Health Law Daily Health cooperative liquidates, but will government pay in full?
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Monday, October 7, 2019

Health cooperative liquidates, but will government pay in full?

By Cathleen Calhoun, J.D.

The government wanted to pay under federal rules, but cooperative argued that state liquidation rules applied.

The liquidator of Colorado Health Insurance Cooperative, Inc. (the Cooperative) successfully argued that Colorado law, rather than federal law, governed the priority of payment of debts owed to the Cooperative under the Patient Protection and Affordable Care Act ("ACA") (P.L. 111-148) by an insurer in liquidation proceedings. The U.S. Court of Federal Claims found that federal interests did not require a uniform rule and applied Colorado’s insurance liquidation priority scheme. Under that application, HHS’ reduced payment to the Cooperative was invalid (Conway v. U.S., October 3, 2019, Hertling, R.).

ACA. Congress created the Consumer Operated and Oriented Plan ("CO-OP") program in the ACA in order to ensure that states’ health-benefit marketplaces had a good supply of qualified insurance plans for healthcare consumers to buy. The CO-OP program provided loans and grants to qualified nonprofit health insurance issuers to offer qualified health plans in the individual and small group markets. The Colorado Health Insurance Cooperative was undisputedly a CO-OP insurer.

The ACA required each state to establish certain discreet payment programs to help insurers offset the risks of providing broader coverage under the ACA. Even though the ACA allowed each state to operate its own reinsurance and risk-adjustment programs, HHS administers the programs for Colorado, and in all the other states, except for two.

In 2012, HHS approved the Cooperative’s application to operate as a CO-OP program insurer and executed a loan agreement with the Cooperative. In January 2016, a Colorado state court placed the Cooperative in liquidation. In March 2016, HHS paid the Cooperative an early reinsurance payment of around $14M for the previous year. In June 2016, according to HHS, it owed the Cooperative about $38.5M. To date, HHS has only paid the Cooperative around $14M.

Complaint. The Cooperative claimed that: (1) the HHS’s offset violated the ACA, and (2) the offset HHS made under the Netting Rule after the Cooperative entered liquidation was invalid under Colorado’s insurance liquidation priority scheme, and that the ACA itself and the McCarran-Ferguson Act prevents HHS’s Netting Rule from preempting Colorado’s insurance liquidation priority scheme. ("The Netting Rule," a final rule HHS promulgated in 2014 (amended in 2016), explains the method by which HHS would aggregate and offset monies owed by or to different insurers under ACA payment programs).

Analysis. The court quickly dismissed the first claim, holding that the ACA does not prohibit offsets otherwise allowed under federal common law or state law. On the second claim, the court held that HHS’s offset was invalid under Colorado’s insurance liquidation priority scheme. The court reasoned that because the neither ACA (or any other statute) authorizes the Netting Rule’s application in the insurance litigation context, HHS had to have taken the offset in its capacity as a creditor. HHS’ interest in uniformity was insufficient to force the court to make a common law rule to displace Colorado’s insurance liquidation priority scheme, according to the court.

The case is No. 18-1623.

Attorneys: Stephen McBrady (Crowell & Moring LLP) for Michael Conway. Marc S. Sacks, U.S. Department of Justice, for The United States.

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