Health Reform WK-EDGE Health insurer’s claims against the government stayed pending Supreme Court decision
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Tuesday, November 12, 2019

Health insurer’s claims against the government stayed pending Supreme Court decision

By Rebecca Mayo, J.D.

The Court of Federal Claims stayed a health insurer’s breach of contract and takings claims against the government under the ACA, pending a Supreme Court decision that will clarify binding precedent.

Whether CMS’s decision to withhold a reinsurance payment from a health insurer undergoing liquidation qualifies as a Taking under the Fifth Amendment to the United States Constitution, will depend on a forthcoming Supreme Court decision. A Court of Federal Claims stayed claims brought by Consumers’ Choice Health Insurance Company against the government for withholding a reinsurance payment. The court decided to stay the case after discovering that two particular cases that would be considered binding precedent for the current case had been granted certiorari after the briefs were submitted (Farmer v. The United StatesOctober 31, 2019, Campbell-Smith, P.).

ACA assistance programs. When the Patient Protection and Affordable Care Act (ACA) was enacted, provisions were included to encourage the formation of new health insurers to increase competition in the marketplace. The ACA facilitated the formation, operation and funding of insurers and included risk mitigation programs which included reinsurance, risk adjustment, and the risk corridor program. Specifically, the reinsurance program was intended to stabilize individual market premiums during the early years of the ACA’s new market reforms.

Liquidation. Consumers’ Choice was formed as a non-profit mutual benefit corporation under South Carolina state law and qualified under the ACA as a Consumer Operated and Oriented Plan (CO-OP). CMS provided a start-up loan to Consumers’ Choice to provide assistance in meeting its start-up costs. It also provided a solvency loan to provide assistance in meeting solvency requirements of the state to be licensed to issue qualified health plans. Consumers’ Choice was only able to provide health insurance in South Carolina during 2014 and 2015 before it was in financial distressed and was forced to cease operations.

South Carolina insurance authorities and Consumers’ Choice instituted the procedures for the supervision, rehabilitation, and eventual liquidations of Consumers’ Choice. During which time, CMS placed an administrative hold on the reinsurance funds owed to Consumers’ Choice for 2015 and then withheld the payment in an effort to offset the amount still owed by Consumers’ Choice on the start-up and solvency loans. Consumers’ Choice then filed claims against CMS seeking monetary damages or just compensation in the amount of the reinsurance payment it should have received for 2015. It brought claims for violations of federal statutes or regulations, breach of contract claims, violations of state law and a violation of the Takings Clause. The government moved to dismiss the claims.

State law claims. The Court of Federal Claims has jurisdiction over specified categories of actions brought against the United States, however it does not have jurisdiction to hear state law claims. The court may assert pendent jurisdiction to serve the interests of judicial economy, convenience and fairness. Though the court noted that there is no statutory grant of jurisdiction or binding precedent that permits the court to assert pendent jurisdiction over claims chiefly involving state law. Further, the court held that it had little familiarity with the litigation and adjudication of claims founded on South Carolina’s Liquidation Act and therefore those claims went beyond its expertise and may result in the court misinterpreting state law. Therefore, the court declined to rule on state law claims and dismissed the claims based on state law.

Stay. The government and Consumers’ Choice rely extensively on two companion opinions issued on the same day by the United States Court of Appeals for the Federal Circuit. The two cases discuss contract and takings claims brought by health insurers asserting claims founded on the ACA and are therefore biding precedent on the court. Both the government and Consumers’ Choice acknowledge the commonalities that link the various counts in the complaint to the holdings in the two cases. However, in the time since the briefs were submitted to the court, the Supreme Court of the United States granted certiorari to those cases. The Court of Federal Claims held that deciding the current case before further guidance is received from the Supreme Court would not be a judicious use of resources. The court therefore denied the motion to dismiss as premature and stayed the remaining claims pending the outcome of the Supreme Court’s clarification of the binding precedent.

This case is No. 18-1484C.

Attorneys: C. Mitchell Brown (Nelson Mullins Riley & Scarborough LLP) for Raymond G. Farmer and Michael J. Fitzgibbons. Terrance Anthony Mebane, U.S. Department of Justice, for the United States.

Companies: Consumers’ Choice Health Insurance Company

Cases: CaseDecisions HealthInsuranceExchangeNews InsurerNews ReinsuranceNews CtFedClaimsNews

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