Health Reform WK-EDGE Congress intended for HHS to make ACA risk corridor payments each year to insurers
Thursday, January 19, 2017

Congress intended for HHS to make ACA risk corridor payments each year to insurers

The risk corridor program, as one of three premium stabilization programs under the Patient Protection and Affordable Care Act (ACA) (P. L. 111-148), was intended to reimburse insurers that covered high-risk individuals on an annual basis during the three-year period beginning January 1, 2014, the U.S. Court of Federal Claims ruled. Congress created the temporary risk corridors program to provide relief to insurers who, in the first three years of insurance market reforms, underestimated their allowable costs and accordingly set their premiums too low (Health Republic Insurance Company v. U.S., January 10, 2017Sweeney, M.).

Background: When Congress enacted the ACA it provided benefits and risks for health insurance companies. Insurers would have access to a market of previously uninsured individuals, likely resulting in more customers, but because insurers lacked the data with which to predict the needs of the newly-insured individuals, they would be hampered in their ability to price qualified health plans to reflect the medical costs associated with the new and untested marketplace. To mitigate the risk faced by insurers, the ACA established three premium stabilization programs including a temporary risk corridors program. The Congressional Budget Office had assumed that collections under the program would equal payments to insurers and that therefore the program would be ‘budget neutral.’ However, after it was determined that certain policy changes affecting the 2014 market rules would lead to unexpected losses, HHS announced in October, 2015 that it would prorate risk corridors payments owed to insurers.

An Oregon insurer that provided health insurance on Oregon’s exchange in 2014 and 2015 calculated that it was entitled to payments of $7,884,886.15 for 2014. Because the risk corridors payments owed to insurers ($2.87 billion) greatly exceeded the risk corridors charges due from insurers ($362 million), HHS announced that each insurer entitled to a risk corridors payment for 2014 would receive only 12.6% of what it was owed. The Oregon insurer also estimated that for 2015 it was owed a risk corridors payment of approximately $15 million. In September, 2016, HHS announced that based on its preliminary analysis, all 2015 benefit year program collections would be used towards remaining 2014 benefit year risk corridors payments, and that no funds would be available at that time for 2015 benefit year risk corridors payments. The insurer filed suit in February, 2016 alleging that HHS did not fully pay the risk corridors payments to which it was entitled under the ACA and it also claimed consequential damages. The U.S. moved to dismiss the complaint contending that the court lacked subject matter jurisdiction because the insurer did not have a claim for presently due money damages and that the court lacked jurisdiction to grant the consequential damages. The court granted the motion as to the consequential damages but denied the motion as to the money damages.

Money-mandating provisions. The court found that section 1342 of the ACA and the regulations implementing the payment requirements were money-mandating provisions that entitled the insurer to seek money damages from the U. S. They referenced the statutory provisions that HHS "shall pay" specified amounts to eligible qualified health plans, and the implementing regulation which used the language that HHS "will pay" specified amounts to issuers of eligible qualified health plans. The U.S. contended that the court’s jurisdiction was limited to claims for presently due money damages, and that the insurer had not established that its damages were presently due because it had not yet obtained declaratory judgment for an amount. The court rejected the argument and found that the insurer’s entitlement to unpaid risk corridors payments was not dependent upon the insurer first obtaining a declaratory judgment. Furthermore, the court noted that the requirement that money damages be presently due was more a ripeness issue than one of jurisdiction.

Lack of payment deadline. The U.S. disputed the ripeness of the claim because HHS had not yet determined the total amount of payments due to the insurer, nor to other insurers under the risk corridors program. The argument was based on the fact that neither the ACA nor the implementing regulation expressly included a deadline for HHS to make risk corridors payments to insurers. In the absence of an explicit deadline, they asserted, HHS could defer payment to insurers until the conclusion of the three-year risk corridors program, or to whenever it had the funds available to make full payment. Because HHS was not under any present obligation to make risk corridors payments, and would not know the total amount owed to each insurer until 2017, the insurer’s claim was premature. This raised the primary issue as to whether risk corridors payments were due annually or at the end of the three year period.

Determining Congressional intent. Although the ACA did not explicitly provide a deadline for HHS to make risk corridors payments to insurers, it did contemplate that HHS would calculate risk corridors payments separately for each year of the program by incorporating the language directing HHS to "establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016," as opposed to mandating a program for calendar years 2014 through 2016. In addition, Congress required HHS to calculate ‘payments in and payments out’ for each year of the program. Taken together, the court found a basis for reliable statutory construction as to Congressional intent approving a risk corridors payment program that provided for annual payments.

The court noted that Congress created the temporary risk corridors program to provide relief to insurers who, in the first three years of insurance market reforms underestimated their allowable costs and accordingly set their premiums too low. If the program did not provide for prompt compensation to insurers upon the calculation of amounts due, insurers might lack the resources to continue offering plans on the exchanges, and if enough insurers left the exchanges, one of the goals of the ACA, namely, the creation of effective health insurance markets, would be unattainable.

The case is No. 1:16-cv-00259-MMS.

Attorneys: Stephen Swedlow (Quinn Emanuel Urquhart & Sullivan, LLP) for Health Republic Insurance Co. Charles E. Canter, U.S. Department of Justice, for the United States of America.

Companies: Health Republic Insurance Co.; United States of America

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