claims and administrative costs include elements of risk selection, and therefore, that transfers should be based on the entire premium. We are finalizing our proposal to base the payment transfer formula on the [s]tate average premium.
2014 Final Rule,
In sum, HHS explained in the rulemaking proceeding that it chose the statewide average premium over alternatives such as
HHS thus acted reasonably in choosing to use the statewide average premium. See Dep‘t of Commerce, 139 S. Ct. at 2570 (“[T]he choice between reasonable policy alternatives in the face of uncertainty was the [agency‘s] to make.“). It “considered the relevant factors, weighed risks and benefits, and articulated [several] satisfactory explanation[s] for [its] decision” in the administrative record. Id. No commenter challenged HHS‘s decision to use the statewide average premium in the 2014, 2015, or 2016 rules.
2. District Court and Budget Neutrality
Although the agency provided reasoned explanations for using the statewide average premium, the district court thought the agency should further have explained the budget-neutral design of the program because it “infect[ed]” HHS‘s rationales for using the statewide average premium. NMHC I, 312 F. Supp. 3d at 1209. NMHC makes similar arguments in its brief on appeal. We view this issue differently and give HHS the deference the APA requires. See W. Watersheds Project, 721 F.3d at 1273;
As an initial matter, the district court found HHS was arbitrary and capricious
First, the district court determined “HHS‘[s] justifications for using the statewide average premium instead of a plan‘s own premium all assume that the ACA requires risk adjustment to be budget neutral, which is not correct.” NMHC I, 312 F. Supp. 3d at 1205. As the district court noted, the ACA neither requires nor forbids budget neutrality. Id. at 1209; see 42 U.S.C. § 18063. But the administrative record
shows HHS would have designed its program to be budget neutral even if it had used the plans’ own premiums rather than the statewide average premium in its formula. See 2011 White Paper at 15 (“Since payment and charge transfers will be budget neutral, a method is needed to balance them if payments are greater than charges or vice versa.“).
Second, the district court determined HHS could have justified using budget neutrality as a “worthy policy goal” but failed to make “such a determination in the record.” NMHC I, 312 F. Supp. 3d at 1205. But budget neutrality was not a policy goal. It was the product of funding constraints. The statute that created the program lacked any funding authorization.26 NMHC has never pointed to an explicit congressional appropriation for the program.27 The absence of an appropriation
a matter of public record. See, e.g., Dep‘t of Health & Hum. Servs. Appropriations Act, 2014, Pub. L. No. 113-76, 128 Stat. 5, 363-88; Dep‘t of Health & Hum. Servs. Appropriations Act, 2015, Pub. L. No. 113-235, 128 Stat. 2130, 2466-93; Dep‘t of Health & Hum. Servs. Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242, 2600-27. This is likely why no one questioned the budget-neutral design during notice-and-comment rulemaking until 2018.28
HHS did not violate the APA when it designed the risk adjustment program as budget neutral. It lacked funding to do otherwise. The APA‘s requirement that an agency explain its decision applies when the agency exercises its discretion. See State Farm, 463 U.S. at 48 (“[A]n agency must cogently explain why it has exercised its discretion in a given manner . . . .” (emphasis added)); see also United States v. Magnesium Corp. of Am., 616 F.3d 1129, 1144 (10th Cir. 2010) (same). Here, there was no exercise of discretion to explain. In hindsight, perhaps the agency should have explained more fully why it developed a program in which the risk adjustment charges and payments netted to zero, such as the rationale for budget neutrality that HHS articulated for the new 2018 rule. But it hardly follows that the agency acted unreasonably. HHS‘s actions did not violate the arbitrary and capricious standard.
To the extent the district court‘s opinion can be read as criticizing HHS‘s reasons apart from budget neutrality, see NMHC I, 312 F. Supp. 3d at 1211-12, our previous analysis addresses why the agency was not arbitrary and capricious in choosing the statewide average premium.29 Courts cannot “second[]guess” an agency‘s rulemaking decision when it provided “reasons for [its] chosen course of action.” Dep‘t of Commerce, 139 S. Ct. at 2571. HHS was not arbitrary or capricious in choosing to use the statewide average premium in its formula.
IV. CONCLUSION
We remand NMHC‘s challenges to the 2017 and 2018 rules to the district court with instructions to vacate its judgment as to those rules for lack of jurisdiction due to mootness and to dismiss those claims without prejudice. We reverse the district
Notes
In general, an issue must have been raised before an agency for a party to seek judicial review of agency action on that issue. See United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 36-37 (1952); Ark Initiative v. U.S. Forest Serv., 660 F.3d 1256, 1261 (10th Cir. 2011). HHS argues that NMHC failed to exhaust any challenge to budget neutrality. See Aplt. Br. at 22-23. It points out that no commenter objected to the budget-neutral design until the 2018 benefit year. See id. at 22. Courts may require issue exhaustion even when, as in this case, neither a statute nor a regulation requires it. See Advocates for Highway & Auto Safety v. Fed. Motor Carrier Safety Admin., 429 F.3d 1136, 1148-49 (D.C. Cir. 2005). In this context, issue exhaustion is not a jurisdictional prerequisite to judicial review. See id. at 1148; see also Avocados Plus Inc. v. Veneman, 370 F.3d 1243, 1248 (D.C. Cir. 2004).
HHS first raised its issue exhaustion defense in its Rule 59(e) motion, which may have been too late under cases like Eaton v. Pacheco, 931 F.3d 1009, 1028 (10th Cir. 2019) (rejecting argument raised “for the first time” in a Rule 59(e) motion). It could have raised the defense earlier in response to NMHC‘s discussion in its summary judgment motion that “there is no statutory requirement that risk adjustment be budget neutral.” Dist. Ct. Doc. 33 at 22. But this discussion was part of a broader argument about the statewide average premium. And HHS may not have expected the district court to rely so heavily on budget neutrality for its summary judgment ruling. So it is not clear whether HHS should be faulted for its late-blooming issue-exhaustion defense.
NMHC argues HHS could have used funds appropriated for CMS‘s “other responsibilities.” See Aplee. Br. at 30; see, e.g., Dep‘t of Health & Hum. Servs. Appropriations Act, 2014, Pub. L. No. 113-76, 128 Stat. 5, 374-75. But, as HHS explains, to enable health insurers to plan with more certainty, it announced the risk adjustment rules before these funds were appropriated. See Aplt. Br. at 30-31; Aplt. Reply Br. at 8; see also Minuteman, 291 F. Supp. 3d at 202-03. HHS further points out that Congress authorized the states to implement the program and did not authorize funding for the states. See
NMHC also argues that “user fees” were available for the program. See Aplee. Br. at 30; Oral Arg. at 26:20-27:13. Although fees were used to cover HHS‘s administrative costs for the exchanges and the risk adjustment program, they were not used for the payments made to high-risk insurers. See, e.g., 2014 Final Rule,