Health Reform WK-EDGE Health plans lose battle for risk corridors payments
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Monday, June 25, 2018

Health plans lose battle for risk corridors payments

By Susan Smith, J.D., M.A.

On a government appeal of a judgment in favor of Moda Health Plan (Moda), a qualified health plan (QHP), the Federal Circuit reversed the opinion of the Court of Federal Claims concluding that Moda failed to state a viable claim for additional payments under the risk corridors program under either a statutory or contractual theory. Although the appellate court agreed that §1342 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) unambiguously mandates the government to pay the full amount of risk corridor payments according to the statutory formula, it concluded that riders on the appropriations bills for fiscal years (FYs) involved clearly indicated Congress’ intent to prevent the use of taxpayer funds to support the risk corridors program and temporarily suspended that obligation for each of the relevant years (2014 through 2016). The appellate court also determined that the overall scheme of the risk corridors program, which was established through legislation and regulations lacks the features of a contractual arrangement (Moda Health Plan, Inc, v. U.S., June 14, 2018, Prost, S.).

In a similar case challenging risk corridors program payments, Land of Lincoln Mutual Health Insurance Company (Lincoln), a QHP, appealed the opinion of Federal Court of Claims granting judgment for the government. For the reasons stated in Moda, the appellate court upheld the opinion of the trial court finding that Lincoln’s statutory and contractual claims failed. In addition, the appellate court determined that Lincoln’s taking claims failed because no statutory obligation to pay money, even when unchallenged, creates a property interest within the meaning of the Takings Clause of the Fifth Amendment of the Constitution (Land of Lincoln Mutual Health Insurance Company v. U.S., June 14, 2018, Prost, S.).

The risk corridor program. Section 1342 of the ACA created the temporary risk corridor program to provide issuers with protection against uncertainty resulting, in part, from the prohibition against denial of enrollment to individuals based upon preexisting conditions by limiting issuers’ losses and gains for calendar years 2014 through 2016. Section1342(b)(1), requires the HHS Secretary to make payments to QHPs that suffer losses above a set amount, while §1342(b)(2) requires QHPs experiencing gains above a set amount to make payments to the Secretary (see 2015 risk corridor payments will go toward 2014 balances, November 22, 2016).

The statutory formula. The government contended that §1342 rested on an understanding that the risk corridors program would be budget neutral and it had no obligation to make payments out in excess of payments in because it provided no budgetary authority to the Secretary and identified no source of funds for any payment obligations beyond payments in. The government, however, provided no authority for its contention that a statutory obligation cannot exist absent budget authority. On review, the appellate court concluded that the plain language of §1342 created an obligation for the government to pay participants in the health insurance marketplace the full amount indicated by the statutory formula for payments out under the risk corridors program.

The appropriation riders. The government argued that the riders of the appropriations bills for FYs 2015 and 2016 repealed or suspended its obligations to make payments out in an aggregate amount exceeding payments in. The appellate court agreed, noting that the legislative history of the appropriations riders indicate that Congress’ stated its intent in the first rider, confirming that "the appropriations language was added with the understanding that HHS’ intent to operate the risk corridors program as a budget neutral program meant the government ‘will never pay out more than it collects from insurers over the three year period risk corridors are in effect’."

The appellate court found that Congress enacted temporary measures capping risk corridors payments out at the amount of payments in for each year the program was in effect. In consideration of a Government Accountability Office (GAO) report that identified only two sources of funding for the risk corridors program, payments in and the CMS Program Management fund, Congress cut off access to the only fund drawn from taxpayers. It then issued a statement acknowledging its policy to cap payments out stating that "the federal government will never pay out more than it collects from issuers over the three year period corridors are in effect."

The dissent. One appellate judge dissented from the majority’s opinion that Congress properly indefinitely suspended compliance with the statute in the appropriations bills and determined that the risk corridors program will be budget neutral. The judge pointed out that (1) the appropriations riders did not state that the government would not and need not meet its statutory commitment and (2) the obligation for the government to make risk corridors payments under the provisions of §1302 has not been repealed and the payment regulations have not been withdrawn. The judge also disagreed with the dismissal of the contractual claims contending that HHS entered into mutual commitments with respect to the conditions of performance with the ACA.

The Court of Claims opinions. Moda sought damages equal to the full amount ($214 million) in payments owed by HHS asserting a cause of action under the risk corridors program statutory formula for payments out, notwithstanding the amount of payments collected and the implied-in-fact contract theory. The court concluded that the government violated its statutory duty to make risk corridor payments and, in the alternative, it breached an implied-in-fact contract created by the risk corridors program (see Court is firm; insurer entitled to $214M risk-corridor payment, February 15, 2017).

Lincoln filed a complaint asserting a statutory, regulatory, and contractual entitlement to the outstanding 2014 and 2015 payments, totaling $72,859,053. The court concluded that HHS was not obligated to pay the entirety of risk corridor payments owed to QHPs on an annual basis. The court deferred to HHS’ interpretation of §1342 finding that the agency’s decision to administer the risk corridors program in a budget neutral manner over the three-year life of the program, rather than annually, was reasonable in light of ambiguity and the lack of an appropriation for the program. The court dismissed the remaining contractual claims finding that no valid contract existed between Lincoln and CMS and the Takings Clause claim because the insurer was not entitled to annual risk corridors payments (see Illinois insurer has to wait for $72M in risk corridor payments, November 16, 2016).

The cases are Nos. 2017-12242017-1994.

Attorneys: Daniel P. Albers (Barnes & Thornburg LLP) and Jonathan Massey (Massey & Gail LLP) for Land of Lincoln Mutual Health Insurance Co. Alisa Beth Klein, U.S. Department of Justice, for the United States. Steven Rosenbaum (Covington & Burling LLP) for Moda Health Plan, Inc. Alisa Beth Klein, U.S. Department of Justice, for the United States.

Companies: Land of Lincoln Mutual Health Insurance Co.; Moda Health Plan, Inc.

Cases: CaseDecisions CostSharingNews HealthInsuranceExchangeNews InsurerNews PremiumNews NewsFeed FedCirNews

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