Supreme Court Finds Federal Government Obligated to Pay Insurers ACA Risk Corridor Payments
This Featured Article is contributed by AHLA's Payers, Plans, and Managed Care Practice Group.
- May 01, 2020
- Tamara Killion , Groom Law Group
On April 27, 2020, the Supreme Court issued its decision in Maine Community Health Options v. United States. At issue was the Affordable Care Act’s (ACA’s) risk corridor program, a temporary risk mitigation program for certain plans sold through Marketplaces that was designed to run from 2014 to 2016. As the Department of Health and Human Services (HHS) explained in implementing the risk corridor program, the “temporary Federally administered risk corridors program serves to protect against uncertainty in rate setting by qualified health plans sharing risk in losses and gains with the Federal government.”[1] Congress did not fund the program, however, and by 2016, insurers that were owed payments by the government began filing suit in the Court of Federal Claims.
Several cases were decided with mixed results. In a consolidated appeal, the Federal Circuit ruled that, although the ACA’s risk corridor program did require the government to make risk corridor payments, subsequent appropriation riders had impliedly amended the obligation. As a result, the federal government was not required to pay.
The plaintiffs appealed to the Supreme Court, arguing that (1) the ACA’s risk corridor program required payments by the federal government to insurers that met the program criteria and (2) that an appropriation could not amend that obligation. The Supreme Court agreed, holding that:
In establishing the temporary Risk Corridors program, Congress created a rare money-mandating obligation requiring the Federal Government to make payments under §1342’s formula. And by failing to appropriate enough sums for payments already owed, Congress did simply that and no more: The appropriation bills neither repealed nor discharged §1342’s unique obligation. Lacking other statutory paths to relief, and absent a Bowen barrier, petitioners may seek to collect payment through a damages action in the Court of Federal Claims.[2]
Background
Section 1342 of the ACA established a mandatory risk corridor program in which qualified health plans (QHPs) must participate from 2014 through 2016. The program required QHPs with allowable costs of less than 97% to make payments to HHS, while at the same time requiring HHS to make certain payments to QHPs with allowable costs that are more than 103%.
Section 1342 did not specifically identify a source of funding for the risk corridor program. In the Preamble to the final regulation, HHS initially took the position that the risk corridor program was not required to be budget neutral and therefore, regardless of the amount of money that was collected from insurers with allowable costs of less than 97%, HHS would remit full payments to insurers with allowable costs more than 103%.[3] HHS eventually reversed its position, and concluded that the risk corridor program must be budget neutral over the course of its three-year existence.[4] During the same period, Congress passed an appropriations rider that prohibited the use of any funds from the Labor-HHS Appropriations bill for the risk corridor program.[5]
Requiring the risk corridor program to be budget neutral (and blocking the use of any appropriated funds for the program) could nonetheless have worked if HHS was collecting as much from insurers with allowable costs under 97% as it owed insurers that had allowable costs of more than 103%. But that was not how the Marketplaces were functioning. Instead, for 2014, HHS announced that it could only make risk corridor payments of about 12% of what would have been expected if the program had run as it was designed.[6] At that time, HHS said it would make up the 2014 shortfall in 2015, if collections improved sufficiently. They did not. For 2015, HHS announced that it anticipated that all 2015 risk corridor collections would be used to pay outstanding 2014 obligations and no funds would be available for 2015 risk corridor payments.[7] And for 2016, the last year of the program, HHS announced that: "Because 2015 benefit year collections were insufficient to pay 2014 benefit year payment balances in full, HHS will use 2016 benefit year risk corridors collections to make additional payments toward 2014 benefit year payment balances."[8]
Throughout the three years, HHS was collecting from insurers with allowable costs under 97%; nonetheless, by the end of the program, insurers were owed over $12 billion.[9]
Court of Federal Claims
Many health insurers filed claims against the government in the Court of Federal Claims, including one class action.[10] The earliest case to be decided was Land of Lincoln, a case brought by a co-op that alleged it was in liquidation because of the government’s failure to make the risk corridor payments it was owed. The Court of Federal Claims dismissed Land of Lincoln’s claims,[11] other and losses for insurers followed the Land of Lincoln decision.[12] Other courts, however, agreed with the insurers that the ACA did require full risk corridor payments.[13] The first four cases to be appealed to the Federal Circuit—brought by Land of Lincoln, Moda Health Plan, Inc., Blue Cross Blue Shield of North Carolina, and Maine Community Health Options—represented three rulings against insurers, with only Moda upholding the insurers claims.[14]
