Health Reform WK-EDGE Failure to make cost-sharing payments violated Section 1402 of the ACA
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Monday, August 24, 2020

Failure to make cost-sharing payments violated Section 1402 of the ACA

By Jeffrey H. Brochin, J.D.

Section 1402 of the ACA imposes an unambiguous obligation on the government to pay money to insurers and that obligation is enforceable through a damages action in the Court of Federal Claims.

The U.S. Court of Appeals for the Federal Circuit affirmed the decision of the Claims Court that granted summary judgment to insurers after concluding that the government’s failure to make cost-sharing reduction payments to the insurers violated section 1402 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). However, the appeals court reversed and remanded for further proceedings with respect to damages (Community Health Choice, Inc. v United StatesAugust 14, 2020, Dyk, T.).

Cost-sharing reductionsSection 1402 of the ACA requires insurers to reduce the insured’s cost-sharing payments and requires the Secretary of HHS to make periodic and timely payments to the insurer equal to the value of the cost-sharing reductions. Eligibility under section 1402 is tied to eligibility under section 1401, and the amount of cost-sharing reductions is directly tied to the household income of the eligible insured.

Cessation of cost-sharing payments. On October 12, 2017, the Secretary announced that the government would cease payment of cost-sharing reduction reimbursements. However, the government’s suspension of cost-sharing reduction reimbursements did not relieve the insurers of their statutory obligation to offer plans with cost-sharing reductions to customers, meaning that the federal government’s failure to meet its cost-sharing reduction payment obligations meant the insurance companies would be losing that money. The solution for the insurers was to increase premiums and the states began working with the insurance companies to develop a plan for how to respond in a fashion that would avoid harm to consumers. The resulting plan involved the tax credit provision of section 1401 of the ACA

This, however, was not a perfect solution because the premium tax credits could only offset premium increases for applicable taxpayers, i.e., insureds with a household in-come of between 100 percent and 400 percent of the federal poverty line. Therefore, insureds having a higher household income would be paying significantly more in premiums for their silver-level plans since they did not receive premium tax credits.

Claims Court lawsuits. Community Health Choice, Inc. (Community) and Maine Community Health Options (Maine Community) are health insurance providers that sell qualified health plans in Texas and Maine, respectively, and both insurers offered cost-sharing reductions as required under section 1402, to insured individuals and as with every other insurer offering qualified health plans on the exchanges, they stopped receiving these payments effective October 12, 2017. They filed separate actions in the Claims Court, asserting that they were entitled to recover the unpaid cost-sharing reduction reimbursements for 2017 and 2018.

Their theories of liability were that in failing to make the cost-sharing reduction payments, the government violated the statutory and regulatory mandate of the ACA; and, that the government’s nonpayment constituted a breach of an implied-in-fact contract. On their motions for summary judgment, the Claims Court agreed with those theories, concluding that the government’s failure to make cost-sharing reduction payments to the insurers violated 42 U.S.C. § 18071 (codifying ACA section 1402) and constituted a breach of an implied-in fact contract. The court further ruled that each insurer was entitled to recover as damages the full amount of unpaid cost-sharing reduction reimbursements for both 2017 and 2018. The government then took the instant appeal.

Reliance upon Sanford. The government argued that section 1402 did not create a statutory obligation on the part of the government to pay cost-sharing reduction reimbursements and that therefore, its failure to make payments did not violate the statute. However, the appeals court cited the case of Sanford Health Plan v. United States (Sanford), No. 19-1290, decided the same day, in which they held that section 1402 of the ACA in fact imposed an unambiguous obligation on the government to pay money and that the obligation was enforceable through a damages action in the Court of Federal Claims. Because the appeals court affirmed the Claims Court’s decisions as to statutory liability, they did not need to address the insurers’ implied-in-fact contract theory.

Determining amount of damages. Although the appeals court concluded that the government was not entitled to a reduction in damages with respect to cost-sharing reductions not paid in 2017, as to 2018, the appeals court was faced with an issue not presented in Sanford: the appropriate measure of damages, and this issue they resolved by holding that the Claims Court must reduce the insurers’ damages by the amount of additional premium tax credit payments that each insurer received as a result of the government’s termination of cost-sharing reduction payments. Accordingly, the appeals court reversed and remand for further proceedings with respect to damages.

The case is No. 19-2102.

Attorneys: Stephen John McBrady (Crowell & Moring, LLP) for Maine Community Health Options. Alisa Beth Klein, U.S. Department of Justice, for the United States.

Companies: Maine Community Health Options

Cases: CaseDecisions AgencyNews CostSharingNews InsurerNews FedCirNews NewsFeed

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