Federal Circuit
In Moda Health Plan, Inc. v. U.S., the Federal Circuit held that, although the ACA’s risk corridor provision did obligate the government to pay the full amount under the risk corridor program, the subsequent appropriations riders “repealed or suspended” the government’s obligations to make payments that exceeded the amount that HHS collected from plans with allowable costs lower than 97%.[15] On the same day, the Federal Circuit held that Land of Lincoln’s claims failed.[16] Shortly thereafter, and for the same reasons as in Moda and Land of Lincoln, the Federal Circuit affirmed judgments against Maine Community Health Options and Blue Cross Blue Shield of North Carolina.[17]
Supreme Court
The Federal Circuit decisions were consolidated before the Supreme Court. The Court was asked to decide whether section 1342 of the ACA created a payment obligation by the government and, if so, did the appropriations riders impliedly amend that obligation. These particular issues—whether the statute created an obligation that the government must make payments and whether appropriations riders may amend such an obligation—has implications beyond the ACA’s risk corridors specifically, or health insurers generally. The Chamber of Commerce, for example, filed an amicus brief in the case, stating that the case raised issues of concern to the nation’s business community, and that “statutory commitments can only be effective, however, if the federal government honors its obligations to the business community and conducts itself as a reliable business partner.”[18]
Against this backdrop, the Supreme Court held oral arguments in December 2019, and issued its decision, authored by Justice Sotomayor, on April 27, 2020. Five justices joined Sotomayor’s decision in its entirety; Justices Thomas and Gorsuch joined except to Part III-C. Justice Alito penned the only dissent.
Justice Sotomayor’s decision opened with a clear distillation of the result: “We conclude that § 1342 of the Affordable Care Act established a money-mandating obligation, that Congress did not repeal this obligation, and that petitioners may sue the Government for damages in the Court of Federal Claims.”[19] With respect to the first question—can Congress create an obligation to pay insurers by statute—the Court concluded that “[p]ut succinctly, Congress can create an obligation directly through statutory language.”[20] The Court rejected the government’s argument that its obligation was contingent upon Congress appropriating funds, finding Congress could have limited its liability by using language like “subject to the availability of appropriations,” but it did not.[21]
Next, the Court considered whether the appropriations riders amended the statutory obligation. In so doing, the Court reaffirmed “that a mere failure to appropriate does not repeal or discharge an obligation to pay”[22] and that the presumption against implied repeals continues. While that may have given heart to businesses that regularly contract with the government, it was not an unqualified win. Acknowledging that there are at least two situations where an appropriations measure may impliedly repeal a statutory obligation to pay—appropriations bills that “completely revok[e] or suspend[] the underlying obligation before the Government began incurring it” and bills that “reform statutory payment formulas in ways ‘irreconcilable’ with the original methods,” the Court left open the door for possible implied repeals via appropriations.[23] But this case did not meet either situation. The Court also discussed, and dismissed, legislative history and a Government Accountability Office opinion—this was the part of the decision that Justices Thomas and Gorsuch did not join.
The Court then turned to relief, holding that the insurers were correct to sue under the Tucker Act in the Court of Federal Claims for damages.[24] What the Court did not do was order the federal government to start cutting risk corridor checks. Instead, “petitioners may seek to collect payment through a damages action in the Court of Federal Claims.”[25]
What’s next?
With respect to the petitioners, the Court remanded for further proceedings; presumably, the cases that have been stayed pending a decision in this case will begin to move. Lower courts will have to determine how much the federal government owes each insurer that makes a claim. The ruling did not create an appropriation. An award made by the Court of Federal Claims may be payable out of the Judgment Fund, but there are requirements that must be met to receive a payment from the Judgment Fund. In short, although the Supreme Court’s decision may have been a legal victory for insurers, the road to payment is not yet at its end.
AHLA thanks Ardith Bronson, DLA Piper, LLP, for editing this article.